What changed inside India's insurance regulator?

Summary

Irdai’s unusually candid data exposes perverse insurance incentives. But with the government owning major insurers, the real test will be whether the final rules deliver meaningful reform.

When the Insurance Regulatory and Development Authority of India (Irdai) released its consultation paper on insurance distribution last month, I did not expect to find much to comment on. Much to my surprise, the data was remarkably candid and unusually granular. I found enough material to write two columns in a fortnight.

One used Irdai's benefits data to show that insurers pay five times as much because of policy surrenders as they do to the families of deceased policyholders. The second used complaints data to show that policyholders who complain and keep escalating win more often than insurers at every stage of the process. I have written about this industry’s awful incentives for literally decades, but never expected to find vindication in data released by Irdai itself.

The media and social media have covered the commission caps proposed in the paper, but my question is different: how did such a candid document come to be?

Unusually candid

If you turn to part 2, practically every page has numbers that Irdai has never published before. Here are just a few examples: individual insurers are named by code and ranked on cost. Individual banks are shown by how many insurers they have tied up with and what each tie-up costs.

At one point, we discover that group health insurance commissions touch 93% of premiums at some insurers. In the regulator's own words, this is "unusual and counter-intuitive," since group schemes typically have lower claims and the corporate buyer should have bargaining power. Given its decades-long track record, Irdai did not write "unusual and counter-intuitive" about high costs by accident. This kind of comment shows that something has changed.