The government has decided to embark upon a comprehensive amendment of the legislative framework governing the sector — Insurance Act 1938 and IRDA Act 1999 — which is expected to take the reform agenda in the segment to the next level, facilitating the entry of more players, reduction in the capital requirement and issue of composite licences.
In an office memorandum, the Department of Financial Services in the Finance Ministry, said, “the proposal includes various methods such as opening of registration to various classes, sub classes and types of insures with appropriate minimum capital requirements as specified by the IRDAI, allowing services to insures that are incidental or related to insurance business as well as distribution of other financial product as specified by the IRDAI, enabling newer channel of distributing and providing for efficient use of capital and resources.”
In view of the changing needs of the insurance sector, a comprehensive review of the legislative framework governing the sector has been done in consultation with IRDAI and industry, the memorandum said.
“The proposed amendments primarily focus on enhancing the financial security of the policyholders, promoting policyholders’ interest, improving returns to the policyholders, facilitating entry of more players in the insurance market leading to economy growth and employment generation, enhancing efficiency of the insurance industry — operational as well as finance — and enabling ease of doing business,” the DFS note said. The IRDAI has already proposed issuing composite licences, which is a common license to operate in both the life and general insurance markets. This means a life insurer can enter the non-life segment like motor or heath business, and vice versa, which is banned as of now. It’s also in favour of reducing the minimum capital requirement from Rs 100 crore in order to enable the entry of smaller players, like micro insurers, to serve niche markets.
Composite licence is a common licence to operate in both the life and general insurance markets. This means a life insurer can enter the non-life segment like motor or heath business, and vice versa, which is banned as of now.
While the DFS memorandum, which sought comments from various stakeholders, has not mentioned the timing of the introduction of the amendment, insurance sources said it’s likely to be announced in the Union Budget in February 2023. The government had raised the FDI limit in insurance from 49 per cent to 74 per cent in the 2021 budget.
Sumit Rai, MD & CEO, Edelweiss Tokio Life Insurance, said, “these changes will facilitate longer term growth of the industry and bring India closer to the global practices. A further easing in distribution norms will enable insurers to offer comprehensive service to their customers by catering to their overall financial needs, and optimally utilise a large distribution infrastructure.”
“It will also help companies tap into newer market segments and reach new customers. In the current environment, where customer expectations are fast evolving and being enriched by digital platforms, these changes will allow companies to provide a uniform, yet personalized service to customers. These proposed reforms are a huge positive step and will lead to higher insurance adoption at the last mile,” Rai said.
Last week, the board of the Insurance Regulatory and Development Authority of India (IRDAI) approved a host of proposals, involving investment, solvency norms, dilution of equity and fund raising, aimed at promoting ease of doing business and simplifying the process of setting up an insurance company. The regulator has allowed the promoters to dilute their stake up to 26 per cent, subject to condition that the insurer has satisfactory solvency record for the preceding five years and is a listed entity. The changes in solvency norms will release around Rs 3,460 crore for insurers.
After the board meeting in Hyderabad recently, IRDAI said subsidiary companies will be allowed to be promoters of insurance companies, subject to certain conditions. Further, investment up to 25 per cent of the paid-up capital by a single investor (50 per cent for all investors collectively) will now be treated as ‘investor’ and investments over and above that will only be treated as promoter”. Earlier, the threshold was 10 per cent for individual investors and 25 per cent for all investors collectively.