DEAR READERS,
On 30th April,2012, The Ministry of Finance has requested the Insurance Regulatory and Development Authority (IRDA) to relax the branch opening norms in smaller cities thereby increasing the penetration of insurance in smaller towns and rural areas.
The current penetration of insurance in rural areas is very dismal in both life as well as non-life insurance sector. The Ministry of Finance is of the opinion that the one of the ways to boost the penetration of the insurance in these areas is by relaxing the norms for opening branches. Taking the case of the Banking industry, the ministry believes that IRDA should also follow the footsteps of Reserve Bank of India (RBI) who relaxed the norms of opening bank branches in the Tier II cities.
Life as well as non-life insurance companies are confined to the limited urban population of India and therefore engaging in highly competitive tactics such as low pricing. If the insurance companies are allowed to expand geographically then they may hold on to their profitability grounds and come up with innovative products especially for such markets.
IRDA is a little apprehensive on currently allowing insurance companies to open branches in rural areas due to the fear that this step may affect the profitability and ratios of the insurance companies. According to the IRDA regulations, every insurance company should generate at least 7% of their total gross written premium from rural business.
The current penetration of insurance in rural areas is very dismal in both life as well as non-life insurance sector. The Ministry of Finance is of the opinion that the one of the ways to boost the penetration of the insurance in these areas is by relaxing the norms for opening branches. Taking the case of the Banking industry, the ministry believes that IRDA should also follow the footsteps of Reserve Bank of India (RBI) who relaxed the norms of opening bank branches in the Tier II cities.
Life as well as non-life insurance companies are confined to the limited urban population of India and therefore engaging in highly competitive tactics such as low pricing. If the insurance companies are allowed to expand geographically then they may hold on to their profitability grounds and come up with innovative products especially for such markets.
IRDA is a little apprehensive on currently allowing insurance companies to open branches in rural areas due to the fear that this step may affect the profitability and ratios of the insurance companies. According to the IRDA regulations, every insurance company should generate at least 7% of their total gross written premium from rural business.
.....editor
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