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R Thiagarajan, the 81-year-old founder of financial conglomerate Shriram Group, has slammed the Insurance Regulatory and Development Authority of India (IRDAI) for allegedly focusing too much on its regulatory functions and neglecting development of the industry.
In an interview with Times of India, Thiagarajan expressed dismay at the “abysmally low” life insurance penetration of 3.5%, and high rate of rejection of general insurance claims. He also described IRDAI as “stuck with colonial vestige.”
According to Thiagarajan, life insurance’s main issue is IRDAI’s restriction on qualifications for insurance agents.
“Imposing restrictions on appointment of agents has crippled the industry,” he said.
“The fellow who satisfies all the conditions laid down by the insurance regulator does not know how to sell insurance and the fellow who has the ability to sell is prevented from selling. The best thing that can be done is to remove all restrictions for someone to become an agent. The industry needs more salesmen. There is a big entry barrier today.”
Thiagarajan blamed regulatory rules that sought to prevent mis-selling of insurance policies for stagnation of the industry.
“A thing that is a protection to the family, when sold with an incentive is a criminal offence? Sounds ridiculous,” he said. “This rule came about in 1938. It was introduced to protect British insurance companies from Indian entities which were offering high incentives for signing up a policy. The British insurers asked their government to introduce penal provisions for incentives, and we continue with this to date.”
He argued that cash-back promos for purchases on Flipkart, Amazon, and PayTM are legal, but the same are illegal with insurance.
With regards to general insurance, Thiagarajan said that he believes insurance is necessary for a business’s survival by protecting it against insolvency. He also voiced anger towards insurers that frequently reject claims.
“Today, a general insurer admits and disburses the claim, if it is [less than or equal] to the premium paid,” he said. “If there is anything significantly higher, you can be rest assured that the case is headed to the courts. Insurance has been made meaningless.”
He said that unhealthy and irresponsible competition is behind this, because premiums have become so low that it is unsustainable to pay out claims.
“If you repudiate a claim, there is nothing that the enterprise can do than go to court,” he said. “And the courts take 25 years to get the award.”
To solve this, Thiagarajan said that the IRDAI should take matters into its own hands and not rely on the courts. He believes the regulator should form tribunals to resolve property claims, just like the ones it has for motor insurance. Furthermore, he believes insurers must be required to pay out claims based on the date of the incident, instead of the date of receipt of the claim, which sometimes comes quite some time after the event.
