The insurance regulator, IRDA, has mentioned that it will commission a study to analyse the cost of the regulations that it has enforced on insurers, and thus the impact on the cost of insurance policies. Over the last year, there has been a spate of regulations by IRDA and this study will provide quantitative evidence of the impact of the regulations and if the regulator has over-regulated.
This is indeed a bold move and the study will be quite complex as data would be required from every insurance company in India. There can be different elements of increased cost due to regulation: cost of needing to report more, cost of needing more manpower to ensure statutory compliance, sales team trainings, cost of reprinting marketing literature, the opportunity cost of certain business lines turning unprofitable etc . The study will be of more crucial import to the life insurance industry as sweeping regulations were brought into effect from Sep 1 2010. IRDA also mentioned that insurance companies have to prepare quarterly filings, which has its own cost.
Studies of this type are regularly undertaken in other countries, most notably Australia. It would be interesting to note the impact that this study has on more thought through regulation. While insurance companies would not admit it publicly for fear of incurring the wrath of the regulator, there is a feeling among the life insurance companies that they have been over-regulated. But one cannot blame the regulator for this: the horrendous stories of misselling that the industry was resorting to cried out for some really strong regulation. The life insurance industry, in the longer term, will come out stronger because of the course corrections undertaken. The only area where we feel that the regulation has gone a little wrong is on pensions as that category has been more or less killed, but IRDA is relooking at the pension regulation if media reports are to be believed.