Finance Minister Pranab Mukherjee on Wednesday directed the Insurance Regulatory and Development Authority (IRDA) to suitably address the ‘suicidal competition' among insurers as undercutting each other by offering policies at low premium for a bigger market share finally impacts their balance sheet.
Addressing the 72nd meeting of the IRDA board here, Mr. Mukherjee said: “To ensure prudent underwriting and curbing unhealthy and suicidal competition among the companies through undercutting premiums is something that the regulator will need to address suitably.”
The Finance Minister pointed out that in their bid to grab a larger market share, the unhealthy competition between the insurance companies had already started reflecting in their account books. “While de-tariffing [freedom to fix premium] has resulted in significant lowering of premiums for the consumers, the adverse impact is being felt on the insurance company's balance sheet,” he said.
Alongside, however, Mr, Mukherjee noted that despite the competition for a bigger market share, the penetration of insurance covers in the country still remained at a low level.
“There are a few concerns that need to be addressed. Notwithstanding India's rapid growth in recent decades, it has largely remained an underinsured market with financial vulnerability across most of the income segments,” he said.
Mr. Mukherjee said that the protection level, as measured by level of sum insured to GDP (gross domestic product) at 55 per cent, is still low and pointed to the need for promoting long-term savings and protection. Moreover, the insurance market is structurally challenged in terms of profitability. “The industry profitability is driven by the investment income, with continued deterioration in the core business economies. No company in India has yet achieved a sustainable balance,” he said.
Hailing IRDA's efforts towards dematerialising accounts and setting up grievance redressal cells, which would go a long way in strengthening the insurance sector, Mr. Mukherjee said: “These efforts have to continue in the near future. IRDA has a crucial role at this moment to see that the sector develops in a healthy manner and the reach of insurance is maximised.”
Mr. Mukherjee also pointed out that by making available long-term funds, the insurance sector had been a major contributor to the country's infrastructure development. As on March 31, 2011, the sector's investment in infrastructure added up to Rs.1.98 lakh crore with state-owned insurance companies accounting for a share of 78 per cent.
The country's financial regulatory framework, Mr. Mukherjee said, “is evolving in a manner which is conducive to development of a robust financial sector, ensures the independence of the regulators and enables the sector to grow in a healthy manner in line with the requirements of a growing economy.”
