Raghuram Rajan has told the Financial Stability Development Council that the corpus of the life insurance industry can be managed by the Asset Management Companies.

Assuming that the insurance companies core competence is RISK management, there is no reason why sales cannot be outsourced to banks (as is currently being done), and fund management to AmCs (as is being proposed). This will dramatically reduce the size of the life insurance companies, and will start looking like a branch of a bank!

So banks will sell mutual funds, life insurance, pension plans – and the funds will be managed by the Asset management companies (the regulator has enough powers to let this happen). The AMCs will get scale and can pass that on to the ┬ábenefit of the policy holder.

Will it happen?

NO. For heavens sake no. Each regulator will want his own fiefdom. So there will be offices of all the regulators in all the state capitals. If there is an office, there has to be an office building, infra, …and then they will look for some justification as to why they need to be in all the 29 states, but it will be soon found.

Letting the Amcs manage the funds makes a lot of sense – once these guys get better scale COSTS should go down by the SEBI pricing mechanism. However IRDA will not allow SEBI to supervise the fund management business of the life insurance players.

So why does RR make such a statement? Well he may have intended that in all honesty, but he may not even appreciate his OWN organisation’s ability to stonewall this proposal. Unless of course, it is increasing their footprint. Hmm

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  1. I’m yet to get a satisfactory answer for my question, “Why there can not be pure life insurance companies just like General Insurance?”

    We purchase the risk cover and file claim if any. No claim no problem. Just move on and pay prem. for the risk only next year.

    Thanks

    Ashal

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