Three reforms that marked C.S. Rao’s Irdai term
C.S. Rao, who died on 28 June, was appointed Irdai’s second chairman 3 years after regulator was established
The second chairman of the Insurance Regulatory and Development Authority of India (Irdai), C.S. Rao, died on 28 June. Rao, who became Irdai’s chairman three years after the regulator came into existence and the industry was privatised in 2000, had the dual role of developing as well as regulating the sector.
Here are three important developments that the insurance industry will and the customers should remember him for.
Non-life industry gets de-tariffed
One of the biggest achievements of Irdai under Rao was de-tariffing the non-life industry in 2007. Motor, fire and engineering policies were earlier tariffed, which means the policy wording and premium rates were dictated by Irdai. Rao introduced a free pricing regime as he believed it would lead to innovation and choice. Though third-party motor cover is still under tariff, other covers like own-damage were de-tariffed, eventually leading to customisation in this space.
In an interview with Mint, Rao had said controlled pricing offered no incentive for insurers to look at other products as they were comfortable with tariffed products that offered a margin. Read full interview here.
But removing all controls could go either way as a race to the bottom to grab a larger market share could spell disaster. “De-tariffing is not easy as price wars can almost destroy an industry. But in the case of non-life industry, free pricing regime was introduced in a piecemeal manner ensuring no insurer lost its shirt,” said Kamesh Goyal, chairman, Go Digit General Insurance Ltd. Goyal headed a general insurance company for four years and a life insurance company for a year when Rao was Irdai chief.
Health insurance as a standalone sector
Rao also facilitated the advent of standalone health insurance companies. “He believed healthcare is one of the fastest growing industries and Indians will require healthcare financing in the form of health insurance. He promoted health insurance and thus standalone health companies were licensed during his tenure,” said Antony Jacob, CEO, Apollo Munich Health Insurance Co. Ltd. Jacob headed a non-life company when Rao was Irdai chief.
“Now standalone health companies contribute around 21% to the overall health insurance business. It’s the single handed focus on health insurance that made it possible for insurers to introduce customer-friendly features like life-long renewability, no-claim based loading and portability, all of which became regulations,” he said.
Multi-faceted distribution channels
The insurance regulator, under Rao, also allowed distribution to go beyond the traditional agency channel.
“Corporate agency and bancassurance took off under his leadership. Even direct marketing was allowed as regulations around it were developed. He championed the industry vis-a-vis a more mature and more powerful mutual fund lobby,” said Trevor Bull, managing director and CEO, Aviva Life Insurance Co. India Ltd. Bull headed a life insurance company when Rao headed Irdai.
While Rao couldn’t complete the reform a products like unit linked insurance plans (Ulips) needed—it was also the most dominating product at the time—a beginning was made during his tenor. “He made it mandatory for Ulips to have an insurance cover at five times the annual premium so that Ulips could become a product with investment benefit instead of the other way around,” added Bull.
He also made benefit illustration mandatory so that customers could understand Ulip charges in detail. A benefit illustration is a year-by-year summary of the costs and benefits.
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