IRDA must address market development - United India CEO

By V. Jayanth

Now that a few private insurance companies have been licensed and they have even announced their first products, the Chairman-cum- Managing Director of the public sector United India (UI) Insurance Company, Mr. K. N. Bhandari, says it is time for the Insurance Regulatory and Development Authority (IRDA) to start playing the role of a `developer'.

``IRDA has both regulatory and developmental roles. The first role has been performed with utmost speed. It must now take up key issues concerning development of insurance market and services'', the UI Chief said here in an interview to The Hindu.

He argued ``Real competition even in a totally free market is a myth. It exists only on paper and seldom in practice. We must therefore aim at healthy competition between public and private players. Insurance should not be entirely left to the mercy of market forces. It will serve the interests of economy better if both sectors collaborate and complement each other's efforts to enhance the quality of services and deepen the penetration''.

Mr. Bhandari's clear focus was on ``healthy growth'' and on a determined effort by the IRDA to ensure that ``existing players are not destabilised''.

He noted ``What is necessary is to evolve a regime of regulations that will ensure a complementary role for both public and private players. There is no purpose in ensuring intense competition between them. The Indian market is large enough to accommodate both. The public sector has some in-built limitations and cannot grow at the same rate and speed as the private sector. The private players will not be able to achieve the spread and volume of business in the foreseeable future as the existing companies''. There would also be an increased outgo on reinsurance arrangements.

The UI chief said the new private companies would undoubtedly set up shop at only the top 10 to 15 urban centres of the country - the niche markets, which were also the `profit centres'. Consequently, there would be an erosion of business for the existing public sector players, which would certainly ``imperil the economics of business and endanger their viability''.

In order to survive and compete in the open market, the public sector insurance companies, Mr. Bhandari explained, would be forced to ``withdraw'' from the uneconomic and unviable areas like the Northeast, Kashmir, northern Bengal, Bihar, parts of Uttar Pradesh and Orissa for instance.

If the Government and the IRDA wanted a `level playing field' in the liberated environment, they should not prevent the public sector from withdrawing from these markets. But such a sudden withdrawal from the high-risk, out-reach markets would mean an end to the current services offered to those people. To ensure their survival, the public sector companies would have no option but to close down operations in these areas because this was sustained and subsidised by the profits earned in the urban centres or niche markets.

What could the IRDA or the Government do to ensure the survival of the public sector and a level playing field? Mr. Bhandari said ``They obviously cannot force the private players to go to these markets. If they want us to continue with these services in the remote and rural areas, some concessions or incentives will have to be offered. And the same incentives can be offered to the private players to encourage them to serve those needy pockets''.

He said ``The long term objective of regulations must be to strengthen, stabilise, develop and deepen the insurance market. This requires a calibrated approach to ensure that in the short term, they do not destabilise the market''.

Elaborating on the basic problems facing the public sector players, the UI Chairman said ``Our main concern is about the high operating costs and the interest burden on account of the third party claims, which drag on for at least five years in courts''.

Mr. Bhandari explained that the cost of `intermediaries' alone worked out to 15 per cent. The public sector companies could not just throw them out and the entry of private players would only add to the costs. Any meaningful reorganisation would need three or four years, but the existing players were not given that kind of time to prepare for open competition.

He wanted the people and the Government to realise the contribution of the public sector insurance companies, since nationalisation in 1970. The four companies today underwrite premium of about Rs. 10,000 crores and have a network of over 4,000 office. But the significant part was the creation of a such a network across the country.

Over the years, the companies had developed skills and capacity to introduce a wide range of products, covering every sector from satellites to fisheries. The pricing of products was yet another achievement, comparable to the best in the world. The total underwriting losses last year were Rs. 1,000 crores. Another contribution was the financial strength of the companies as well as the GIC.

The UI Chairman said the insurance companies had created a pool of over 50,000 knowledge workers in the industry, who would now be weaned away by the private players. Despite being a public sector, the existing companies had established a liberal regime for settlement of claims and cost-effective mechanism for expeditious disposal of disputes and redressal of grievances.

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