The outlook for the General Insurance Market seems very positive. The industry has picked up well post pandemic and it is expected that the growth trend will continue. The Insurance penetration continues to remain a challenge for the industry. While low awareness is one part, trust deficit is a major issue. The key to attempting to solve this by having an empathetic approach is the clarion call of the time.The technological transformation will continue to play a vital role in business transformation in the coming years to come.While technology continues to play a pivotal role, the industry needs to deploy digital solutions to collectively work towards improving penetration of insurance in the country by adapting to customer requirements in a best suitable manner. The various changes that the Regulator and market has thrown on the Insurers and its related challenges is the theme which will be highlighted in the present narration.
The Use and File mode of Product filings:
The Product approval was a time taking affair and the Companies were supposed to take IRDAI approval before launching the products and in entirety it was a delay process for the Insurers. The Companies now can introduce a product in the market and then file with the Insurance Regulatory and Development Authority of India (IRDAI) for approval. This move will facilitate the insurance companies to design and launch innovative products under all segments in a timely manner and expand the choices available to the policyholders. The rationale behind introducing the “use & file” procedure for all the products is that the industry has matured hence it does not make any sense to get the regulator’s prior approval before launching every product. The Product Management Committee is empowered to monitor the wordings and ratings of the products filed under Use and File mode. The new guidelines will help the industry to lunch the products in a faster manner side by side it requires all the Insurers to act in a more responsible manner. In this move the industry will get much wider products and the customers will get ample opportunity to select the products as per their requirements but the relative challenges towards this move is that there will again be confusion and chaos in the market with respect to the products and will further lead to service failure in the market.
The Standardization of General Insurance Products:
Sustainable growth in the insurance industry primarily relies on consumers making informed choices by picking the right insurance products. But in many scenarios, consumers do face trouble in understanding the product rightly. The standardization of insurance products will make it easier for consumers to select the products correctly and suitably as per the best requirements of the clients.
One of the most promising solutions that the regulator has introduced is the Standardisation of Insurance products. With this move of standardising complex insurance policies, IRDAI has enhanced consumer buying in today’s time. The health insurance penetration in India got a boast with the introduction of Arogya Sanjeevani policy which is a standard product in the health line of business.
There are several new standard insurance products under the same lines are namely Corona Rakshak, Corona Kavach, Saral Jeevan Bima and Standard Personal Accident Cover etc.The dismantling of the Standard Fire products associated with the erstwhile Fire tariff and the introduction of three standard products under Fire line of business such as Bharat Griha Raksha, Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha. has also brought about a revolution in the General Insurance market.
The regulator has introduced Policy seekers do resolve challenges in several scenarios be it while comparing products or while making a choice from the plethora of options available in the market. Often these difficulties end up with customers having to delay their buying decisions. During such situations, providing clear, transparent information to the consumers is of utmost priority. Simplifying the available options can turn out to be an excellent attempt to enhance the trust between consumers and the insurance eco-system.
The Scrapping of Burning Cost model of Pricing:
There was time when it was decided to accept Insurance as well as reinsurance placement only for clients where the risk was priced at premium rate on burning cost basis as arrived by IIB. In simple, the burning cost rate is arrived at by dividing claims paid by sum insured. Now the Insurance Regulatory and Development Authority of India (IRDAI) has advised all non-life insurers and reinsurers to ensure that the Insurance Information Bureau (IIB) published premium rates for fire and engineering policies are not embedded as the minimum rates within the reinsurance treaty agreements for the risks commencing on and after April 1, 2023.This attempt of the regulator again puts the Insurer in suicidal competition and the treaty arrangement with the national reinsurer becomes a very tight job. The business of the GIC Re is expected to be impacted in the coming years as the sectoral regulator scrapped the `burning cost` model of pricing by reinsurers.The policyholderswere being led to believe that the burning cost released by IIB is a minimum mandated rate. Thus the buring cost model gave to the insurer a feeling of Tariff like atmosphere and suddenly there was revamping of the same which again gave a detariffing scenario in the market for all the players.
The revamp of testing time under Sand Box regime in General Insurance Market:
The initiatives of Sand Box will help in furthering the goal of insurance penetration and reaching out to more and more people in the country. The Regulatory sandbox refers to live testing of new products or services in a controlled regulatory environment. It acts as a “safe space” for business as the regulators may or may not permit certain relaxations for the limited purpose of testing.Regulatory sandboxes enable in a real-life environment the testing of innovative technologies, products, services or approaches, which are not fully compliant with the existing legal and regulatory framework. They are operated for a limited time period of 6 months and now the same stands revised to 36 months or 3 years. One of the major challenge was that the applicants under the regulatory sandbox mechanism could apply through cohorts.By this move the Insuretech companies and the insurers with a passion to grow through technology mode will be the one marching ahead in the competitive system. The sandbox mechanism will nurture the niche players those who have the technology backbone and insurtech and have motive to cater to those areas which are still unserved in the country.
The State Insurance Plan- Insurance for All:
Proliferation of insurance in every nook and corner of the country by focusing on each state/UT is the primary objective of the Regulator under the same project and aims towards Insurance for All.
The proposed State Insurance Plan is intended to accelerate last mile delivery of insurance services while utilizing the unique opportunities offered by each state. A joint effort from insurance companies, state authorities and direct participation of officials from IRDAI is envisaged to drive the agenda of the plan. State specific insurance profiles based on a proposed set of parameters may help bridge the gap between the insured and uninsured population while improving the overall quality of insurance services offered. All the stakeholders involved in this proposed approach are envisaged to have vital roles to bring about effective implementation of the plan. The approach may be implemented in phases starting with creation of individual state insurance profiles and developing an insurance inclusion plan in accordance to the profile. Each state/ region of India offers a unique set of opportunities as well as poses certain challenges when it comes to insurance inclusion. The intent of this initiative is to have a focused approach towards tapping into those opportunities and addressing the underlying challenges. Each Insurer is allocated with a specific state or Union territory to nurture and expand the insurance penetration and deliver the insurance products to the last mile individual.
The Changes which are on the cards:
Tax Incentives for Insurance products: All financial purchases are currently clubbed under the same IT deduction section (80C), capped at Rs 1,50,000. It is expected that creating a separate section for a tax deduction on premiums paid towards life and health insurance will further help in boasting up the insurance sector of the country. This will effectively segregate customers’ funds into long-term and short-term kitties. Considering the low single-digit penetration of life and Non-life insurance in India, tax incentives can be expected to focus on first-time life insurers and the principal component of annuity income. Special incentives may also be announced for women who currently account for barely more than one-third of the country’s life insurance covers.
GST rate relaxation: GST rate relaxation from the current rate of 18 per cent on all insurance products may also help make it more affordable for the masses, who are keen on buying protection-oriented products like life insurance, health insurance and the allied.
Composite Licence for Insurers:The Regulator is set in all moods for granting of composite licences to the Insurers of the country. This move will help the Insurers to sell different financial products including mutual funds which in other words can be cited as the Insures are allowed to operate in multi lines like General, Life and Health lines. If an applicant meets the eligibility criteria for different classes and sub-classes of business, the regulator may register the applicant as an insurer and grant it a certificate of registration for such classes or sub-classes.With composite licence arrangement, insurers will now have more flexibility in operating in multiple lines of insurance business, without having a separate insurance company to sell life, general, and health business.
Revising the Capital requirements for Insurers:The rigid requirements of capital for setting up an insurance company is of Rs 100 crore is required for setting up a life, general, or health insurance business and for reinsurance it is Rs 200 crore. Now very soon the insurance company be allowed to commence business with a minimum paid up equity capital as may be specified by regulations, considering the size and scale of operations, class or sub-class of insurance business, and the category or type of insurer.
The concept of Captive Insurers:The captive insurer is an insurance company that is owned by the insured itself.In India, like large corporations and cooperatives, the government too can benefit from the use of insurance captives for public programmes like the Pradhan Mantri Fasal Bima Yojana (PMFBY) and Pradhan Mantri Jan Arogya Yojana (PMJAY). The captives have tremendous growth potential if they register within low-tax jurisdictions such as the GIFT City (Gujarat International Finance Tec-City). Given its tax incentives, GIFT City can emerge as a hub for captives for the entire Indian subcontinent. The introduction of the insurance captive concept is a winning proposition as it widens the choices for insureds providing greater flexibility and coverage for nicherisks and also has the potential to revamp the implementation of self-insured government welfare schemes. The captive insurance industry emerged to address deficiencies and inefficiencies of traditional pooled insurance programs.
The General or NonLife insurance industry has undergone numerous transformations in terms of new developments, modified regulations, proposals for amendments and growth. The mission of the Regulator ‘Insurance for All by 2047’ is very aggressive and the same seems visible in all the attempts which the Regulator is taking in the present days. The Insurance sector is embracing cutting-edge technologies such as machine learning in the automation of claim management, personalized insurance pricing with the Internet of Things, and Telematics for Motor insurance. The initiative of Bima Bharosa and Bima Sugam is a very path breaking attempt by the Regulator which will boast the ultimate aim of Insurance penetration and Insurance for All.