New ULIP guidelines may impact insurers' profitability: IRDA
Moneylife Digital Team 09 August 2010

Hyderabad: The Insurance Regulatory and Development Authority (IRDA) today said profitability of insurance companies will be impacted with its new guidelines for Unit-Linked Insurance Plans (ULIPs), which invest part of funds in equities.

The regulator advised the insurance companies to reduce their expenses to maintain the bottomline in the long run.

"I do hope there will be an impact (on profitability). Ultimately the idea of guidelines is to have impact. My concern for the insurance industry is not what is going to happen in 2010-11. The concern is that the industry must remain healthy, be able to grow and be sustainable," IRDA chairman J Hari Narayan told reporters here.

He was speaking on the sidelines of the inauguration of NSE.IT, a subsidiary of the National Stock Exchange, for online testing for insurance agents.

He said the insurance companies must take a look at long term achievements and should bear with the initial hiccups.

"Insurance is always a long-term industry. What might happen in six months and one year is not important. There may be some hiccups. What is going to happen in mid- and long-term is significant. So what might happen in the given year is not important," he said brushing aside the industry apprehensions.

Insurance companies are of the opinion that the capping of surrender charges and the even distribution of charges over the lock-in period of five years will adversely impact the profitability of companies.

ULIP sales will also be adversely affected as agents may be unwilling to sell products at lower commissions.

He said the companies should adopt cost-cutting measures in order to maintain the profitability.

"When you are trying to contain cost, it is not by doing one thing. It can be your electricity bills, administrative cost, travel cost and also agents cost. There will be a host of things to be implemented. The insurance companies should redesign their products and they must be in the interest of policyholders," Mr Hari Narayan said.

Commenting on the cashless insurance schemes being refused in corporate hospitals, the IRDA chief said as on 1st July there were are about 320 hospitals in the network for cashless facility in four metros which later decided to withdraw the cashless facility in view of high charges.
Subsequently the hospitals renegotiated rates with insurance companies. As many as 390 hospitals signed up for the network facility. The hospitals also constituted an internal committee for pricing, Mr Hari Narayan said.

Replying to question on the Pension Fund Regulatory and Development Authority's (PFRDA) opinion that pension plans of insurers must logically come under its purview, he said the matter will be referred to the joint committee set up by the government to resolve issues that involve two regulators.

Mr Hari Narayan said draft norms for the health insurance sector will be announced shortly. IRDA, along with the Confederation of the Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI), is working on finalising modalities.

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