The Ajay Seth Interview

Hi, I'm Monica Hallon and this is my podcast, Let's Talk Money. Every Friday, a new episode will drop that gives you a snapshot analysis of one money-related topic that has meaning in your life. And then I answer your money questions. My hope is to put you on the path to financial stability and freedom. So let's talk money. A few days back, I sat down with Mr Ajay Seat, who is the IRDAI Chairman and we spoke at length about the changes ahead in the Indian insurance industry and what this means for the policyholder, which is you and me. This conversation was a podcast episode which I host and this is called The Growing India Podcast. It's a video podcast, so I encourage you to go take a look because while I focus on micro issues here, on that, I deal with macro policy, geopolitics, geoeconomics, larger issues. And this is in collaboration with Crow. I want to give you some highlights of the talk, but please do go to the YouTube channel and watch the entire conversation. The channel is called Thrive by Crow. If you just Google my name along with IRDA YouTube, you'll see the link. Otherwise, the link is also there in the show notes. Now, see, health and life insurance, I believe are key parts of an individual's financial kit. These are seat belts. I've always said that you first buy these products before you put one rupee into investment, but the insurance market in India has been upside down with distributor commissions that decide sales on one side and the product structure which causes people to get trapped in them. And there's this whole issue of hard sales, the hard sale of health insurance with hardly any underwriting so that the check which should have happened at the time of the sale of the policy happens at the time of claim. So the industry is upside down. Mr. Ajay, said wants to change this marketplace and he is putting the policy holder interest front and center. And this has caused an unbelievable uproar in the industry. I think they've just been used to pliable regulator till now and somebody who's talking off consumer interest and giving out data to prove his point is just they cannot deal with it. So anyhow, I will give you highlights of the conversation, but please do check out the video. My question was that what is it that you're trying to do through this consultation paper? And he said that the central message is that the insurance industry needs to become far more cost efficient, transparent and responsive to policy holders. He said that insurance is a long-term promise people pay premiums today because they expect financial protection when they need it many years into the future. We have also to ensure that the way insurance is designed, distributed and serviced delivers value to the customer. And he frames it in the context of Sapkha Bhima, Sapkhi Raksha, act of 2025 December and says that the Parliament of India has charged the insurance regulator to carry out protection of policy holders. So this reform is arising out of the changes in the Insurance Act in December 2025, which empowers him to do this. So this consultation paper he's saying is an important first step in that direction. He's not saying this is the last. He's saying this is the first step. It's looking at the cost of doing business. It's looking at how products are distributed. What is the information available to consumers and what are the incentives which are shaping this market? We need to examine the entire system rather than look at one element and isolation he said. And he further said that the objective is not simply to reduce costs for the industry. It is to create a more efficient market in which customers get better value, insurers operate sustainably and competition works in the interest of policy holders. There is scope for improvement and we should be willing to examine the evidence and make changes where they are necessary. Now as you can imagine this is music to my ears because this is something that I have for 20 years said that can we have rules and regulations which actually work in our favor policy holders favor because it is my premium which makes the whole industry go around but anyhow here we are. So the second part was why is this cost in the insurance sector such an important issue right now? And Mr. Seth said that the cost of doing business is a significant issue because it affects how much of the premium is left after the costs for the risk that you're trying to mitigate and how efficiently the industry operates right. So if the costs are very high the amount left over to provide protection and this is something we see playing out in the claims data in health insurance. If costs of operation are so high there is very little left for claims. Companies will prefer to pay group claims because they have higher bargaining powers. So claims of you and me individuals are not paid on very flimsy grounds some of them are just absurd. So it affects really the entire industry. He said in general insurance the cost of doing business is over 30% of the premium in simple terms for every hundred collected as premium 70 only 70 remains in the risk pool before claims and other considerations. This cost that cost includes of cost more than commissions it includes acquisition expenses administration and other costs. Now we have to see how these costs have evolved and what can be improved realistically. In life insurance he said the cost of doing business was around 16 and a half percent several years ago and then it rose to 22% instead of declining they are rising. We believe he said there is scope to bring it closer to 15% over time. In general insurance costs were around 25-26% in the financial year 17-19 period and then they have moved up to above 30. So here is an industry which is actually increasing costs as the size increases size of the business increases in the financial sector because of typically low fixed cost you know there's no steel going into making of an insurance policy. Your costs come down as the size of the industry expands but that is not with what is happening costs are going up. He says that these numbers suggest that efficiency can improve but the answer cannot be limited to reducing distributor commissions. Insurers must also examine operating expenses, productivity processes and the use of technology. The objective is to create a more efficient business model that can deliver better value to customers. These are all good things right and then I asked that what happens when a customer buys a policy but cannot continue paying the premium. So one part is that the policyholder genuinely can't and the other part of course is that he's been missold so that he's bought something which he thought was like a fixed deposit but he realizes later that it's a recurrent premium which he needs to pay for 15 years so therefore we see drop-offs. We are seeing literally people drop off after one year. So the chairman says that this is an important issue particularly in life insurance because these are long term financial commitments. A person's circumstances can change income may fall employment may be interrupted or the customer may discover that the product is not suitable. When a policy is discontinued early the customer may lose a significant amount of the money already paid because of the surrender charges. The structure of the product and the costs incurred at the beginning can make this particularly difficult. This is one reason why incentives at the point of sale deserve attention. Customers should be able to understand before buying a policy what they would receive if they surrendered it after one year, two years, three years and so on. They should not have to search through complicated documents to discover financial consequences of discontinuing policy. We should also examine whether they are ways to give customers greater flexibility when they cannot continue paying premiums but do not immediately need their money. Something I think what he meant was a discontinuation fund like you have in your lips so even though you're not paying premiums the money doesn't come back to you it completes a term and you get paid a minimum amount of interest on that so you don't really lose capital. He says that the objective should be to help customers make informed decisions and avoid unnecessary losses. Product design, suitability at the time of sale and incentives paid to distributors all have a role to play. My next question was in persistency. So in the consultation paper part two, IRDA has now disclosed dend your persistency so far. However, IRDA disclosures are about the 61st month persistency for policies which have a 10 hour of 10, 15, 20, 30, 40 years but only 5 year persistencies given and that number for last 15 years has been stuck at less than 50%. So less than half the insurance policies on an average survive a 5 year period and we know that the costs of surrender are very high so this is a capital loss to policy holders. IRDA has disclosed 10th year persistency and it is just shocking to see their numbers. There is a company who after 10 years could retain only 8 out of 100 policies. This is the minimum. The maximum was 42 out of 100 and their companies where the first year persistency is 0 which means whatever they sold in the first year did not get renewed and if that happens the entire premium is gone. So this is just damning data and I asked him about that. So he said persistency is a really important indicator but we must interpret it carefully. It tells us whether policy holders continue their policies over time. If a large proportion of customers discontinue policies we need to understand why. There can be several reasons. Our financial circumstance of the customer may change the product may not have been suitable in the first place. The customer may not have understood the long term commitment or the consequence of surrender. We should not assume that every discontinued policy has the same explanation that enough but when only 8 out of 100 are surviving I think that evidence is coming out very clearly. Then he goes on to say at the same time we cannot ignore the effects of the sales process. If the distributor receives a substantial incentive upfront there may be less incentive to remain engaged with the customer over the life of the policy. A structure that places greater emphasis on ongoing service and trail-based incentives would help align the interests of the distributor with that of the policy holder. Persistency cannot simply be mandated without understanding the underlying reasons. We need better suitability assessments appropriate product flexibility and a closer examination of how sales incentives work. The objective is not to force people to retain unsuitable policies it is to ensure that policies are sold appropriately and customers who buy them have a reasonable chance of benefiting from them. My next question was how do we make insurance disclosures genuinely useful. Ajay said that disclosure is useful only when the customer can understand it and use it to make a decision. A document may contain every legally required detail but if it is too complicated or difficult to access it may not serve its intended purpose. We need to make information simpler, clearer and more accessible including in local languages wherever possible. Before purchasing a policy a customer should be able to understand what is covered, what is excluded, what the product costs and what happens under different circumstances. The same principle applies to suitability. We should be able to establish that the customer was assessed for the product being recommended. That assessment should be recorded and capable of being audited. It should not be enough to say that the customer was given a brochure or asked to sign a form. We also need better information about product performance and the experience of policyholders. What kind of products are being sold? How many policies are surrendered early? What are the outcomes for customers? Information of this kind can help consumers compare products and can help the regulator identify areas that require attention. Transparency must be practical. The test is whether the information helps a customer make a better decision, not simply whether a disclosure has been made. I then asked about health insurance sector and said we are not even able to compare features or prices. I just said that health insurance premiums reflect several factors including the cost of healthcare, the claims experience of the insurer and the expenses involved in running the business. We need to examine the three elements together. The cost of doing business in general insurance is about 30% and they are scope to improve efficiency. If insurers can reduce unnecessary costs, improved productivity, that can create room for better value for customers. But we should not assume that a reduction in one cost automatically translates into a particular reduction in premium. The final outcome depends on several factors including claims and healthcare costs. We also need to improve price transparency. Customers should be able to understand what are policy costs and how premiums have changed over time. Ideally, they should be able to access meaningful information about prices without having to provide personal details simply to discover the price. This kind of transparency can make comparisons easier and encourage competition. Consumers need information that allows them to evaluate their options while insurers need to price products sustainably. The broader objective is to make the market more efficient and help customers understand what they are paying for. I of course then spoke about the co-pay problem that how is it that the industry despite raising premiums year after year and the claims experience being so poor is now loading 10% co-pay which means every hospital bill we will have to pick up 10% of that cost. So my question was like how are they even doing it? The chairman said that a co-payment is one possible mechanism that can affect the premiums paid by a policyholder but we need to study its implications. At the time of our conversation this was an idea being discussed in the industry it is not being formally reached. It is the proposal to the regulator we have not signed off. The important question is whether a particular arrangement genuinely improves affordability while continuing to provide meaningful protection. If a customer has to bear a large share of the medical bill the premium may be lower but the customer must also understand the additional financial risk that they are taking on. We have to examine both sides what the customer saves in premium and what the customer may have to pay when making a claim. We also need to consider safeguards required so that they understand what they are buying. And at the same time we should not treat cost sharing by policyholders as a substitute for examining the underlying costs of healthcare and insurance, hospital billing practices, room rent related costs, other sources of medical expense deserve attention in their own right. The objective is to improve affordability without leaving policyholders uncertain about the protection they can expect when they need treatment. Next question was how do we move from a market where insurance is sold to one in a market where insurance is a push product it's sold to one where it's a full product where it's bought. Ajay said that we need to create an environment in which customers can understand their needs compare products and make informed choices. Distribution will continue to be important, particularly when insurance products are complex and customers need advice. But the market should not depend entirely on a distributor to explain every product or determine what information the customer receives. Technology can make a difference, digital purchases currently account for a small share less than 5 percent, but there is potential for this to grow substantially maybe 20-25 percent. Not every product or customer will be suited for a full digital journey, but many transactions can be made simpler. We also need to make product information accessible. Customers should be able to see relevant features, costs, outcomes, compare options without unnecessary friction. A more competitive distribution system supported by technology, better information will give consumers choice. The goal is not to eliminate intermediaries, it is to ensure that distribution adds value, advice is appropriate and customers are not dependent on the seller for basic information about the product. The next question was how can you assess the performance of distributors and intermediaries because today my question was you can rate an Uber driver a blink-it delivery boy, you can literally as a consumer give your opinion and other people look at your star rating aggregated and then decide on the suitability of that particular person who's serving you. Why can we not see anything about the person selling us a policy? The regulator said that look better information can improve accountability, but we must ensure that it is presented consistently and interpreted fairly. We are looking at the possibility of a public insurance registry that could provide useful information about products and overtime distributors. For products information could help consumers understand what is being sold, how policies perform and what happens when customers discontinue them. For distributors relevant information could eventually include matters such as complaints and other indicators of customer experience. However, we should be careful about how this information is designed. a single number may not explain the full picture, differences in customer profiles, product types and other factors can influence outcomes. Data should be comparable and presented in a way that helps customers understand. The first step is to make product information available in a consistent and useful form. We can then examine how distributor level information should be developed. The broader purpose is to improve transparency, enable informed choice and strengthen accountability. My last question was that is this the end of the reform process? He's saying no absolutely not. We should be seen as a first step, not the end of the process. We need to continue examining the areas where insurance sector can improve its efficiency and deliver better outcomes for policy holders. The issues go beyond distribution costs. We need to look at the way products are designed. Our suitability is assessed. How information is disclosed and how consumers are treated when they make claims or raise grievances. Claims management must be timely, consistent and fair. Grivians' redressor must come faster and more consistent. Customers should be able to understand their policies without having to navigate complicated documents. There is also a need to examine how life insurance products give deliver value over the long term, including the returns available to customers and the information provided during the accumulation phase. The consultation process is an opportunity to hear from the industry consumers and other stakeholders. So the regulators saying that we welcome evidels and alternative interpretations of data and people and people should be able to respond to this. Ultimately insurance must be a business that earns the trust of policy holders that requires efficiency, transparency, fair treatment, accountability, not just at the point of sale but throughout the life of the policy and when a customer needs the insurer to be delivered on the promise at the point of claim. So the regular listeners of this podcast will know the sort of shock value of the insurance regulators saying the things that I have been saying for 20 years to say look you need basics in place before you can have healthy growing industry. You cannot have the policy holders being gouged out. So this is all good now. We have to see how far these changes will happen because my take away was that the entire of this that he is taking a cue from Subki Bhima Subkar Akshah Act and will focus on the policy holder protection as a key part of the mandate. Distributor reform is but the first step. He's actually asking you the public and the policy holder to respond to this. I am going to leave again a link in the show notes where you can give he's in just in any manner that you can please talk to the regulator to give your stories so that so he actually said on that interview that look we hear from the industry very loud and clear but we have no way of hearing you the individuals so please respond to this consultation paper the deadline is 25th of October. I'm leaving link in the show notes please do follow that. I'm hopeful but do keep listening and I'll keep you informed as to what lies ahead and I am skipping your questions this week so sorry because I ran over time I'll be back next week with a full episode. And that's a wrap for today I enjoy answering your money questions remember I don't look at individual portfolios I don't recommend products look upon the space as a place to ask strategy questions doubts and just basic things that you might not understand each time you have a good money outcome I feel that I have one to make sure that you don't miss an episode press follow and help your friends get money smart by sharing a link with them you can reach out to me at mail me at theratemonicahullin.com that's Monica with the K tag my social media handles at the Rape Monicahullin and finally remember that you should have money and money should not have you so let's talk money again soon bye