In your interest.
Online Personal Finance Magazine
No beating about the bush.
Paresh Parasnis, executive director at HDFC Standard Life attributed the continuing losses to inadequate risk management and insufficient capital. He explained, “What happened over the past few years was the result of inadequate focus on risk management. Going forward, insurers have to look at capturing all possible risks and dynamically managing these risks. They must ensure they have enough capital to back the kind of risks they are taking on their books.” He also highlighted the absence of an efficient long-term debt market as a hindrance to the growth of this sector. He said, “The fact that we have more than Rs700,000 crore of invested money in debt instruments and the fact that we don’t have a long-term debt market is an obvious problem for the insurance industry. We are writing contracts which are for 20/30 years duration, but at the same time investing in near term securities.”
Mayank Bathwal, CFO, Birla Sunlife Insurance, put the blame of high costs on the agency model of insurance. He explained that the high cost of commissions paid to agents was cutting into insurers’ profitability. He added, “Other than the variable component of commissions, there is a huge fixed cost component paid to management level executives that is affecting the sector as they continue earning high salary despite low business procurement.” He proposed a variable model to this category to improve efficiency.