Insurance Regulatory Authority of India moots changes in life insurance sector

Seeking to keep up with the changing market and economic environment, the Insurance Regulatory Authority of India (Irdai) plans to review insurance regulations in the country. A high-level panel set up by Irdai has suggested that the investment norms need to undergo significant change to improve the returns generated by the funds while taking into account the risks inherent in various asset classes.

Irdai had constituted an eight-member committee in January this year to make recommendations on the amendments required in the regulations. According to the committee’s report, the investment norms governing traditional business are quite restrictive, making it difficult for providing competitive returns to the policyholders. It said the current investment regulations mandating investment in certain asset classes limit the returns that may be generated to enable better return for the policyholders.

Referring to customers’ reasonable expectation, the report noted that life insurance savings products are often compared to that offered by banks such as fixed deposits and recurring deposits.

According to the report, on which Irdai has sought comments till December 28, the expectation of generating a return of at least 8 per cent per annum is tough given that at least 50 per cent of assets of the insurer are mandatorily to be backed by government securities (G-Secs), which currently yield about 6.7 per cent — 7.2 per cent annually. Given the downward pressure on interest rates, the actual yields on future premiums are only expected to be lower, it said.

The committee has suggested to lower the mandatory proportion of G-Secs in the Life Fund and the Pension and General Annuity Funds and allow for higher exposure in alternative higher yielding assets (like equity or property) or high rated corporate bonds to help insurers generate a high gross return on investments so that insurance savings products can compare favourably in the financial savings space.
The report said along with existing avenues like NPS, EPF, PPF, multiple other avenues will be required to reach the untapped working population.