Hiking FDI to 49% alone will not ring in 'ache din' for insurance consumers

The Insurance Laws (Amendment) 2014 has been promulgated by the president & will be taken up for consideration and approval in the next session of parliament. The FDI limit enhancement from 26 percent to 49 percent has been the key focus by everyone. With FDI we get long-term capital and foreign exchange, and the companies get technical expertise and flexibility to invest in developing human and intellectual capital. Besides FDI limit enhancement, there are far reaching provisions for both companies as well as consumers. The reports in various sections of media estimate the possibility of immediate FDI to the tune of $7 billion to $12 billion and possibly far higher. The small players can get access to capital and technical expertise and the large players may be able to go for IPOs or acquire smaller companies. The select committee in the Upper House has recommended issuance of fresh equity but has not made it mandatory. To allay the fear of insurance companies being controlled by foreign partners, the select committee has further defined the term control as right to appoint majority of the directors, control the management or control the policy decisions. It is clarified that the 49 percent cap is a composite limit, inclusive of all foreign ownership. From a consumer perspective, we can expect further penetration of insurance products in non-metro areas and availability of broad-based, feature rich and smarter solutions. As of now, a person with a medical history or old age often gets rejected while seeking a life or health cover. [caption id=“attachment_2039777” align=“alignleft” width=“380”]  ThinkStock[/caption] As an example, we are the world capital with highest number of diabetics but we have very few diabetic health covers. In the years to come, this is likely to get rationalised as we have more players and as IRDA continues to tighten the norms. The amendment proposes that if the three years of premiums are paid by the consumer then it’s necessary for the insurance company to honour the claim, even in a fraud case. Further provisions propose a substantial increase in penalties to companies. As an example, from the current penalty of maximum Rs 5 lakhs per incident, the amendment proposes the penalty to Rs 1 lakh per day per incident with a cap of Rs 1 crore per incident. It is further proposed that the Insurer be responsible for the defrauding agent(s). It is certain that these measures will increase the confidence of consumers, but lot more needs to be done. It is often seen that consumers suspect the reliability of the private insurers. Be it underwriting or the claim settlement procedures, the private insurers have a long way to go to inspire the faith in consumers’ minds. The private insurers are also facing ‘growth’ issues in managing their backend and consumer service. As the consumers better understand the importance of insurance, it is important that back offices be scaled up to improve the consumer experience. At this point in time, the way the insurers behave, defies the logic of insurance. Insurance is supposed to work on a ‘pool’ concept consisting of a mix group of people with variable possibilities of insurable event. The insurers are being selective only to pick up the low and medium probability cases. The argument is that the private insurance sector being in the nascent stage, the loss making scenario will seriously deter the existing and future players. The regulator seems to be taking a neutral stand with giving free hand to companies in following their underwriting procedures or increasing the premiums with certain rationale. What the companies need to keep in mind is that at the moment this behaviour is deterring the consumers from embracing the insurance products. There must be a level playing field, from a consumer point of view. While the various grievance mechanisms exist, they have not proved effective in the consumer’s eyes. Forty-nine percent FDI, stringent penalties, global expertise, cheaper online term plans, zero cost ULIPs etc. are good signs. That said a transparent and a balanced approach, penetration of consumer friendly products and seamless experience is what the insurance consumer needs to start feeling ‘ache din’. The author is founder & CEO of www.gettingyourich.com and a member of The Financial Planners’ Guild of India. He can be reached at rohit@gettingyourich.com