Mumbai: The Insurance Regulatory and Development Authority of India is considering a proposal to increase foreign direct investment in the insurance sector to 100% from 74% now, Deepak Sood, member of Irdai, said at the 17th edition of the Mint BFSI Summit and Awards on Friday.
Allowing 100% FDI in insurance may not only open the floodgates for offshore capital to enter India but also facilitate the entry of new foreign insurers, helping the country enhance insurance penetration to achieve the government’s goal of “Insurance for all by 2047”.
There are 26 life and 32 general insurers in India, with most private sector players operating through a joint venture with a foreign partner.
“When we talk about insurance for all by 2047, it really means every individual has at least a health policy, a life insurance policy, and a property policy that covers his home and his business. Most recently there is a proposal from the government to increase FDI insurance to 100%. Irdai is working on it,” Sood said.
The regulator increased the FDI limit in insurance from 49% to 74% in 2021. The plan to raise it further aligns with its goal to widen the reach of insurance so every Indian citizen in the country is covered by some type of insurance by 2047.
“Irdai is working on increasing the number of players in the country so that there is a deeper penetration and we can expect more and more coverage,” said Sood.
The Irdai member added that the government could help enhance insurance coverage in the country by incentivizing offering tax benefits or subsidies.
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At the Mint BFSI Summit, Sood urged the insurance industry to rethink their distribution models to ensure a deeper market penetration, as well as to develop new products to address different needs and risks.
Over the past two years, Irdai has reformed the product use and file process to encourage innovation in the insurance industry, he said, adding that a key innovation to enhance insurance penetration without increasing mis-selling was Irdai’s introduction of the “consumer information sheet”.
“This document gives in very simple terms the coverage (and) the key points of the insurance policy that make the policyholder aware of what he is going to buy,” Sood said. “There are always a lot of grievances that the customer doesn’t know what he is buying since the details are in the fine print. This is specifically in that direction to address the issue and make clear to the customer what insurance he is buying.”
Another key initiative is Bima Sugam—“an electronic insurance marketplace which aims at bringing all stakeholders in the value chain on one platform”.
Sood said Bima Sugam was launched to align with the regulator’s ambition to increase efficiency, improve transparency, make more products available, enhance services, deepen penetration, and make claims settlement easier to get India closer to insurance for all by 2047.
Sood also urged India’s insurance industry to enhance health insurance coverage in the country.
The insurance regulator has made cashless settlements, pre-authorization within one hour of request, and discharge of post-authorization duties within three hours of claim mandatory.
“There are penalties if the insurer fails to adhere to these norms. These measures are meant to make the claim process easy in health insurance. It is supported by a robust grievance handling mechanism,” said Sood.
He added that while government schemes have covered a vast lower-income population and people with high income are able to afford insurance, the industry was missing out on the mass in the middle.
“We have to work towards bringing a new approach, customised products, and developing new methodologies for distribution across new types of groups and do whatever it takes to address this missing middle-income group. Otherwise, a vast population remains without health insurance coverage,” said Sood.
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Sood also highlighted the need for more domestic reinsurers amid emerging geopolitical risks and increasing natural disasters.
“... there is decreasing capacity in the reinsurance market. We need to work on ways to increase domestic capacity, which can be brought about by the introduction of new players,” he said.
Sood added that the industry needed to rethink ways to handle the “increasing number and severity of natural catastrophic events”.
“We need to build capacity and new kinds of parametric products, which will make it easier for people to not only take insurance against these perils but also to be able to claim when such natural catastrophes strike,” Sood said. “We need to expand reinsurance capacity in this market so that we are able to handle more and more such events and be self-reliant.”
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Sood added that Irdai was working towards introducing a risk-based capital regime. “This will benefit both insurers and the market and assign capital to the appropriate risk. As we see more and more complex risks coming in, insurers will be able to better utilize and manage their capital.”
He also urged insurers in India to work on better ways to deal with cyber risks.
“The worst thing about cyber risk is it is not known where does it start and where does it attack,” said Sood. “We are carrying devices in our pockets and that is the way we are exposing ourselves to these risks. We have to develop methods to safeguard against these kind of risks.”
With the evolution of quantum computing the face of such risk will again change “and it will be upon us in a much more complex way”, the Irdai member said. “We need to build measures to protect each individual, and if you are struck by it you see that you are protected through insurance.”
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