Insurers must start investing in green companies, says IRDAI member

Insurance Regulatory and Development Authority of India (IRDAI) may soon nudge insurers to invest in the green economy.

In the annual summit organised by National Insurance Academy, IRDAI member (non-life) TL Alamelu said as large institutional investors, insurance companies could support the low-carbon economy.

"Insurers can allocate investments towards assets that reduce greenhouse gas emissions. This is because climate change has implications on both sides of the balance sheet for insurers, assets and liabilities," she added.

Alamelu also said regulators across the world are moving in a similar direction encouraging insurers to invest in green companies. She added that insurers globally could move to a new era of disclosures where the new type of losses caused by climate change including extreme heat or melting polar ice-caps could be reflected by these companies.

Higher emphasis on bridging protection gap

The IRDAI member (non-life) said amid the coronavirus outbreak there is an increased awareness about the need to buy insurance, especially for life, health, motor vehicles and home.

Insurance companies must work to bridge the trust deficit and ensure that middle-class customers with disposable income buy adequate insurance policies. "There is a huge protection gap but with this pandemic, this gap has become wider. Products like cyber insurance and health insurance are in focus," she said. Alamelu also advised the insurers to develop simple, jargon-free cyber insurance products for the retail customers especially since digital payments, online shopping has become activities across households.

As far as health insurance is concerned, she explained that there should be standard pricing for procedures like cataract, appendicitis among others. Alamelu said IRDAI has insurers and service providers to work on standard pricing. Taking lessons from COVID-19, she is also of the view that the government and insurers must work closely to ensure that the country is able to prepare better for future incidents like COVID-19.

"The pandemic has shown that government needs to improve its economic resilience for financial shocks. It will take a few years to come up to its pre-COVID-19 levels. Mature insurance markets like Japan, the US and Europe have recovered faster from the COVID-19 impact. But in India, much of the burden falls on the government," she said.

According to her, IRDAI has been encouraging the central and state governments to undertake pilot studies in vulnerable geographies to look at the insurance needs and also iron out differences. However, she is also quick to point out that mandatory insurance purchase may not be the solution.

"It should be a product which is on-demand but not forced. Take the example of motor insurance. Despite being mandatory under law, motor insurance has seen huge issues of under-insurance," she added.

Source: Money Control