IRDA tells postal dept to fall in line, triggers row
India’s top insurance regulator has demanded that the country’s postal department adhere to its norms while selling insurance products, triggering a potentially damaging row between the two and forcing the finance ministry’s intervention.
The Insurance Regulatory Development Authority (IRDA), which regulates all insurance products in the country, has threatened to ban all policies sold by the Department of Posts (DoP) in case of a failure to comply.
A rattled finance ministry, which is already locked in a high-profile mediation effort to resolve a row between the IRDA and Securities and Exchange Board of India (SEBI) over unit linked insurance policies (ULIPS), was forced to step in asking for restraint and the matter is now being discussed between the three.
“….We are working to find an amicable solution on how both IRDA and the Postal Department can solve this issue. Any final decision will be taken only after giving due consideration to benefit of existing policy holders,” a finance ministry official said.
The postal life insurance has over 15 million policy holders. It offers two life insurance schemes, Postal Life Insurance and Rural Postal life Insurance with a corpus fund of Rs 14,000 crore and Rs 4,000 crore, respectively as on March 2009. All insurance products offered by the DoP are not covered by IRDA’s rules and regulations.
The current one and the bigger battle between IRDA and SEBI highlight the importance of clear rules of demarcation between various regulators and government bodies in a sector whose growth has assumed gigantic proportions.
The insurance regulator argued that compliance with IRDA’s norms will actually benefit the department of post. “In fact they (department of post) have lost a number of times to get group insurance schemes from public sector players such as BSNL in the past,” said an IRDA official stating the case for expedition of decision on investment of the corpus under Post Office Insurance Fund as per IRDA guidelines.
Under the Insurance Act 1938, Section 118 (C), life insurance schemes run by several state governments for their employees and the Postal Life Insurance Scheme of the central government don’t come under the IRDA purview. The insurance regulator is looking to extend its reach. “IRDA has asked us to form a separate insurance division. They further want us to follow their norms regarding requirement for capital and deposits. Given our huge base, it doesn’t make sense unless some relaxation is provided for,” said an official in the ministry of Communications and IT.
As per a report from Comptroller and Auditor General of India (CAG), the department of post failed to achieve the yearly target set for procurement of business both in Postal Life Insurance (PLI) and Rural Life Insurance during 2002-03 and 2006-07. It states that in case of PLI, the shortfall in target went up from 17% in 2002-03 to 41% in 2006-07.