Insurers may get to sell related services

The government intends to allow the insurers to expand their product range by offering services and products related to their insurance operations, one of the officials said, requesting anonymity. The proposed changes would be implemented through amendments to the Insurance Act, the official said; adding the changes would also boost the value of insurance distribution operations.

The government is currently finalizing the draft of the Insurance Laws (Amendment) Bill, 2022, which is likely to be introduced during the monsoon session of Parliament after Cabinet approval. The proposed legislation will not only offer insurance companies new opportunities but also usher significant reforms within the insurance industry, including introducing composite insurance licences and easing entry barriers for insurers.

While insurance companies will be permitted to offer products in a “related" line of business, they may still not be allowed to sell financial products, such as mutual funds, like banks, as the government and regulators are still unconvinced about the benefits of the move at this juncture and may consider the same after the insurance market matures in the country, the official cited above said.

The department of financial services proposed that insurers may be allowed to distribute other financial products subject to regulations, but it has now been decided that permission to distribute such products will be restricted to those related to their existing line of operations for now.

“With regard to allowing insurance companies to sell financial products on the lines of banks, an enabling provision may be included in the Bill, but its operation would continue to remain restricted for some time," the official said.

Questions sent to the spokespeople for the finance ministry and the department of financial services, the architect of the draft amendment Bill, remained unanswered.

The department of financial services and the insurance regulator would decide on a list of related activities.

These may include services and wellness packages clubbed with general insurance products. For example, with fire insurance, services such as improving fire protection of houses and buildings could be provided; with motor insurance, car repair and service products could be offered, while health insurance may be bundled with outpatient consultations and diagnostic tests.

“The changes would help to enhance insurance penetration, improve efficiency and allow for product innovation and diversification," an official of the General Insurance Council said, declining to be named.

According to a note on the insurance amendments by law firm Cyril Amarchand Mangaldas, insurers need to be customer-driven in their approach towards products and services and offer a range of value-added services to their customers in addition to the core insurance product.

“Typically, value-added services include non-core services in an industry or the enhancements made to the core product or service offered to customers. The UK permits both value-added services and cross-selling services by insurers. Singapore allows life insurers to provide financial advisory to its clients, while Malaysia allows life insurers to provide services incidental to the insurance business," the note said, adding that Australian law, on the other hand, permits the conduct of business that is incidental to the insurance business of general insurers.

However, life insurers are permitted only to carry out life insurance.