IRDA to frame policy for automatic clearance of life products
New Delhi: Insurance regulator IRDA will come out with a new policy to accord automatic clearance to the standard life insurance products and relax investment guidelines to encourage fund flow into infrastructure sector.
"Use and File system may be introduced. IRDA, in consultation with insurers, will identify or design certain standard products which can be used by the industry under Use and File system, if the insurance company complies with the conditions attached to the standard product," Finance Minister P Chidambaram said today.
He was briefing reporters on decisions taken to give a fillip to the life insurance industry.
At present, IRDA approves all insurance products on File and Use basis which means that insurance companies can sell the product only after getting approval from the insurance regulator.
Chidambaram had earlier this month met the heads of life insurance companies and IRDA chairman J Hari Narayan to work out steps to boost the insurance sector.
He said in a country with low spread and penetration of life insurance, the objective should be to sell simple and easily understood products.
Such products will automatically be deemed to have been approved after 15 days of its intimation to IRDA unless it finds non-compliance within that period, he said.
IRDA shall take necessary action against the company in case any violations are noticed, Chidambaram said, adding, the regulator should expand such list of standard products on a continual basis.
In order to encourage investments in infrastructure sector, he said, IRDA will allow investments in an infrastructure SPV floated by any company.
Under this, the SPV should be a wholly-owned subsidiary of the parent company and the debt instrument issued by the SPV is guaranteed by the parent company, having due regard to rating criteria.
Currently, investments are permitted in an infrastructure SPV floated by a Public Sector Enterprise (PSE) subject to the condition that the parent company (PSE) meets the rating criteria.
With regard to investments in debt instruments, Chidambaram said at the moment 75 percent of the total insurance investment does not include government securities and other approved securities.
"Now we are saying 75 percent will apply including government securities and other investments. If you include this in 75 percent, it frees up 12.5 percent space for less than AAA rated instruments," he said.
"Because there are not enough AAA rated instruments for them to invest, therefore they have to look for a instrument and therefore they have to go down to a AA rated instrument if this change is made. And IRDA thinks this change can be made," he added.
The Finance Minister also said IRDA will lay down guidelines on the principles underlying the design of any insurance product.
Based on the recommendations of the Working Group that has been set up, IRDA will issue draft guidelines and, after consultations, final guidelines will be issued by the end of November, 2012, he said.
Once the guidelines are in place, it would be possible to observe the 30-day norm mandated for clearance of products, he added.
In order to bring down cost to the company, IRDA will accept the KYC check done by the banks.
Only additional information that is required for the purpose of insurance policy will be asked from the intended policy-holder, he said.
The Finance Minister said IRDA will evolve and notify guidelines in order to reduce the arbitrage between units and traditional products.
IRDA will consider notifying banks as brokers, he said, adding, as insurance broker, the bank may sell the products of more than one insurance company.
It is desirable that banks may act as brokers where the fiduciary responsibility of the bank will be to the policy-holder, he said.
"This will provide the intended policy-holder a bouquet of products from which he/she may chose the appropriate product based on his/her needs and will also prevent mis-selling," he said.
At present, the policy on Bancassurance is one bank one life and one no-life insurance company. In this arrangement, the bank acts as the agent of the insurance company.
Bancassurance refers to banks acting as corporate agents for insurers to distribute insurance products.
In order to promote micro insurance products, the Finance Minister said, all categories of Banking Correspondents may be allowed to sell such products.
This facility will apply only to micro insurance products and IRDA will make regulations for this purpose. This will ensure availability of micro insurance products in all parts of the country, he said.
On the issue of agent commission, Chidambaram said, insurance companies are free to manage overall management expenses within the overall management expenses limits prescribed by IRDA.
An insurance company may appoint a Mentor for mentoring agents, he said, adding, the functions performed by the Mentor will be distinct from the functions performed by the agents and the Mentor may be given a fixed fee (not commission) for mentoring agents.
The Finance Minister said it is desirable that non-employer-employee groups, which are homogeneous and have a commonality of interest, are permitted by IRDA to offer group savings products.
These could include Self Help Groups, professional groups such as teachers in a school or nurses in a hospital, auto drivers' associations, domestic workers' associations etc, he said.
Presently, only the employer-employee groups are recognised for group business.