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GAINS AND ISSUES OF INDIAN INSURANCE SECTOR AFTER LIBERALIZATION BY Sriram Taranikanti, Executive Director INSURANCE R PowerPoint Presentation
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GAINS AND ISSUES OF INDIAN INSURANCE SECTOR AFTER LIBERALIZATION BY Sriram Taranikanti, Executive Director INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY. 7 th September, 2012. FRAMEWORK OF PRESENTATION. Evolution of Indian Insurance Market Regulatory Architecture

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slide1

GAINS AND ISSUES OF INDIAN INSURANCE SECTOR AFTER LIBERALIZATION

BY

Sriram Taranikanti, Executive Director

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

7thSeptember, 2012

slide2

FRAMEWORK OF PRESENTATION

  • Evolution of Indian Insurance Market
  • Regulatory Architecture
  • India Insurance Industry Status
  • Gains of liberalization
  • Issues in liberalization
  • Regulatory Measures

2

need for regulatory intervention

Free

Market

Regulated

Market

Regulated

Market

Nationalised

Market

-Level playing field

-Consumer Protection

-Public Private

Partnership

- No Regulations

- Plagued by fraud

NEED FOR REGULATORY INTERVENTION

IRDA Act, 1999

Insurance Act, 1938

-contribution to

development of market

-untapped market potential high

-absence of consumer choice

-poor customer service

  • - Urban centric
  • Planned Economy
  • -Optimum utilization of resources

LIC Act, 1956

GIBNA, 1972

evolution of insurance in india

EVOLUTION OF INSURANCE IN INDIA

Life Insurance Companies Act of 1912

Provident Fund Act of 1912

Insurance Act of 1938 and amendments

Nationalization of Life Insurance - 1955

Life Insurance Act of 1956

Social Controls on General Insurance - 1968

General Insurance Business Nationalization Act of 1972

economic reforms process

Reform process initiated in 1991

  • Abolition of Licensing, Permits & Quotas in Industrial Sector
  • Financial Sector Reforms
    • Banking Sector Reforms
      • Freeing of interest rates by the Central Bank
      • Rationalization of priority sector lendings & lowering of directed credit
    • Capital Market Sector Reforms
      • Abolition of Controller of Capital Issues and Establishment of Securities and Exchange Board of India in 1992
      • Issuance of regulations for mutual funds, portfolio managers, registrars, merchant bankers, depository and participants, etc
    • Insurance Sector Reforms

ECONOMIC REFORMS PROCESS

insurance sector reforms

INSURANCE SECTOR REFORMS

Committee on Reforms in Insurance sector – 1994

Setting-up of Interim Insurance Regulatory Authority – May 1996

IRDA Act Passed – December 1999

Statutory Authority (IRDA) established – 19th April 2000

First set of Regulations notified – 19th July, 2000

First set of Certificate of Registration (Licenses) granted – 23rd October 2000

31 number of Regulations issued by IRDA

composition of authority
COMPOSITION OF AUTHORITY
  • IRDA Act states that the Authority shall consist of the following members
    • Chairperson
    • not more than five whole-time members
    • not more than four part-time members
  • Presently the Authority has a complement of following members
    • Chairman
    • Three full-time members (Life, Non life, Finance & Investment)
    • Four part-time members
  • Organised in 14 departments
  • 208 positions of which 150 are filled
1st year premium lic pvt sector life insurers
1st YEAR PREMIUM - LIC & PVT. SECTOR (LIFE INSURERS)

in US$ million

Figures in bracket represent CAGR

14

slide17

LIFE INSURANCE - TRENDS

  • Growth of Life Insurance industry has been exceptional as compared to other segments of the financial sector in India for (2004-12)
  • Life Insurance penetration has increased from 1.77% in 2000 to 4.40% in 2010 and density from USD 7.60 in 2000 to USD 55.70 in 2010
  • The equity capital in life insurance industry stands at US$ 4.98 bns
  • Life insurance industry is a significant investor in capital market
  • Insurance Industry continues to mop retail household savings, which in turn contribute to Capital Market
slide19

GROSS WRITTEN PREMIUM – GENERAL INSURERS

in US$ millions

Note: Figures in brackets represents CAGR

19

slide21

GENERAL INSURANCE - TRENDS

  • Sustained Underwriting Losses – comfort of cross subsidy between business segments no more available
  • Unsustainable dependence on Investment Incomes
  • High fixed Cost – a matter of concern due to high and increasing expenses & commissions
  • Strain on Profitability Position
  • Deficit in 3rd Party Motor Pool. Creation of declined risk pool.
gains of liberalization

GAINS OF LIBERALIZATION

Flow of Foreign Direct Investment in India

Growth of insurance business

Competition for benefit of consumer

Multiple distribution channels for wider reach

Variety of new innovative products to meet customer needs

Significant improvements in policyholder servicing

Wider rural reach and financial inclusion

Increasing use of technology to increase efficiency and productivity

Significant flow of funds to infrastructure sector

Imparting of new management skills and capabilities

issues in liberalization

ISSUES IN LIBERALIZATION

Market misconduct and mi-selling adversely affecting image of the industry

Margins under pressure due to excessive competition amongst market players

Loss making motor third party premium rates

ULIPs/ Non Standard Product Issues

Challenges in distribution of insurance products in a cost-effective manner

Clamour for profitable geographies

Availability of reliable and accurate data

Capacity building and need for skill upgradation

Supervisory challenges in Regulation

Challenges in group wide supervision

regulatory measures
REGULATORY MEASURES
  • Increasing the Insurance awareness among the customers
  • Financial Literacy measures
  • New guidelines for better product design
  • Close supervision on underwriting design
  • Bancassurance Regulations
  • Fraud Analytics/Establishment of Insurance Information Bureau (IIB)
  • Automation of regulatory processes
  • Rural and Social Sector Regulations
  • Supervision of Financial Conglomerates
  • Exposure to supervisory staff and periodic meetings with insures/ stakeholders
  • Off-site and on-site supervision