Irdai chief urges insurers to increase their capital for faster growth

Debasish Panda, Chairman of the Insurance Regulatory and Development Authority of India (IRDAI), said on Wednesday that existing insurers should go to their boards and increase their capital base so that they can focus on growing at a faster pace than they currently are.

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 raising capital because we expect the growth to be faster than before and therefore more capital needs to be injected into this sector”.

It also asked insurance companies in joint ventures with foreign entities to take advantage of the FDI limit increase from 49 percent to 74 percent to obtain more capital from their foreign partners.

The investment scene is also being rebuilt to attract more investment through the path of foreign direct investment. The limit has been raised to 74 percent from 49 percent. So companies that have a foreign partner should consider this opportunity to bring in more capital and grow faster than they used to grow,” Panda said.

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

Insurance penetration in India during 2021-22 remained unchanged in 2020-2021 at 4.2 per cent, with life insurance at 3.2 per cent and life insurance at 1 per cent. But insurance intensity increased from $78 in 2020-21 to $91 in 2021-22. While insurance prevalence is the percentage of insurance premiums to GDP, density is the ratio of premium to population (premium per capita).

Panda said new regulations introduced by Erdai in the past year or so to improve the ease of doing business have made the insurance sector an attractive destination for potential investors. “The insurance sector looks more attractive from the point of view of return on investment and return on equity, and we are also witnessing merger and acquisition activity,” he said.

Data shows that the five largest insurers have a return on equity of about 20 percent. The average return on equity is about 16 percent and 14 percent in the non-life and life insurance segments, respectively.

Meanwhile, the Insurance Regulatory Authority recently granted licenses to three companies – one in general insurance, and two in life insurance. Acko and Credit Access Grameen were granted licenses to set up life insurance companies while Kshema received approval to set up a general insurance company.

The new licenses are significant as they were released in the life insurance business after a gap of almost 12 years. A new entity entering into general insurance after nearly six years. Moreover, about 20 individual applications for setting up insurance companies are pending with the insurance regulator for approvals.

“In the recent past, three new insurers have been registered: two for life and one for general. There are 20 individual applications in processing with Irdai. We are chasing them and they are taking time to file their R2 applications.”

“As the regulator, we have changed the registration guidelines and brought more clarity, making it easier for investors to enter the sector… We have also set minimum standards and transition timelines. The last life insurer was registered in 2011, and there are now two more In 2023. The last general insurance license was granted in 2017 and now there is a new one in 2023, Panda added.

The Chairman also focused on the need for more insurance companies in the industry to meet the diverse needs of the population. He said a country as vast as India cannot have a one-size-fits-all approach and hence there is a need to have unique products that cater to the insurance needs of the rich and the poor alike. These unique products cannot be offered by the limited players present in the industry today.

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

Panda added that since the industry has been opening up for more than 20 years and has matured so well, the regulator is looking to move from a factor-based solvency system to a risk-based solvency system, and from compliance-based to risk-based supervision. Existing supervision.

“We are working more towards the transition to a risk-based capital system than a factor-based solvency system now. Also from compliance-based supervision to a risk-based supervision framework. The shift to IFRS is also underway. All of this will help the industry, in Going forward, the effective use of capital will help companies and the regulator to have a real-time profile of risk with respect to companies, Panda said.