IRDA favors selling mutual funds to insurance companies

There have been several reforms in the insurance sector under the chairmanship of IRDAI. What else can the industry expect in terms of ease of doing business?

India’s market and economy is gaining traction globally for its flexibility, opportunities and ease of doing business. Irdai’s efforts are also directed towards creating an attractive landscape in the insurance sector. The first set of reforms includes measures to speed up registration of new entities, including creation of a facilitation cell and on-tap NOC (No Objection Certificate) issuance, ease of launching products, flexibility in raising capital providing is included. Efforts are being made to adopt principle-based governance and move towards lighter regulations in expense management, opening up distribution, easier access to reinsurance etc. In addition, proposals for amendments to insurance laws include rational capital requirements, comprehensive registration, one-time registration for intermediaries, value-added services by insurers and sale of other financial products. In addition, various modalities including e-marketplace protocols, local women-centric delivery force, and simple benefit-based products are being considered, which can enhance ease of doing business and contribute significantly to insurance inclusion Are.

You talked about the need to bring in more capital for the industry. How important is it and what progress has been made in this regard?

Insurance is a capital intensive industry. And the need is even greater considering the vast market of India with its 1.4 billion population and their respective properties and businesses. To achieve the target of insurance for all by 2047, existing insurers need to scale up, new players must enter the sector, more distribution partners are needed, more products are needed, and most importantly The point is that the use of high-end technical solutions is a must. We need to tap the huge potential that exists in almost every sector of business, be it life, health, personal accident, motor, property etc. We also need to be prepared for the new and emerging risks and innovative solutions it requires. The State Insurance Scheme aims to reach the last mile and enable access to insurance for every individual. All this will require greater capital and investment, especially in the areas of technology and human resources. Recent regulatory reforms have strengthened the position of policyholders and made the insurance landscape more investor- and business-friendly, making the insurance sector an attractive destination for investment.

How do you view the investment policies of insurers and their exposure to corporate firms?

Irdai has a specific elaborate framework for regulating and monitoring investments made by insurance companies. The framework applies to both the investment pattern as well as the exposure norms. Exposure norms have also been defined for unit level, group level and industry level. A prudential risk management framework has also been put in place for insurance companies. The investment arm of Irdai closely monitors the investments made by insurance companies and intervenes whenever considered necessary. In addition, Irdai has also mandated that insurers need to maintain a certain level of solvency margin, which is a measure of their ability to absorb losses. This ensures that insurers have sufficient capital to meet their obligations even in the event of a crisis. While the existing regulations are designed to ensure prudence and safety of investments made by insurers, the regulator constantly reviews and updates them to keep pace with the changing dynamics of the market and to address any emerging risks.

What about plans to sell other products like mutual funds or other related products to insurance companies?

The financial services space is interconnected. Everyone needs access to banks, credit, investments, pensions, insurance etc. One-stop solution can offer better access and availability of financial services leading to greater financial inclusion. The overall cost of operations can also be reduced, resulting in cost-effective solutions for end users. This can improve the ease of living for the citizens. Integration with technology can further ease access and availability given the wide reach of digital public infrastructure in India. The said arrangement can support the overall development of the financial sector, of which insurance is a major part. Interoperability will help all financial service providers to reach the nook and corner of the country faster. Clients may find it easier to communicate with a single financial advisor or agent instead of multiple touchpoints. Overall, this may result in improved insurance coverage.

The private insurance industry is now over two decades old and mature. As they gain financial strength, do you think there is a need for higher supervision of various risk factors?

Supervision is one of the major functions of IRDAI. The primary responsibility of IRDAI is to safeguard the interests of the policyholders, and thus a fine balance is maintained between ease of doing business and supervision. In order to strengthen the supervisory process and effectively monitor the risks faced by various insurance entities, IRDA is moving towards risk-based supervision. It will encourage enterprise-wide risk management by insurers, whereby each risk is comprehensively assessed and resolved. This approach moves from one-size-fits-all to entity-specific supervision and also helps the regulator provide customized and timely guidance to insurers.

How has there been a shift from the current factor-based solvency regime to a risk-based capital regime?

The Indian insurance sector is currently under a factor-based solvency regime, which is primarily based on the liability profile of insurers. However, as the market continues to mature and diversify, there is clearly a need to consider the interactions between asset-side risks and the various risks faced by insurers, which is reflected in the proposed risk-based capital (RBC). central to governance. In a dynamic economic and financial environment, the importance of risk-based capital increases manifold. Furthermore, the Indian insurance market has a unique character and specific requirements, and thus perhaps an Indian model of RBC is needed. For this Irdai has a dedicated mission mode team. The team is in the process of starting its first Quantitative Impact Study (QIS). The inputs from QIS will help in preparing a roadmap for the implementation of the India model of RBC. This will encourage better asset-liability management and efficient use of capital.

How is the industry expanding? You had given new licenses last year. How many more are coming this year, and what will be their profile?

The Indian insurance market is currently the 10th largest globally. During FY23, the insurance industry registered 13% YoY growth. The three year CAGR was 10.6%. FDI in insurance sector is around Rs. 57,000 crore with an AUM (assets under management) of Rs. 60 trillion. AUM grew by 11% in FY23. Three new companies have been registered, two in the life and one in the general insurance segment. This comes after a gap of 12 years in life insurance and five years in general insurance. Few more applicants are in the pipeline at various stages of fulfilling the criteria for registration. These applicants are assisted by the dedicated Facilitation Cell of IRDA. All this indicates that the business environment is favorable and conducive, and investors are getting attracted towards the insurance sector.

The draft Insurance Amendment Bill proposes to bring in comprehensive licensing to enable insurers to operate across all segments. Is the industry ready for this? Are there enough rules to welcome a big player like LIC?

The intention behind the proposed Composite Registration is to enable a one-stop solution for all insurance needs of common citizens. If an insurance company with a wide distribution network is able to offer all types of insurance products, this will not only lead to economies of scale, but also lead to greater affordability and better access to insurance coverage. This will enable insurance companies to better allocate their resources resulting in better and more efficient capital management. Necessary regulatory framework has to be put in place duly addressing all the potential risks and vulnerabilities faced by such comprehensive insurers. However, it is to be noted that composite registration will be one of the options available to entities in the insurance sector, and insurance companies will be able to choose their areas of operation, be it composite, mono-line, specialized, regional, captive. , Niche etc as per their business strategies.

What is the progress of Bima Sugam? How will it change the insurance landscape of India?

Bima Sugam India is looking at becoming an e-marketplace protocol connected to the stack. It will enhance the tools available to policyholders to purchase insurance policies and provide service to them, such as add/modify nomination, update address, contact details etc. and also in settlement of claims. This includes an assisted buying experience in partnership with various insurance intermediaries. It is a step towards democratization and universalization of insurance, leading to an open insurance market. The insights generated by Bima Sugam can enable prudent underwriting, information sharing, preventing fraud and mis-selling. It is an endeavor to make the insurance journey seamless and hassle-free, providing ease and convenience to policyholders thus making insurance a push-pull product.

How can the insurance sector benefit from digitizing and adopting new technologies such as blockchain?

The rapid development of digital technologies is changing the entire insurance industry and ushering in a new era of business models. With the advent of cutting-edge technologies, several functions of the insurance business, such as pricing and risk management, insurance distribution, policy servicing, claim processing, claims adjudication, etc., are expected to transform to provide greater speed and transparency. In order to facilitate insurers to invest in cutting-edge technology and offer technology-based products, the revised expense management rules provide additional expense allowance for investment in insurtech. The revised regulatory sandbox has also provided an environment for experiments and innovation. There are many concepts that have been successfully implemented, such as pay as you go, pay as you drive, floater policies in motor and wellness and preventive features in health. In addition, Irdai announced a hackathon and invited innovative solutions in the areas of automated death claim settlement, reducing mis-selling, identifying uninsured motor vehicles, fraud reduction/prevention etc. A dedicated InsurTech mission mode team at Irdai is working towards making the sector tech. Equipping and facilitating the creation of an e-marketplace protocol for insurance.