Discussion papers regulatory impact assessment and

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discussion papers, regulatory impact assessment and phased implementation of changes Despite the regulatory mandating changes in the life insurance industry with the intention to protect the interests of policy holders, the changes were too sudden for the industry to sustain, leading to de-growth. Changes related to ULIP and pension plans have caused a negative impact on the respective product segments. Similarly, the agency business has become unattractive due to the recent changes. The industry players need to af[gjhgjYl] fme]jgmk eg\aÕ[Ylagfk lg kmklYaf l`] aehY[l g^ l`] j]_mdYlgjq [`Yf_]k&
24 Insurance industry: Challenges, reforms and realignment 6 Non-life Insurance: issues and challenges L`] fgf%da^] afkmjYf[] af\mkljq `Yk Z]]f _jgoaf_ af ]p[]kk g^ *(± gn]j l`] dYkl log q]Yjk `go]n]j l`] h]f]ljYlagf oYk Yk dgo Yk (&/± g^ l`] ?<H af >Q)(& Products The non-life insurance industry has been growing at a rate of more than 20% over the last two years. However, the penetration was as low as 0.7% of the GDP in FY10. The robust growth seen over the last couple of years is YlljaZmlYZd] lg af[j]Ykaf_ Y^Öm]f[] g^ l`] Indian middle class, expansion of Indian corporations and consistent efforts of the regulator to develop the market. The key factors for growth are discussed below: Pricing Pricing in the insurance business is a meticulous task. One, various risk factors need to be assessed to arrive at the “right price” — a price that considers underwriting premium, withstands competition, generates operating surplus and performs in the highly volatile economic market. Two, the chief component of total cost, i.e., the cost of claims incurred is known only at Y ^mlmj] \Yl]& Hjagj lg \]%lYja^Õ[Ylagf$ price could not be varied, leading to a uniform trend in pricing devoid of any YeZa_malq& Oal` \]%lYja^Õ[Ylagf$ l`] regulator expected the “pricing” to be determined by competitive forces. @go]n]j$ hgkl \]%lYja^Õ[Ylagf$ afkmj]jk have been operating at extremely low prices, with certain players invariably depending on investment income to offset operational losses, thus increasing l`] dgkk jYlagk ^gj l`] \]%lYja^Õ]\ daf]k& Such price wars could prove fatal and eventually lead to quality taking a back seat. The key challenge for non-life insurance companies is balancing growth oal` hjgÕlYZadalq$ oal` hja[af_ hdYqaf_ Yf important role. Price needs to be determined with a focus on long-tem sustainability. According to some players in the industry, this is only possible when “price” is tagged to “return on equity”. Further, a risk-based pricing approach based on statistical models needs to be applied where the key focus is on solvency. This is only possible with a strong and proactive
25 Insurance industry: Challenges, reforms and realignment actuarial practice that works in tandem with underwriters and risk management teams. A coordinated approach will not only help price a product better but also in adequately managing reserves.

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