Insurance Regulatory and Development Authority (IRDA) is tightening its fist for the insurance companies to ensure adequate solvency margins for the insurers.
Working on the 'early warning system' model, the regulator would warn the insurer if its solvency margins go below the stipulated 1.5 level or 1.5 times the business underwritten. It will ask the insurer to sell no further policy if the solvency margins touch 1. The insurnace regulator is also worried about increase in total operating expenses to the premium earned for the insurers.
"Expenses of the insurance companies are increasing. If they do not manage cost, it will have an impact on their solvency margins," said R Kannan, member (actuary) of IRDA.
Total operating expenses to premium earned has increased from 22% to 29% in last five years. "The ideal level should be around 25%," Kannan said. "In the last few years, acquisition cost of policies has also increased while yield has come down. This will have an effect on the net margin of the companies, which will in turn impact their solvency margins," he said. Earlier this year, the regulator directed all domestic life insurance companies to tighten their expense management to procure durable business. It also asked the insurers to submit details of expenses. Present at an interactive session at Merchants' Chamber of Commerce, Kannan said the Institute of Actuarial Society of India is coming out with a report on the norms for valuating life and non-life insurance companies.
source: Indian Express Finance
