Irdai wants life insurance firms to eye 50% premium growth in 5 years

In a first-of-its-kind advisory, the Insurance Regulatory and Development Authority of India (Irdai) has proposed premium growth targets over a five-year period for life insurance companies, in a bid to double insurance penetration in the country.

In e-mail communications to the MDs and CEOs of life insurance companies, the insurance regulator has suggested a gross written premium (GWP) growth target for each insurer.

“Irdai has given each life insurer indicative targets in terms of total GWP for the next five years,” said Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance, told Business Standard. “It has also offered to discuss any regulatory support that the insurer may need to meet the target. Overall, this will help increase the insurance penetration in the country substantially.”

While Irdai has proposed a target of 30 per cent compound annual growth rate (CAGR) in GWP over five years for top-tier insurers because of their large base, it has suggested 50 per cent CAGR for smaller companies.

GWP is the sum of new business premium and renewal premium. The regulator has also identified a state for each insurer where it should spearhead the push for increased insurance penetration.

“Irdai has sent separate e-mails to individual companies prescribing growth targets. All life insurance companies have been given targets. The regulator aims to grow insurance penetration in the country over the next five years. The insurance penetration as a percentage of GDP is low and the regulator wants to double it in the next five years. If every insurance company drives growth, the overall insurance penetration will certainly increase,” said the CEO of a life insurance company.

First-of-a-kind advisory 

• Irdai has prescribed targets depending on size and distribution of the company
• Aim is to increase insurance penetration 
• Large insurers have been given 30% premium growth guidance 
• For smaller companies, it ranges from 40-50%
• Life insurance penetration is 3.2% while overall insurance penetration stands at 4.20%

Queries over an e-mail sent to Irdai did not elicit a response until the time of going to press.

According to Irdai’s annual report, the life insurance penetration in India is 3.20 per cent and the overall insurance penetration in the country is just 4.20 per cent. Insurance penetration is measured as a percentage of GDP. “Since Irdai has a developmental role, it is perfectly within its realms to prescribe targets to insurance companies,” said an insurance industry veteran.

While the regulator has prescribed targets for individual life insurance companies, there is no clarity on whether insurers will face any action for failing to achieve such targets.

“There is no clarity on what the repercussions would be if companies failed to achieve the target. It’s a five-year plan and it’s not that the regulator will not be asking us to show our progress every two months. As of now, the regulator has not said that part of the remuneration of the MD/CEO shall be linked to such targets,” said the person quoted above.

In the past few months, ever since Debasish Panda took over as chairman of Irdai, the regulator has brought in a slew of changes in regulations, making it easier for insurance companies to create innovative products and bring them to the market.

It has also reduced the compliance burden on insurance companies to an extent.

Irdai extended the “use & file” procedure to most life insurance products, barring individual savings, individual pensions, and annuity products. This essentially means that life insurance companies can launch these products without prior approval from the insurance regulator. It reduced the capital required by insurance companies offering policies under the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) by almost 50 per cent.