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a"> Regulation of any industry in any country is an evolving one, especially, those related to the financial services sector. But, what if the regulatory environment becomes a revolving one, unsettling the participants every now and then. That is probably the state of affairs in the Indian life insurance industry. A decade of insurance regulation in India has come a long way, with policyholder protection being the primary concern, and with scores of new products and widening the options with 22 private life insurers. From a near state-run monopoly when pricing was its total discretion, the competition has lowered the cost of insurance and cover.

In its eagerness to deliver quickly, there have been at least four hasty decisions that have been either pulled back, or modified, disturbing the calculations of companies that sell insurance cover. Many decisions are still pending. Guidelines on pension funds, lack of permission to invest, or hedge in available securities in which other institutions participate, flip-flop on the state of lapsed policies and enhancing the curriculum for agents.

"There were fundamental changes introduced in quick succession and it left little time for us to adjust," said GV Nageswara Rao, managing director and CEO, IDBI Federal Life Insurance. "For example, agents were not given enough time to prepare after the syllabus was changed and therefore, the pass percentages have fallen."

The revolving regulations are unwelcome at the industry level, which is on the threshold of coming out with listing of shares after a decade of wait. Of course, few know how to value those companies and with them being deprived of higher foreign investment limit, some may be forced to go for listing soon. While the growth story is the easiest to sell, with millions uninsured, there is no dearth of the so-called opportunity. The reality, however, may be that many can't afford like they can't have bank deposits despite long years of campaigning for financial inclusion and no-frills accounts. It is not the best of the years for the life insurers. New business premium income for life insurance has fallen 17% to 71,953 crore in April-December 2011, from 86,698 crore a year ago. Private sector companies had a 20% fall in income from sale of new policies during the period, for state-run Life Insurance Corporation, it was 16%.

Companies feel the frequent changes in regulations are the reason behind the slide. That is true. But there's another side to the coin, overall slowdown in the economy and inflation where higher portion of savings is eaten away by higher prices of essential goods, leaving little for financial savings and insurance. In June 2010, the Insurance Regulatory and Development Authority asked insurance companies to offer a 4.5% guarantee or as specified by the regulator at maturity with unit-linked pension products. Citing issues like non-availability of instruments to hedge long-term risks, companies either filed single-premium product or stayed away from the space.

Fifteen months later, it withdrew the guarantee clause at maturity. This led to a washout of a key quarter for companies when sales were the highest. The regulator is asking for a non-zero guarantee or positive return at surrender, maturity and death, which is in favour of the policyholders. "We have the duty to develop as well as regulate the sector, unlike other regulators in the financial sector," said an official at the regulator, who did not want to be identified. "That is why we come out with guidelines, place it before the working group, council, standing committee, before taking any step."

But why the flip-flop on persistency requirements. In September 2011, it changed persistency requirement for agents. After having spelt out tough norms in February 2011, that is mandating 75% persistency ratio from July 2014, the regulator lowered the levels to 50% later to keep their licence. So, if an agent sells 100 policies in a year, he has to worry about renewing 50 policies instead of 75 as earlier mandated. So was the case with lapsed policies, where it reversed its decision that policies could be revived within 75 days, instead of the previous two-year window. Now, it is back to two years.

"A fair share of changes was precipitated by what the industry was doing, but some big impact changes where the regulator went back and forth could have been avoided," said Sandeep Ghosh, managing director and CEO, Bharti AXA Life Insurance. "Instances such as treating policies as lapsed after 75 days of renewal period from 2 years earlier was not required. The regulator reversed it to 2 years later." Is the regulator to be blamed for it all, or is it facing a familiar problem of shortage of skilled workforce? Compound to that, its disadvantageous location, Hyderabad, when the financial capital is Mumbai, where other regulators are and the industry's blistering growth.

Irda's 153 employees are burdened with the onus of regulating 47 insurance companies, which generate an annual income of 4.5 lakh crore at more than 300 million policies. Also, they are responsible for managing 500 insurance products filed every year. Non-life industry generates 50,000-crore new business income and another 50,000-crore investment income. It is probably these constraints that make them delay decisions, and those that are taken are done hastily, in some cases. They are reluctant to allow some products that may be essential in modern finance, though abused.

"If the regulator allows us to invest in products like options or derivatives, then it is possible," said TR Ramachandran, managing director and chief executive officer, Aviva Life. "To ask companies to conform to some set of guidelines, without not necessarily giving them the ammunition to manage risk, can't go hand in hand." There is one issue where insurers are waiting anxiously - bancassurance. It can make or mar the fortunes of a company, as it has become the key vehicle of growth for insurers by keeping their distribution costs low.

Bancassurance is where an insurance partners with a bank to sell policies. In November 2011, draft norms on bancassurance were issued. Contrary to report on bancassurance, suggesting one bank tie-up with two life, two non-life and two standalone health insurance companies, the draft proposed dividing the country into three zones. It restricted one insurer-bank partnership to nine states in Zone A, six states in Zone B and unlimited in Zone C. Zone A comprises 13 places, Zone B - 9 states and Zone C - 17 states. The industry has been lobbying for a year to implement this.

This, according to the regulator, will help increase penetration, which is restricted to 7,000 bank branches against 80,000 existing branches. Irda's action on unit-linked insurance policy, where it cut commission for agents drastically, though triggered after interference from a rival regulator, has benefitted policyholders immensely. Will it show similar maturity in other aspects too, with enhanced manpower?