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Plainspeak SWAMI SARAN SHARMA

Ambition vs Reality IRDA’s latest proposals are in line with the times, but how effective will they be?

CONVENTIONAL business wisdom regards most government agencies and regulators as obstacles that get in the way of market forces. However, the insurance regulator should get credit for several initiatives which favour the industry as well as consumers—in the recent weeks, two announcements stand out for the potential they have to benefit both the parties. A mass media campaign on the Insurance Regulatory and Development Authority (IRDA) grievance redressal helpline and website has all indications of the regulator’s seriousness in addressing issues faced by policyholders. Also, the proposal allowing insurers to dematerialise life insurance policies, just like company shares, is a step ahead of times. Both these announcements are welcome and are expected to help consumers voice their complaints as well as safely keep their policies. It will also help insurers save on distribution cost and efficiently manage complaints levelled against them. I say ‘expected’ because, going by past experiences, I am not too sure how much these proposals will actually get implemented in a manner that will help consumers and insurers. Having issued guidelines for creating the insurance repositories and electronic issuance of policies, IRDA is just a few steps away from creating another entity that it will grant licence to and regulate, thus creating yet another layer of regulations. Myopic View. Dematerialisation (demat) means holding an investment in an electronic form. When two depositories, National Securities Depository (NSDL) and Central Depository Services (India) (CDSL), collectively hold and manage all demat accounts in the country, why does IRDA

Going by past experiences, one is not too sure how these proposals will actually get implemented

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want to create a separate insurance repository? When the New Pension System was being formulated, it used an existing depository to function as the central record-keeping agency rather than create a new one. It seems IRDA wants to maintain an upper hand in controlling every aspect of the insurance business without realising that this could be regressive. Unlike mutual funds and shares, which have product homogeneity, life insurance policies come in various hues; there are pure risk plans, endowment plans and pension plans, besides others. The terms and conditions vary across products and VARUN VASHISHTHA insurers, which mean all policy aspects need to be brought under a single system of the repository. IRDA needs to address these issues before making announcements that catch the fancy of insurers and consumers who only feel let down. As it is, health insurance portability is to come into effect from 1 July 2011 and insurers and policyholders alike are grappling with how to implement the ruling. On the issue of what the consumer should do in distress, by advertising about the grievance redressal helpline and website, IRDA is again moving far from the reality—there are plenty of policyholders who are in the rural areas with no access to the telephone or the Internet. They are also unlikely to be financially literate enough to know their rights. The existing role of the insurance ombudsmen also comes as a disappointment, which makes me wonder how realistic IRDA’s grand plans are. Perhaps IRDA has to go back to what Peter Drucker said 45 years ago: “There is only one valid definition of business purpose: to create a customer. Markets are not created by God, nature, or economic forces, but by the people who manage a business.” IRDA should step back and empower the stakeholders, who, in their own interests, will work towards the interest of the consumer and profit from it.; The author is an insurance and tax expert, and a consulting editor of Outlook Money. He can be reached at [email protected]