General insurance firms need to raise the bar to cut losses: IRDAI

The Insurance Regulatory and Development Authority of India (IRDAI) has said that general insurance companies need to be more efficient by controlling expenses in order to cut losses.

“Many general insurance companies have underwriting losses but they are carrying on their business because of investment proceeds. This is a short-sighted measure and we have to graduate ourselves to ensure that there are no underwriting losses,” S.C. Khuntia, Chairman, IRDAI, said on the sidelines of an event here. “This doesn’t necessarily mean that the insurers [should] increase the prices, because improvement in efficiency can also lead to reduction in underwriting losses. Similarly, expenses of the company can be controlled,” he said.

The general insurance segment grew at 14% last year as against its potential to grow at 17-18%, while the life insurance segment grew only at 10% as against the 12-13% potential, he said. Mr. Khuntia said insurers were expected to review their products annually and weed out the ones that were not popular among customers. “Generally, in insurance companies, the top three to four products contribute 80% of the business. So, is there a need for large number of complex products that confuse the customers and drag the insurer’s performance also? So, the product review should ensure elimination of products that are not being accepted by the customers,” he said.

Mr. Khuntia said the the regulator would like to see a sustainable insurance industry which should be neither loss making not unduly profit making. He clarified that the regulator would not intervene in pricing. “We don’t intervene in pricing. But if the pricing is not right and the product is put for approval to us then we certainly point it out to them. It’s an open market and we don’t want to regulate prices in a deregulated economy,” he said.

Asked whether IRDAI had received any proposal from LIC regarding its IPO, he replied in the negative. “Any company which goes public there will be better corporate governance and better disclosure.” He said it was a good idea for every insurance company to list and that IRDAI would nudge entities to go for the same but not make mandatory.

“It is, however, not making it mandatory to list because smaller companies are yet to achieve the scale for going public,” Mr. Khuntia said, adding that ideally a company should achieve sufficient scale to list within 10 years of its existence.

Source: The Hindu