After the opening up of the insurance sector, the year 2022 is probably a watershed that will be remembered as a catalyst for growth in view of a slew of path-breaking regulatory reforms and sustained growth trends.
After a long gap, the Insurance Regulatory Authority of India (IRDAI) has introduced a slew of reforms, addressing the key issues in capital investments, distribution tie-ups and agent’s commission, besides the measures to promote innovation and corporate governance.
According to Sumit Rai, MD &CEO, Edelweiss Tokio Life Insurance, 2022 was, perhaps, the most vital one for the insurance industry. “Not only did it regain growth momentum, it also benefitted from a fundamental reorientation brought about by the pandemic,’’ he says.
The industry has embraced digital solutions in a big way in recent years to bring operational efficiency and transformation.
“Strengthening its risk management practices, innovating products and services, and bolstering customer experience were among the key priorities for the industry in the year gone by,’’ he adds.
Riding high on its increasing relevance, the industry also prioritised digital enablement to improve its distribution network, and found newer capabilities to strengthen its advisory models.
Key reforms
The regulatory framework witnessed key reforms. When asked about the underlying philosophy of the regulatory reforms, IRDAI Chairman Debashis Panda, told businessline recently: “We are focussing on strengthening the three pillars of insurance ecosystem — policyholders, insurers and distributors — and to improve insurance penetration and promoting ease of doing business.”
In line with this objective, the board of IRDAI permitted private equity (PE) funds to directly invest in insurance companies, and made forming a special purpose vehicle optional. The insurers were given approval to raise subordinate debt or preference shares without prior approval of the authority to enable them to respond to market conditions in a speedy manner. The board has enhanced the limit for raising such capital to 50 per cent from 25 per cent of the paid-up capital and premium, subject to net worth of the company. Further, subsidiary companies are also allowed to be promoters of insurance companies.
The solvency norms have been tweaked in response to a long-pending request from insurers. The solvency factors (as per calculating norms) for crop insurance have been reduced to 0.50 per cent from 0.70 per cent, while in life insurance, factors for unit-linked business and Pradhan Mantri Jeevan Jyothi Bima Yojana have been reduced to 0.60 per cent from 0.80 per cent and to 0.05 per cent from 0.10 per cent. This helped release capital of ₹1,460 crore and ₹2,000 crore for general and life insurers, respectively
On the distribution front, the upper tie-up limit for intermediaries has been increased to ensure last-mile connectivity, he said, adding that a competitive environment in the market would make pricing more affordable. Now, a corporate agent can tie up with nine insurers (from the earlier three), and insurance marketing firms can tie up with six insurers from previous two in each line of business — life, general and health.
Insurance for all
The year 2022 is also significant for setting the goal of insuring India by 2047. The IRDAI reaffirmed its commitment to enable insurance for all by 2047, where every citizen has an appropriate life, health and property insurance cover, and every enterprise is supported by appropriate insurance solutions and also to make Indian insurance sector globally attractive. In line with this, the regulatory architecture will be forward-looking, to foster a conducive and competitive environment, leading to a wider choice, accessibility and affordability to policyholders, according to its Chairman, Panda.
According to Bhargav Dasgupta, MD & CEO, ICICI Lombard GIC, the reforms announced by the regulator in November 2022 “are path-breaking, and will improve ease of doing business, free up distribution models, encourage customer-centric innovations and make the sector attractive for investment”.
The road ahead
According to Rai, as we look to the next decade, the key trends that shaped the industry this year will have a long-lasting impact. Coupled with the government’s aggressive push on Digital Bharat, the digital explosion during Covid years has brought about a new era of reorientation in the insurance industry. There has been an unwavering focus on process automation and optimisation, thereby making customer life cycle management more seamless.
The year saw a heavy push on redefining customer experience strategies and aligning them with the fast-evolving external environment as well as customer expectations. Going ahead, dematerialisation will play a big role in alleviating customer experience, and could have an effect comparable to that on the stock market.
With its latest reforms, the IRDAI has underscored its agenda of sustained growth for the industry and insurance for all. Over the long term, these changes will make financial protection pervasive in the country and improve insurance penetration. More critically, the focus on creating ease of business will bring a structural transformation and put the Indian insurance sector on par with its global peers. Not only do we see capital inflows into the sector, but also estimate it becoming among the fastest-growing insurance markets in the world. So, there is more to come.