Insurance sector in May showed the first acts of maturity – this sector will now be entering its tenth year; the all-important IRDA Act, 1999 says that insurers should go public after ten years. This perhaps is the trigger for IRDA to have come out with specific corporate governance norms for insurers as well as its plan to put in place the valuation methodology for insurance companies.

Timing of this is just seems right as the new government seeks to push through the Insurance Act (amendment) Bill, permitting FDI to go up to 49 per cent from the present 26 per cent, providing for lower capital for health insurance companies and a host of other course correction measures. The estimated increase in FDI is placed at around Rs.10,000 crore, which cannot be bad for the economy.

Valuation of an insurance company has its own challenges - life insurance companies are valued by a combination of their embedded value, profitability, goodwill and member strength and product mix amongst other factors.

Actuarial evaluation is possible to a large extent especially in a highly populated market like India, where the variability is not high. Valuing a general insurance company is a special challenge considering the comparative volatility of the business.

Relaxation of norms to go public

The government, in the meantime is expected to relax the norm to go public, though some of the companies (Reliance Life is said to be the first) are not hiding their plan to go public. The fact that the past few months have seen lower growth (and so the deferment of need for additional capital) and the present rally in the market is still not being seen as a stable one to risk an IPO. This could see this action being kept in abeyance for some more time.

Slowdown in growth in life insurance has seen varied reactions – insurers are looking inward to develop better products, some insurers are seeing the rural opportunity and while Reliance Life pruned its agent strength, ING Vysya added agents and Max NY Life started a retention exercise.

All action on the people front seemed to happen in the life insurance sector. Nandagopal, who was President of Reliance Life is moving to the new joint venture company being floated by Bank of Baroda, Andhra Bank and Legal and General group, which is expected to be launched by March 2010. Tata AIG Life announced the succession of Suresh Mahalingam from Trevor Bull effective 1 June 2009 and news in the market has it that Pankaj Razdan may head Birla Sunlife.

GI – April first premiums shrink

For the first time since the industry opened up, private general insurance companies, which have been leading the growth till last year, saw the all important April, first premiums shrink. The property insurance market that dominates April has seen all possible price reductions and is at a low that prudence will not seek to better. PSU insurers have seen growth in a change of tide but are taking steps to ensure some profitable underwriting.

As the next step towards a free market, insurers had placed quite a few product proposals with IRDA for approval and some of them have been endorsed by the regulator. A notable one is the on-road protector of Iffco-Tokio or what Oriental has launched with “My TVS” for providing emergency road side assistance in case of a breakdown.

The case for insuring against pro-fessional negligence of doctors strengthened as the apex court ordered a crore rupee compensation in a proven negligence case. Most of the doctors are insured for a few lakhs and do not see the merit of a higher sum insured. This judgment is expected to have two effects – that of defensive treatment from the medical fraternity who would want more investigations to support the diagnosis and a higher professional fee as the insurance cost is passed on. Both are not good news to health insurers and, therefore, to the customers.

Swiss Re and Religare to enter health insurance

On the health insurance side, IRDA came out emphasizing the need to offer health insurance upto an entry age of 65. In a set of norms the regulator insisted on the requirement to inform and educate the customer relating to health insurance and also to explain in writing in case a request for health insurance is denied.

International reinsurer Swiss Re and Religare are said to have finalized the joint ventures to operate a health insurance company. Religare is into life insurance in JV with Aegon and Swiss Re's Indian health market exposure is through its investment into TTK Healthcare, a Third Party Administrator (TPA).

Stricter norms for the TPAs are also in the offing with a committee constituted with S B Mathur as the head recommending a higher capital and minimum service standards for TPAs.

Another committee that has been formed is the one on insurance distribution, especially by the banks. This committee will go through the merits of allowing banks to have multiple insurer tie-ups. The challenge before this team is enormous due to the mixed nature of distribution in the Indian market. There are agents who represent the insurer (only one) and brokers who represent the customer and can deal with all licensed insurers in the market and presently banks must fall into one of the two. Allowing banks (and agents as suggested by an earlier committee) to represent multiple insurers will not be favored by brokers who are governed by a lot more strict rules by IRDA.