The insurance regulator’s 70’s mindset is not serving the purpose in 2020

It is almost as if you can see the conflict: there is the desire to do the right thing by the customer, but the DNA of an institution that does not believe in consumer rights comes in the way. The insurance regulator is torn with this dichotomy, of watching its capital market counterpart take giant strides in investor protection and disclosures, wanting to do the same, but not being able to. Insurance industry insiders say that the Insurance Regulatory and Development Authority of India (Irdai) chairman is keen to bring about change in favour of the consumer but is hampered by the tight ring of bureaucracy of a PSU monopoly mindset that thrived in a supply-starved market of the 1970s of a socialist India.

Two moves that should have brought accolades need to do much more in policyholder interest, but are good announcements of a regulator beginning to think about customers rather than agents, brokers and firms. One, the idea of a standard term life cover that can be bought off the shelf with standard features and no frills. Each insurance firm from 1 January 2021 will have to launch a standard pure term (only insurance cover, no investment) cover called Saral Jeevan Beema (read the circular here: bit.ly/37I6ii8). Great move, but it is unclear why there is a  ₹25 lakh upper limit for the sum assured, and then the asterisk that firms can offer more cover if they like. It seems that firms will have to offer a cover of up to ₹25 lakh and can offer a higher one if they choose to. Pure covers have a rule of thumb of 10 times your income. So, an income of  ₹2.5 lakh a year will need a  ₹25 lakh cover. To me it looks like a carve out for insurance firms so that they don’t really have to offer a policy to the market that is actually buying term covers—those covers are of a much higher value— ₹50 lakh or more.

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Three regulation changes that make mutual funds safer

The closer you examine the financial sector, the more you get to believe that parts of the industry believe that if there is a way to do something wrong, why do it the right way? Not for all the firms in the market, but a few aggressive ones. And these cause regulators to go on tightening rules that finally hurt the market as the compliance costs and complexity keeps growing. The first 10 days of October saw the market regulator in an overdrive to push through long-pending reform that make the mutual fund product safe for retail investors. The speed could have some connection with the date of whole-time member Madhabi Puri Buch’s term completion coming closer, though she recently got a one-year extension. Buch has been a prime driver of change in the last couple of years and has also energized the mutual fund department into a data-crunching, evidence-building and change-enforcing machine. These are all good things for investors, of course. Three changes and what they mean for you.

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A pragmatic fiscal stimulus package that nudges households to spend

A far more confident, poised and assertive Nirmala Sitharaman looked nothing like the fumbling FM just a few months ago when she announced the first fiscal package. The almost  ₹1 trillion of spending plus infra push announced can be criticized by arguing that the government is not really spending anything much. And where is the  ₹10 trillion that all the NRI economists are so fond of recommending? But if we stop being attached to seeing an actual spend from the government coffers and look at what the FM is trying to do, putting our political biases aside, then the story that emerges looks like this to me. 

First, the package announced is this: Central government and central government enterprise employees can choose to either lapse their LTA this financial year or get the benefit in cash equal to leave encashment plus three times ticket fare.  ₹10,000 worth of festival advance will be available for all such employees. State governments and the private sector can also do the same. For an infrastructure push, a  ₹12,000 crore zero-interest 50-year loan to the states is being given and another ₹25,000 crore as a capital expenditure boost to the existing ₹4.13 trillion already announced in Budget 2020-21. The value of these measures is about  ₹1 trillion. The sleight of hand is that this will be spent without the government actually spending that much more.

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Spend less, save more and get financially fit

How to get rich. These four words tickle the aspirations of anybody who is not living in a cave having given up on maya or this world of illusion! The usual answers to this question deal with tips, some stocks, some real estate that is changing from agri to commercial very soon, some new crypto sure-shot deals. It is usually better to buy a lottery ticket than go down the path of somebody who is promising to make you rich in a very short time by doing very little work. A more mundane but possibly more useful question is this: how do I get financially fit? The answer is more boring than the exciting deals and just-in-time investing in a project that is closing soon. Financial fitness is about earning more, saving more, spending less and investing better. But we all struggle with living life today while planning for a future that we cannot experience. It is really difficult to resist instant gratification, especially for a generation that has grown up with relative plenty rather than the socialist supply and choice-starved regime of India in the 1970s and ’80s. How should we then think about getting financially fit without compromising on our todays that much? Let’s work with some rules that have survived the test of time.

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