Dept of Posts wants IRDA to control its insurance schemes

In a first significant step towards consolidating similar financial products under one regulator, the department of posts (DoP) is exploring the option of handing over the regulation of its insurance products to the sector regulator, Insurance Regulatory and Development Authority (IRDA), a move prompted by the ugly spat between the insurance regulator and the stock market watchdog, Securities and Exchange Board Of India (SEBI), over the regulation of unit-linked insurance products (ULIPs).

The DoP has sought the law ministry’s opinion on whether the insurance schemes run by it could be brought under the regulatory ambit of the IRDA. It has also proposed to create a corporate entity to handle the schemes.

The decision to refer the matter to the law ministry was taken after the IRDA expressed its inability to regulate financial activities of the government (the DoP), which controls the insurance business of India Post, a government official told ET.

The finance ministry has favoured setting up of a corporate-like identity to handle India Post’s insurance business that can be regulated under IRDA norms, said the official, requesting anonymity. While the IRDA is not opposed to the idea, it wants greater clarity on the matter as it will require changes to the legal framework that govern the insurance policies of the postal department.

The opinion of the law ministry could pave the way for bringing the insurance business of the postal department under the IRDA’s jurisdiction. The department, which sells policies under the postal life insurance and rural postal life insurance schemes, acts within the framework of the Insurance Act. The IRDA has also pointed out that with the premium calculations of the postal department not on an actuarial basis, the postal life insurance schemes could be notching up serious deficits.

The postal department feels that an IRDA-regulated framework will allow it to make the scheme more flexible. The DoP, which acts as an agent of the finance ministry for its insurance schemes, lacks autonomy required to introduce new schemes or even providing attractive discounts to lure customers.

“The department is required to seek direction from the finance ministry for all policy matters like extension of scope to cover other clients and introduction of new products,” said an official with the ministry of telecommunications and IT.

Even as the debate on regulatory control of postal life insurance goes on, the department has also requested for greater autonomy to its insurance schemes as it looks to expand its financial services business. “Corporatisation of the life insurance business will enable the postal department to compete with private insurance players on a level playing field,” said the postal department official.

Private players have welcomed the move. “The move will help bring consistency in norms and activity pertaining to life insurance business,” said Kapil Mehta, MD & CEO of DLF Pramerica Life Insurance Company of India. He added that the proposal, when implemented, will provide the postal department a level playing field as regards right products and schemes into the rural segment, which has been the primary focus for private players as well.