New Delhi: The government on Wednesday asked insurance regulator IRDA to take steps to contain the tendency of "suicidal competition" among insurance companies, which are undercutting one another by offering policies at low premium to grab a bigger market share.
"To ensure prudent underwriting and curbing unhealthy and suicidal competition among the companies through undercutting premiums is something that the regulator will need to address suitably," Finance Minister Pranab Mukherjee told the board of the Insurance Regulatory and Development Authority (IRDA).
The unhealthy competition among the insurance companies in India, he said, has started impacting their account books.
The Minister further said, "While de-tariffing (freedom to fix premium) has resulted in significant lowering of premiums for the consumers, the adverse impact is being felt on the insurance company's balance sheet."
On low penetration of insurance covers in the country, Mukherjee said "There are few concerns that need to be addressed. Notwithstanding India's rapid has largely remained an under-insured market with financial vulnerability across most of the income segments".
The Minister lauded IRDA's efforts to dematerialise accounts and set up grievance redressal mechanism said these would strengthen the sector.
"These efforts have to continue in the near future. IRDA has a crucial role at this moment to see that the sector develops in a healthy manner and the reach of insurance is maximised," Mukherjee said.
The Finance Minister also said that the sector has been an important contributor to infrastructure development in the country by providing long-term funds.
Investments by the insurance industry in infrastructure as on March 31, 2011, were to the tune of Rs 1.98 lakh crore, of which 78 percent has come from public sector insurers.
Post nationalisation of the insurance sector in 1956, insurance penetration improved to 5.1 percent in 2010, from 2.71 percent in 2001.
"The financial regulatory framework in India is evolving in a manner which is conducive to development of a robust financial sector, ensures the independence of the regulators and enables the sector to grow in a healthy manner in line with the requirements of a growing economy," he said.