New Delhi: India’s Insurance Regulatory and Development Authority (Irda) is planning to commission a study to calculate the cost of its decisions on insurers and the subsequent impact on the cost of insurance policies.
In the past year, insurance companies have had to incur higher costs as Irda asked for higher disclosure requirements, brought in large regulatory changes in products, and tightened distribution norms.
The regulator wants to know if the cost of regulatory burden has “become heavy or has eased”, said J. Hari Narayan, chairman, Irda.
“There have been attempts done in other countries…notably in Australia… Other jurisdictions have also done it,” he said. “We need to improve upon the kind of concepts and find how best to measure that.”
Last year, Irda said companies have to make quarterly disclosures, including segment-wise reporting of business figures.
In addition, it changed rules governing unit-linked insurance policies (Ulips)—a hybrid product that invests part of the premium in equities. Life insurance companies had to rework their entire unit-linked product offerings and offer a completely new set of Ulips from September. At that time, Ulips constituted around 80-85% of the business of life insurance companies.
Insurers also incurred costs over strengthening accounting teams, reworking product structures, training sales teams, reprinting brochures and working out new advertising strategies.
Alpesh Shah, partner and director, Boston Consulting Group India, said that by calculating the cost of the regulatory burden, Irda can ascertain if it is doing too much or overstepping boundaries.
“Regulators have to protect consumer interests and at the same time ensure that the industry is healthy and viable,” Shah said. “By looking at the cost burden of regulatory decisions, the regulators can take a call on whether its decisions are an overall good measure.”
The regulatory burden can be broadly classified into three categories—cost incurred for complying with regulation, burden due to regulation making some businesses unprofitable and impact on profitability due to changes, he said.
Although the industry may consider the last component as a cost burden, it may not be regarded as such by the regulator, Shah said.
The process may take a while to be completed, said the chief executive of a life insurance company who did not want to be named.
“Irda will have to go to each insurance company and find out what has been the impact. It will be different for each company,” he said. “It remains to be seen if they will be committed enough to carry out this large logistic exercise.”
Irda is looking at better and not just more regulation, Narayan said, responding to industry concerns that firms have had to cope with many changes within a short span of time.