IRDA chairman C S Rao vows to look into the regulations that are impractical to implement while taking steps to increase insurance penetration


Chennai: Insurance Regulatory and Development Authority (IRDA) chairman Chellapilla Satyanarayana Rao assumed office when the country's leading life insurer, Life Insurance Corporation of India's (LIC) solvency was questioned by some. The new regulator passed the testing phase by clarifying that solvency margin is just a technical requirement and LIC is quite safe, thank you.

Rao does not find his small room at the third floor of Parisrama Bhavanam here claustrophobic. For, in his previous assignment as India's expenditure secretary, he used to sit behind a big table in a big room.

"Such changes are part of our lives. In the beginning of my career, after living in a big bungalow as sub-collector of Chittoor district, I was transferred to Srikakulam as a project officer, tribal development. I had to live in a small NGO [non-governmental organisation] quarters," he recalls. This is despite the fact that even today a district collector wields enormous power.

On the other hand he does vividly compare and contrast his current position - a high-profile one - with that of his previous job, that of a faceless government official. "Decision-making and enforcing regulations are common, whether in the government or as an authority. The decision-making process is also the same - building consensus among various stakeholders. So there is no difference between my previous job and the present one."

But he sees one difference. "The buck stops at me here, since the IRDA chairman is the final authority in the entire decision-making process." Ask him about the high points in his career as a civil servant, and he will first try to evade answering that question. Persuade him more, and Rao will cite three instances as the watermark in his long civil service career.

First, as the collector of Krishna district in 1977, he had to complete a rehabilitation work in a year's time, but a tidal wave washed away several thousands of people and villages. "NGOs and others didn't believe me initially when I told them that the villages will witness a flurry of activity in a year. But that is what had happened."

The other two career highlights are the proper and full utilisation of the $265-million World Bank aid for a cyclone safety project and the overdraft regulation scheme he prepared for the states.

A keen enthusiast of American literature and Carnatic music, Rao is married (to Prabhavathi, a lawyer who is to practice in the Andhra Pradesh High Court till some years ago) with two sons (Sridhar and Sriram). "Sridhar, the eldest, is in the US. He is a mechanical engineer and holds an MS in industrial engineering and an MBA degree. Sriram is a postgraduate in mass communications and is an aspiring novelist; his first English novel will hit the stalls soon."

Looking forward, Rao says he will look into the regulations that are impractical to implement, apart from taking steps to increase the insurance penetration in the country. "IRDA as an organisation will treat all insurers [public and private] equally." Excerpts from an interview:

The various regulations that govern the insurance sector are in place. As the new regulator what is your agenda for the sector?
Now the job is to see that players adhere to the regulations. IRDA also has the mandate to play a developmental role. The increase in economic activity and the life span of people show the huge untapped insurance potential in the country. Our media campaign to create insurance awareness among the public is aimed towards this.

We want to see the insurance companies fanning out and covering a larger percentage of the population. Insurers should go to rural areas and increase the insurance coverage. The health and natural calamity insurance are still in the periphery and they have to be popularised. We are seeking the expertise of USAID to expand the health insurance sector.

There is a perception that IRDA is deviating from its basic purpose of regulating and developing the insurance sector by trying to set up a vehicle-testing facility.
I am in favour of encouraging specialised institutions doing specialised jobs. Today any activity could be outsourced and I don't think we should have our own set-up. IRDA should promote and develop such institutions rather than get involved in such activities.

Similarly IRDA's decision to receive complaints directly from the policyholders and trying to settle the dispute seems to side-step the specialised dispute resolution set up like the office of the Insurance Ombudsman.
My view is that IRDA should not get into resolution of disputes between a policyholder and an insurer. We have various forums like consumer courts, civil courts, tribunals (motor accident tribunal), and the Insurance Ombudsman office. The regulator should set the deadlines for claims settlement rather than adjudicate them. It is like micro-managing a sector at the risk of losing sight of the macro issues.

The general insurance companies complain about brokers indulging in malfeasance. IRDA should be aware of this.
Our regulations are in place, which states the dos and don'ts. Any deviation will be discouraged. We are trying to promote self-regulation among all the players. We will also probe internal mechanisms to stop any unhealthy practice.

There is also a school of thought that the utility of a broker is very minimal given the fact that the Tariff Advisory Committee administers a major portion of non-life premium. And it is time to have a freeze on licensing of new brokers.
IRDA plans to de-tariff the non-life premium rates by 2005. Then the brokers will play a proper role. A broker does not sell a policy; he advises his clients about various policies and risk coverage. Even in a tariff regime a broker can play a constructive role. For instance while I was at the Central Warehousing Corporation we increased the insurance coverage to a lower premium as advised by an insurance consultant.

The management expenses of all the general insurers are way above the limits set by the Insurance Act. Some time back, IRDA said it will step in to enforce the rule of law. What is your plan of action?
We have to see whether the limits set in the Insurance Act is realistic in the current scenario. If yes, then we have to study whether any grace time should be allowed to the players to conform to that. It should be noted that any rule of law that is repeatedly violated losses its sanctity.

That is also true in respect of rebating of premium [insurance agents agreeing to pay some part of the premium instead of the policyholder to secure a business], which is also prohibited by the Insurance Act.
I want to go to the root of this legal provision to understand the reason for its very presence in the Insurance Act. We want the intermediaries to be professional, and rebating actually hinders professionalism.

Could you tell us about the latest on the solvency norms of LIC?
LIC has sent its representation requesting some time to comply with the norms and we are looking into it. The corporation says that it will be able to satisfy to the extent of 100 per cent of solvency margin norms but wants time to meet the 150-per cent stipulation. Our major task is to see that regulations are enforced. We will also see its relevance and modify whatever has to be modified in tune with the times.