Insurers’ investment limit hiked to 12-15%

Move will help private insurers buy more shares from market; Irda approves proposal to regulate health insurers
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First Published: Fri, Feb 08 2013. 08 16 PM IST
The LIC building in New Delhi. Most of the private insurers currently hold much less than 10% in publicly traded firms, and the new investment limits will provide a level playing field with LIC. Photo: Mint
The LIC building in New Delhi. Most of the private insurers currently hold much less than 10% in publicly traded firms, and the new investment limits will provide a level playing field with LIC. Photo: Mint
Updated: Sat, Feb 09 2013. 12 55 AM IST
Mumbai: India’s insurance regulator on Friday allowed insurers to invest as much as 12-15% in a single company and also approved a proposal to regulate health insurers.
The move by the Insurance Regulatory and Development Authority (Irda) to raise investment limits will enable private insurers buy more shares from the market, which in turn may help support stocks overall. Currently, insurance companies are allowed to buy as much as 10% of the shares outstanding in a company.
Several large insurers have said that they have been unable to buy enough quality stocks in the market and have demanded an increase in the limit. State-owned Life Insurance Corporation of India (LIC), whose investment limits are governed by the LIC Act, was particularly keen to get its investment limit enhanced; recently, the government allowed LIC to invest up to 25% in a single company.
Most of the private insurers currently hold much less than 10% in publicly traded firms, and the new investment limits will provide a level playing field with LIC, rather than leading to the purchase of a stake in excess of 10% in companies, analysts said.
There are 24 life insurers in India with combined assets of at least Rs.16 trillion, with nearly Rs.5 trillion held in equity.
Irda said insurance companies will be allowed to increase their exposure in equity in a given company to 12% and 15%, depending upon the size of the controlled fund of the insurer.
“The authority (Irda) believes that this is commensurate and appropriate given the size of funds under consideration without adversely affecting the prudential management of investments,” Irda said in a release.
Controlled funds for life insurance companies include traditional and unit-linked life assurance funds (group and individual), annuity funds and shareholders’ funds.
“It is a marginal increase in the limit and may not help much, but it will certainly enhance the flexibility to invest when there is a shortage of enough good debt papers in the market,” said T.R. Ramachandran, chief executive officer and managing director of Aviva Life Insurance Co. India Ltd.
“Though the real impact of enhanced investment limits will be felt in the long term, it will certainly enable insurance companies to bid for more shares in public issues like IPOs (initial public offerings) from now on and increase prospects of getting better allotment of stocks in the primary market,” said Amitabh Chaudhry, chief executive officer and managing director of HDFC Standard Life Insurance Co. Ltd.
Irda also approved a proposal to introduce health insurance regulations. In the absence of separate regulations for the segment, health insurance firms were following different processes for customer acquisition and claims settlement.
There are 27 general insurance companies in India, with three engaged only in health insurance. All companies follow different formats at the proposal, acquisition, claims and settlement stages. With the new regulations in place, these processes will be standardized.
“The new regulations will standardize the processes followed by insurance firms (and) will streamline the interface between hospitals and policyholders,” said Bhargav Dasgupta, chief executive officer and managing director of ICICI Lombard General Insurance Co. Ltd.
“Some 46 terminologies will be standardized by the regulation. At present, since different companies follow different processes, it often creates a lot of unnecessary delay in claim settlement and resolving customer issues. So, it’s a much-awaited consumer-friendly move by the regulator,” Dasgupta said.
Irda said it “hopes that these regulations will enable the development of a more robust, consumer friendly and reliable health insurance system in the country”.
The regulator also standardized know-your-customer (KYC) norms for policyholders in life insurance. It said a standard proposal form for the sale of life insurance products will be mandatory and it will require insurers and intermediaries to capture full details of a policyholder as per the KYC norms. This is being done with a view to improving service levels for prospective policyholders and to further minimize the chances of mis-selling, Irda said.
Moreover, the insurance regulator has proposed significant changes in bancassurance regulations soon after consultations with the insurance advisory committee. Bancassurance is the sale of insurance products by banks.
“The authority (Irda) believes that the introduction of these regulations and the earlier regulations on product design and reinsurance would equip the industry to better serve the needs of policyholders and will enable the orderly growth of the industry,” said Irda.
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First Published: Fri, Feb 08 2013. 08 16 PM IST
More Topics: Irda | insurance | investment | 15% | health |
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