Irdai chief urges insurers to increase their capital for faster growth

Existing insurance companies should go to their boards and augment their capital base so that they can focus on growing at a faster pace than they are currently, Debasish Panda, Chairman, Insurance Regulatory and Development Authority of India (Irdai) said on Wednesday.

Speaking at the 22nd Annual Insurance Conference Panda said, “I would like to ask all of you (companies) to go to your boards and think in terms of augmenting your capital because going forward we expect the growth will be speedier than before hence more capital needs to be pumped into the sector.”

He further asked insurance firms in joint ventures with foreign entities to make use of the enhancement in foreign direct investment (FDI) limit from 49 per cent to 74 per cent to get more capital from their foreign partners.

“The investment landscape is also being rebuilt to attract more investment through the FDI route. The limit has been enhanced to 74 per cent from 49 per cent. So those companies which have a foreign partner should look at this opportunity to bring in more capital and grow even faster than they have been growing,” Panda said.

Previously, Panda had emphasised that the insurance sector would need an additional capital of Rs 50,000 crore every year to double penetration in the country from the current levels.

Insurance penetration in India during 2021-22 remained the same as in 2020-21 at 4.2 per cent, with life insurance at 3.2 per cent, and non-life at one per cent. But insurance density rose from $78 in 2020-21 to $91 in 2021-22. While insurance penetration is the ratio in percentage of insurance premium to GDP, density is the ratio of premium to population (per capita premium).

Panda said the new regulations that Irdai brought in the last year or so to improve ease of doing business has made the insurance sector an attractive destination for prospective investors. “The insurance sector looks more attractive both from the return on investment (RoI) and return on equity (RoE) standpoints and we are also seeing merger and acquisition (M&A) activity,” he said.

Data suggests that the top five insurers have an RoE of about 20 per cent. The average RoE is around 16 per cent and 14 per cent in the non-life and life insurance sectors, respectively.

Meanwhile, the insurance regulator recently granted licenses to three companies–one in general insurance, two in life insurance. Acko and Credit Access Grameen have received licences to set up life insurance firms while Kshema has obtained approval for setting up a general insurance company.

The granting of new licences is significant as they have been issued in the life insurance space after a gap of almost 12 years. And a new entity is entering the general insurance space after almost six years. Further, about 20 odd applications to set up insurance companies are pending with the insurance regulator for approvals.

“In the recent past, three new insurance companies have registered: two life and one general. And 20-odd applications are in process with Irdai. We are chasing them, they are taking some time to file their R2 applications,” the Irdai chairman said.

“As the regulator, we have changed the registration guidelines and are bringing in more clarity, making it easier for investors to enter this sector… Minimum criteria and turnaround timelines have also been defined. The last Life insurer was registered in 2011 and now there are two more in 2023. The last general insurance licence was given in 2017 and now there is a new one in 2023,” Panda added.

The chairman also dwelt on the need for more insurance companies in the industry to cater to the diverse needs of the population. A country as vast as India cannot have a one-size fits all approach, hence there is a need to have unique products that meet the insurance needs of the super-rich as well as the poor, he said. And, such unique products cannot be served by the limited players that are in the industry currently.

“We need more players, more agents, more distribution channels, more products, more innovation and more healthy competition among players,” Panda said.

Panda added that as the industry had opened up more than 20 years ago and has matured quite well, the regulator is looking to move away from a factor-based solvency regime to a risk-based solvency regime, and from compliance-based supervision to risk-based supervision.

“We are further working towards moving to a risk-based capital regime from the factor-based solvency regime now. And, also from a compliance-based supervision to a risk-based supervision framework. The switching over to IFRS is also underway. All of this will help the industry, going forward, in the efficient use of capital. It will also help the companies and the regulator to have a real-time profile of the risk as far as the companies are concerned”, Panda said.