In
the last Financial Year, the FDI Investment window for Insurers increased to
74% to attract foreign capital and expertise. There have been a couple of
transactions where foreign shareholders have cemented their commitment to the
Indian market by increasing their shareholding while others are evaluating
their options. IRDAI has been nudging companies to list on the bourses,
improving transparency and governance. While executed in a challenging market
environment, the LIC IPO was a step in this direction. With PE investments in
Insurance companies, the listing can be a lucrative exit option in supportive
market conditions. The General Insurance Business (Nationalization) Amendment
Act, 2021, passed by the parliament in August 2021, now allows the central government
to dilute its stake in state-owned general insurers below 51 percent. This
effectively means that these insurers can be privatized.Digital
has now become an imperative for Insurers to enable seamless customer
experience, last mile distribution, product innovation, and claims processes.
With Digital being embraced by the consumers, there is a tremendous opportunity
for innovative solutions across the customer/ product lifecycle. Furthering the FinTech penetration in the
insurance sector, the IRDAI had created a ‘Regulatory Sandbox’ to use creative
ideas to increase the pace of innovation. Insurers are experimenting with
innovative solutions in the Sandbox across various functions. Seeing the
traction, IRDAI has extended the validity of ‘Regulatory Sandbox’ regulations
for two years.
In
the past few weeks, we have seen more enabling regulations to increase ‘Ease of
Doing Business’ and spurring faster innovation, ultimately seeking to increase
Insurance protection and benefitting policyholders.
IRDAI
first allowed Insurers to offer Health and most General Insurance products to
customers without the regulator’s approval, thus radically moving from a “File
and Use” approach to “Use and File.” This was extended to Life Insurance
products (except individual savings, pensions, and annuity). While this
intervention enables Insurers to be more responsive, flexible, and agile, it
also places great responsibility on responsible product design and
transparency. The time for taking a new product earlier was a couple of months.
Insurers are expected to take advantage of the new provisions to respond faster
to customer requirements and aim for drastically reduced timelines for ‘Go To
Market.
The
solvency margin requirement for Insurers doing crop business has also been relaxed,
potentially freeing up capital to underwrite more business.
A
stated approach of IRDAI is to have principle-based regulations instead of a
rules-based regime. It has formed Working Groups from the industry to advise on
further reforms in law, products, distribution, finance, health, finance,
taxation, ease of doing business, etc. Among the proposed reforms in life
insurance are the standardization of products and simplifying regulations,
specifically on calculations of management expenses for these companies.
An
interesting proposal is whether to allow Life Insurance companies to sell
Health Insurance. Six years ago, the regulator had disallowed this, but now
again, the same has come up for consideration. The driving force is the need
for faster and enhanced Health Insurance coverage - with an apparent Affinity
between Life and Health products and the wider distribution reach of Life
Insurers, they may be able to ensure far higher coverage. However, this has
potential ramifications on the General Insurance and Standalone Health
Insurance companies. They have introduced innovation and focused on Health
Insurance in the past few years. Also, it would mean that the Life Insurers
would have to create structures and Claims/ Service processes for Health, especially
Indemnity products.
Going
ahead, change will be faster than ever before. Business transformation will be
driven by digital transformation across the entire value chain – distribution,
sales, claims, operations, service, etc. Integration of InsurTechs in each of
these domains will accelerate. While the methods and speed adopted by Insurers
will vary, it is undisputed that the approach will have customer-centricity at
its core.
Thus,
the enabling approach of IRDAI assumes great importance in shaping the change.
With the distinct reforms-oriented approach and maturing of the industry, it
seems that IRDAI is now moving from “R” to “D” - emphasizing more on the
‘Development’ part of its role. It is now up to the industry to seize the
opportunity while at the same time living up to the faith reposed in it by
institutionalizing a more mature and responsible approach.
Author:
Vishal Bhave; Practice Leader, Insurance, Praxis Global Alliance