Insurance sector in India has come of age. It has been roughly around 15 years that the private sector has entered into this arena. Until the year 2000, it was the LIC of India that was dominating the life insurance market with monopolistic privileges.
Similar was the story with the general insurance space wherein public sector undertakings such as Oriental Insurance, United Insurance and General Insurance Corporation of India were catering to the market. However, after the year 2000, the entire scenario changed. Thanks to the liberalization boost given by the then government, private companies were allowed to participate in many sectors dominated by government undertakings – insurance is one of them.
The amendments in the Insurance Act paved the way for the Insurance Regulatory and Development Authority of India (IRDAI). This regulatory body was given the role of not only regulating the market but to develop it in a proper manner. During the initial years, entry of private sector in this sector was fraught with risk and uncertainty. The sudden flood of new protection plans resulted in aggressive sales and marketing tactics. Private companies engaged huge number of people as agents with little or no training. These agents were offered hefty commissions so that they push the related products in the market in all possible ways.
Naturally, it resulted in the misselling of products. Agents did not pay heed to the requirements of their clients and kept misleading them to plans which were fetching them heavy commissions. For IRDAI too, this was a period of learning. Millions of cases of misselling and frauds were filed in various Civil and Consumer Courts in the country. The impact was that people started looking at private companies with doubt. There were obvious reasons behind this environment of distrust. Private companies were losing their credibility. The lure of high returns on investments started fading. Public sector undertakings were preferred because they were safe in spite of the fact that they were quite conservative, lethargic and offering very low returns on investments.
Concerns on bankruptcy
A large number of consumers fear that if they invest with insurance companies, they can be in trouble for various reasons – bankruptcy was high on charts. Everyone knows that public sector companies are safe in terms of solvency. They won’t run away with public money. But what about the private sector companies? Well, there too the chances of bankruptcy are slim. The IRDAI has set strict guidelines for entry into the insurance sector. No fly-by-night operator can enter this market. There has to be a strong financial background.
The authority has kept a solvency ratio of 150 percent for insurers. That implies that a company has to deposit Rs 1500 for every Rs 1000 taken from a consumer as premium. Thus, if you are paying a premium of Rs 10,000, the insurer has to add Rs 5,000 from its end. There is no question of bankruptcy. In the worst-case scenario if this happens, then your money is safe. The government and the IRDAI ensure that your money comes back to you.
What more? The IRDAI is thinking of increasing the solvency ratio to 200 percent from 150 percent. Thus, if an insurer has liabilities of Rs 10,000 crore, he must have assets of Rs 20,000 crore. Do you still think you can lose your hard-earned money investing in an insurance company?
What about mis-selling?
Recently, the government made certain amendments to the Insurance Act. This will enable foreign companies to invest as much as 49 percent in Indian insurance companies – up from the earlier limit of 26 percent. Further, as far as consumer affairs are concerned, the amendments have ensured the protection of consumer interests. There are heavy penalties as high as Rs 5 crore in case of mis-selling. The companies have to keep records of conversations between agents and consumers and have to ensure that there is no mis-selling.
The above measures reflect that there is a gradual improvement in the investment environment and it is all in favor of a common man.
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