IRDA unveils reforms, okays demat policies

Mumbai: Big bang reforms are set to take place in the insurance industry with the regulator's final nod to 'insurance repositories' — that will facilitate demat policies —coupled with major relaxations in investment guidelines for life companies.

IRDA chairman J Harinarayan announced on Monday the draft investment guidelines that allow insurance companies to buy credit protection through derivatives, lend up to 10% of their shares and carry out short-term repo transaction in bonds. The regulator is also set to ease investment limits that will give Life Insurance Corporation of India more leeway to invest in companies.

Speaking at the sidelines of the 15th insurance summit organized by the Confederation of Indian Industry, Harinarayan said dematerialized life insurance policies will soon become a reality with the insurance regulator set to grant certificate of registration to five entities for setting up insurance repositories. Demat policies will enable consumers to get their policies serviced anywhere and, more importantly, allow a one-time 'know your customer' process that will be valid for all insurance purchases across companies.

The six companies that have received IRDA approval for setting up insurance repositories are: NSDL, CDSL, Karvy, CAMS and STCI. According to Cams Repository Services CEO S V Ramanan, demat policies will benefit policyholders as they will not have to worry about losing the document which has to be preserved for 20-30 years and it will also do away with the need to transfer their policies if they shift their home. Repository services will also conduct basic policy servicing on behalf of insurance companies.

Harinarayan said that the regulator will also come out with a whistleblower policy on the lines of Reserve Bank of India. Addressing the insurance summit, Harinarayan flagged off the absence of annuities in the product portfolio of private companies , high level of attrition among insurance employees, and the complex languages in insurance contracts as a matter of concern.

IRDA issues uniform ALM norms for insurers

Mumbai: Insurance regulator IRDA has issued uniform asset-liability management norms for insurers to manage their solvency, and asked insurance companies to undertake stress tests to ascertain their ability to meet financial obligations in the event of a crisis.

On examination of the extant norms being followed by insurance companies, IRDA found they were “incomplete and inconsistent. As the mandate by the authority was very broad, each insurer had adopted their own measures in reporting such details”.

“The Asset-Liability Management (ALM) is relevant to and critical for the sound management of the finances of the insurers that invest to meet their future cash flow needs and capital requirements,” IRDA said in a circular.

The guidelines, which would come into effect from April 1, make it mandatory for insurance companies to prepare an ALM policy and have it approved by the Insurance Regulatory and Development Authority (IRDA) by March-end.

“Stress testing being critical in the management of risks and the financial soundness of the insurers… the authority has mandated all insurers to conduct scenario and sensitivity testing,” IRDA said.

Effective procedures
IRDA has asked the insurance companies to determine their ability to meet financial liabilities after taking into account factors like a 30 per cent fall in equity values and a one percentage point decline in yields on fixed investments, among others.

IRDA has issued these guidelines to bring about uniformity in the ALM norms being followed by both life and non-life insurance companies.

IRDA has said that insurers would have to put in place effective procedures for monitoring and managing their asset-liability positions to ensure that their investment activities and asset positions are appropriate to their liability, risk profiles and solvency positions and it should be used to measure the interest rate risk faced by insurers.

The ALM policy should enable the insurers to understand the risks they are exposed to and develop ALM policies to manage them effectively.