Reforms marked 2011 for insurance sector

After a long wait and prolonged consultation with stakeholders, the Insurance Regulatory and Development Authority (Irda) finally came out with guidelines on initial public offers (IPOs) during the year. This development will see private insurers hitting capital market in the coming years.

The IPO notification came in December, enabling private sector life insurers, such as HDFC Standard Life, ICICI Prudential and SBI Life, to tap the capital market for funds.

According to the guidelines issued by the Irda, life insurance companies which have been in business for over 10 years would be eligible to come out with IPOs. Besides, the promoters of insurance companies would be permitted to offload their stake in the company. However, the size of the public issue by life insurance companies will be decided by Irda.

The IPO guidelines for the sector had been hanging fire for three years. According to Ernst & Young partner Ashvin Parekh, the first major change in the sector was a complete change in the product composition. “We almost saw the death of Ulip products and an emergence of traditional products in the life insurance business. Life insurance had to be sold by insurers with assured returns. The Life Insurance Industry is groping to find products which would sell in the market place,” he said.

The direction of the regulations may not perhaps be substantially arguable but what was certainly hurting is the speed with which the changes were being made, he added.

Besides, the regulator allowed health insurance portability, doing away with the third party insurance pool.

Health insurance portability is another long-pending reform fructified during the year. If not satisfied with the services of the existing health insurer, you can change the company without losing policy benefits. The policy will also help people shifting from one part of the country to another. For want of such a facility they were put to disadvantage due to lack of their insurers' offices at new locations.

Also, in case of change of jobs, policy holders lose health insurance cover as they could not change their insurer. The new facility will also help those policy holders who stick to one insurer throughout life for fear of losing the cover for pre-existing diseases.

"Though health insurance portability saw slow take off in 2011, we expect more impact in 2012," Max Bupa Health Insurance CFO Neeraj Basur.

"We anticipate customer centricity to take center stage in 2012. This will reflect in services offered by various health insurance players, be it claim servicing, TAT or the overall relationship with the insurer," Basur said.

There was cheer for general insurance companies as Irda decided to scrap the common pool (Indian Motor Third Party Pool System) used by insurers to settle accident claims, from April 1. The dismantling is being done as part of reforms and the scrapping of the fund pool system will lead to a rise in motor insurance premium. The pool was formed in early 2007 to ensure availability of cover for commercial vehicles that had been refused third-party insurance.

Third-party insurance cover protects the vehicle owner from any financial liability in case of damage to life or property in an accident to the third person. Major public and private sector insurance players have been demanding abolition of the third party insurance pool, saying that the arrangement for sharing claims was denting their profits.

Another prominent highlight was issuance of norms for bancassurance. The draft guidelines have suggested that banks continue to tie up with one insurance company in the life, non-life and health insurance spaces but only in a specified number of states. Under this, insurance companies will be allowed to partner with different banks and NBFCs in different states for selling their products.

However, according to the draft norms, banks and non-banking finance companies (NBFCs) will not be allowed to sell products of competing insurers in a particular state.