Essay on Insurance Regulations and its Impact. The advent of economic reforms in 1991 related to public enterprises, trade and commerce, industry and even tax reforms, created a lot of controversy relating to the Insurance sector. So the R.N. Malhotra Commission was set up to suggest reforms and regulations in this sector, in April 1993.
The Malhotra Committee submitted its report to finance ministry suggesting privatization of insurance service and setting up of a Regulatory Body in January 1994. However the Congress Government and the subsequent Janata Government failed to push through the reformatory Bill, too busy with their own survival. It was finally pushed through by the present incumbent BJP Government.
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In India, Insurance had always been a national monopoly. The Life Insurance Corporation was created in 1956 by amalgamating 245 private sector insurance companies and the General Insurance Corporation was crated in 1973. Both were monopolistic bodies when this sector was opened to private players with a minimum capital required of Rs. 200 crores. The money invested in Life Insurance was supposed to be utilized for planned economic development of our nation. This was one of the objectives of nationalization and while investing these public monies which were held in trust, the Corporation was to keep national priorities and reasonable returns as their prime objectives.
The Insurance Regulatory and Development Authority Act of 1999 has notified the IRDA Regulations 2000 and is now the monitoring body to control the entire insurance business similar to the Reserve Bank of India controlling the entire Banking System in our country. The bill was earlier introduced by the Janata Government in the Parliament but was allowed to lapse.
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The reason for setting up this body was the numerous complaints received in a service industry like Insurance business where overwhelming importance ought be given to customer service. It was also felt that the policy followed by LIC was not determined by the best interests of the policyholders and net yields were lower that other savings media. A lowering of premium rates was necessary for making it truly beneficial for the purpose of savings.
It was also noted that most of the employees of LIC and GIC had formed unions and had ensured the best possible conditions for their services. About 50 per cent of the staff were availing interest free loans, possessed cars and availed of substantial allowances without putting in comparative efforts. Every five years they were getting promoted and getting top heavy. Together with all this the organization was overstaffed without assigned responsibilities.
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Operational flexibility and the ability to respond to changing conditions appeared to be totally absent. At least 50 per cent of the staff were indicted by the Commission totally redundant and out of step with time but no action was forthcoming. The rural and semi-urban branches were understaffed as all employees were interested in prize postings at regional and urban branches. Thus a number of restrictive practices had grown which had constrained the efficient and economic functioning of the organization.
The importance of any industry lies it its usefulness to the people and the economy. As long as our insurance sector was protected from competition and for customers, it took its own decisions on what rests to cover, operating solely on a “take it or leave it’ basis. Competition decides what product appeals to the customer and at what price. This would ensure operation on the principles of risk and its cover, offering customized services depending on high risk or low risk cover. Presently, low risk clients are offered no better deal and they forced to subsidize the high risk clients as well as pay through their nose for the huge pay rolls of the company as well as its extravagance.
Overall, opening of the insurance sector for competition and entry of private and foreign houses, will definitely improve the service standards, generate more funds for long term investments, utilize the vast potential of life and general insurance and generate more employment. Recognizing these potentials and the need to make insurance available on a larger scale, the Bill opened the industry to private players and were flooded with applications. Major international insurer Prudential and Standard Life of UK, Sun Life of Canada, AIG, Metlife and New York Life of the US, tied up with leading companies in India to reach out to this vast market.
Each of the private insurers has introduced revamped products to meet the needs of their customers and in line with their business objectives. Life Insurance is now being explained in its true perspectives. No longer is it a hurriedly done investment, done at the last moment, to save taxes. It’s now becoming an important element of the total financial planning of individuals and corporates, that is purchased to fulfill specific rational and emotional needs, having clear benefits. A wide range of products, customer focused services and professional advice has become the mainstay of the industry and the customers from the pivot for the strategy.
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On the back of advertising campaigns, seminars and workshops, we have seen a dramatic increase in customer awareness. Penetration of the life insurance is beginning to cut across socioeconomic classed. These are the results for all to see. Products are now being more realistically and flexibly priced. From a system that left policyholders running from pillar-to-post to get their policies serviced, service levels are steadily rising to make the customer the focus of each initiative.
With rising life expectancy, rapidly increasing costs of basic necessities like medical treatment and falling interest rates which do not cover for increasing living costs, the importance of financial planning has become more critical. Planning for post retirement situations has become an important factor. Likewise, with small families now the trend and joint families breaking up, the importance of planning, in the eventuality of the sole bread earner passing away, has become the prime factor. Insurance regulations have ensured that the middle class majority gets a decent deal in which it can invest, to ensure that his family manages somehow, in terms of financial liquidity, after any tragedy.