 "2023: A landmark year with new policies, regulations for life insurers")
It was a roller coaster ride for life insurance companies in 2023. A host of regulations — from taxing high-value policies to raising surrender values — was initiated that could shape the sector in the coming years.
In 2022-23, the Insurance Regulatory and Development Authority of India (Irdai) removed the segment-based limit for expenses and lifted the cap on commissions of companies, implementing an overall cap on the expenses of management (EoM).
According to insurers and analysts, this has given greater flexibility to companies.
“It was an interesting and exciting year for the insurance industry with enabling provisions from the regulator. The changes in EoM and deregulation of commissions give more flexibility to the insurance companies without jeopardising the interests of the customer,” says Bikash Choudhary, actuarial, risk, governance, product, and strategy at IndiaFirst Life.
The permissible costs are based on an amount calculated depending on the prescribed percentages with respect to various segments of business written during a financial year.
After obtaining the amount, the company’s board is free to allocate and cross-subsidise its commission and expenses between different products. The norms that came into force in April 2023 will remain effective for three years.
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Also, Irdai’s flagship Bima Trinity, comprising Bima Vistaar, Bima Vahak, and Bima Sugam, is considered to be a key game changer for the sector.
Furthermore, the regulator kept the competitive landscape of the space alive by approving new life insurers — Go Digit Life Insurance, ACKO Life Insurance, and CreditAccess Life Insurance — taking the total number of insurance companies to 27 from the existing 24.
The regulator also amalgamated three different regulations, in line with the suggestions of the regulations review committee. The committee recommended merging the commission and EoM regulations to create a single regulation instead of maintaining separate ones.
Irdai also recently set up several task forces, including one for bancassurance and another one to examine the implications of the Digital Personal Data Protection (DPDP) Act, 2023.
The bancassurance task force was set up in October 2023 to review the existing framework and improve the efficiency of the system, addressing complaints about mis-selling/forced selling of policies. The recommendations are expected to be submitted within two months from the date of the order.
“Considering that only 17.4 per cent of the new business of life insurance comes through bancassurance, the task force whose report is expected around the end of this month will help to understand how the channel can be leveraged to improve insurance penetration,” said Saurabh Bhalerao, associate director, CareEdge.
In December, Irdai released an exposure draft proposing higher surrender value for life insurance companies, especially non-participating products. Furthermore, the draft also proposed some modifications in the calculation of the surrender charge.
New business premiums (NBP) of the entire sector declined in 2023, mainly due to a drop in Life Insurance Corporation (LIC) of India’s business, while private sector players managed to post double-digit growth.
During the January-November period of 2023, the total business premium dropped 10.91 per cent year-on-year to Rs 3.13 trillion.
LIC reported a 23.87 per cent decline in premium to Rs 1.8 trillion. On the other hand, the private sector reported 15.92 per cent growth to Rs 1.32 trillion.
LIC’s decline in NBP collection, which led to an erosion in market share, has been attributed to the high base of last year. The insurance behemoth is aiming to regain its market share to above 60 per cent by the end of the financial year.
“The insurance sector is largely influenced by discretionary savings behaviour, and the onset of the festival season would have had a limited, time-bound impact, although we anticipate a restoration of growth in the future,” said Mohit Rochlani, chief operating officer of Star Union Dai-ichi Life Insurance.
A focus on protection and a technology-driven customer-centric approach will further help in improving penetration.
“Overall, the Indian life insurance sector is on a positive trajectory, driven by a growing economy, rising awareness, and technological advancements. While challenges remain, the sector is well-positioned to contribute significantly to India’s financial inclusion goals and secure the future of millions,” noted Sandeep Mishra, chief distribution officer, Bharti AXA Life Insurance.