From perestroika to glasnost: Efforts underway to make insurance inclusive

All efforts are on to make insurance inclusive and attract global investors. The second, and concluding, part of the column on 25 years of the insurance industry

A relatively placid pitch for batters (read insurance companies) has turned bouncy since Debasish Panda donned the role of curator in the stadium where they play.

A 1987 batch Uttar Pradesh cadre officer of the Indian Administrative Service, Panda has changed the rules of the game since becoming chairman of the Insurance Regulatory and Development Authority of India (IRDAI) in March 2022. A sector that was evolving gradually is now at an inflection point. If the first two decades were the industry's perestroika, this is its glasnost.

The Panda Express is moving at bullet train speed, but it’s touching every platform to ensure that by 2047, when India celebrates 100 years of Independence, every citizen is insured for life, health, and property, and every business has access to insurance solutions.

New products have emerged — for surrogate mothers, weddings (to protect against unexpected cancellations or postponements), pets, lost handbags, and even body parts (Rajinikanth has insured his voice, and Priyanka Chopra, her smile).

In health insurance, products are being developed for all age groups, covering a wide range — from physical disabilities to mental illness.

The overarching theme is expanding insurance coverage in the world’s 10th largest market with 4.2 per cent penetration. Among BRICS nations, India has the second-highest insurance coverage after South Africa, but this is not a cause for celebration, given our low per capita income and lack of social security.

According to a recent Swiss Re report, total insurance premiums in India are expected to grow by 7.1 per cent in real terms by 2027-28 (FY28) — well above the averages for global markets (2.4 per cent), emerging markets (5.1 per cent), and advanced economies (1.7 per cent). India is expected to become the sixth-largest market by FY32.

Inclusion

What the banking industry experienced under Reserve Bank of India Governor Y V Reddy in the early 2000s, the insurance industry is witnessing now — a drive for inclusion. The vision is “insurance for all,” and the mission is “ease of doing business”.

The IRDAI is reaching the last mile through the Bima Trinity — Bima Sugam (an electronic marketplace), Bima Vistaar (a comprehensive product bouquet), and Bima Didi/Bima Vahak (a localised distribution channel). This is complemented by the State Insurance Plan, which tasks every insurer with increasing coverage in their assigned state or Union Territory.

Bima Sugam is an e-market that democratises access to insurance, providing all insurance services at the click of a button. It also provides insurers with seamless access to a wider customer base and data-driven insights that enhance underwriting, speed up claims processing, and spur product innovation.

Bima Vistaar offers an affordable, benefit-based package with basic coverage for life, property, health, and personal accidents, while Bima Didi/Bima Vahak is a women-centric localised insurance distribution force aimed at empowering women and enhancing reach. 

All three, meant for retail customers, will be extended to MSMEs, agriculture, gig workers, and small traders.

Building on the model of the State Level Bankers’ Committee, the IRDAI has formulated a state-level insurance plan, assigning insurers specific states/Union Territories to collaborate with respective governments. Rural and social sector obligations have also been redefined, similar to the banking industry's priority sector lending requirements. Insurance inclusion will start at the grassroots — at gram panchayats.

The key to this new regime is a shift from a rigid, rule-based regulatory framework to a more adaptable, principle-based one, focused on three Cs — customer choice, convenience, and comfort. The IRDAI has streamlined 78 rule-based regulations into 20 principle-based ones. At least 350 circulars have been condensed into just a dozen master circulars, and more than 80 returns have been rationalised.

The registration process for insurers too has been streamlined to attract new companies, with the introduction of a Single Window NOC Portal and a list of frequently asked questions on the process.

Investors will also benefit from measures such as reduced minimum promoter holding requirements, the introduction of differential lock-in periods, and a simplified process for raising other forms of capital.

Investment avenues have also been expanded. Beyond traditional options for long-term funds, insurance companies can now invest in alternative investment funds such as real estate investment trusts (REITs), infrastructure investment trusts (InvITs), infrastructure debt funds of non-banking financial companies, and the newly created National Bank for Financial Infrastructure & Development (NaBFID).

Finally, the permissible limits for tie-ups for corporate agents and insurance marketing firms have been tripled to improve distribution efficiency and increase policyholder choice in accessibility and availability. Instead of nine, banks can now sell products from 27 insurers — nine each from life, general, and health insurers.

At the heart of this revamped regulatory architecture is the policyholder's interest. There are deadlines for claims settlement; any delay may attract a penalty of Rs 5,000 per day.

A mandatory provision for loans on all non-life insurance policies has been introduced to reduce policy surrenders by policyholders in distress. Even so, if a policyholder chooses to surrender her policy, she can now receive surrender value from the first year onwards; the amount one can receive on surrender too has been increased.

Innovation

Insurers are now empowered to innovate and curate products to meet unique customer needs. Until recently, each insurance company had to file new products with the regulator before launch. From “file”, “approval” (by the regulator) and “use”, it has quickly migrated to “use without prior approval” through the “use” and “file” route.

All eyes are on innovation. The regulatory sandbox has been updated, offering 24x7 access and allowing experiments with products and processes for up to 36 months. The industry is also experimenting with insurtech, or insurance technology — artificial intelligence, big data analytics, blockchain, and machine learning — to improve and automate. The aim is to create a comprehensive cashless health ecosystem.

Simultaneously, regtech (regulatory technology) and suptech (supervision technology) are being adopted to simplify compliance and strengthen oversight. The revamped Insurance Information Bureau (IIB) is equipped to offer critical insights into customer behaviour and issues early warning signals.

Along with inclusion, efforts are underway to increase reinsurance capacity and position India as a global reinsurance hub. The capital requirement for foreign reinsurance branches has been halved from Rs 100 crore to Rs 50 crore, and certain restrictions are being lifted to support growth.

As I write this column, the IRDAI is busy processing many applications for potential licences. There are 26 life insurers and 34 general insurers, including health insurers, but only a few dominate the market. We need many more insurers.

This is the story so far. What’s the way forward?

Top on the IRDAI’s agenda is the adoption of global best practices and standards like risk-based capital (RBC), a risk-based supervisory framework (RBSF), and alignment with international financial reporting standards (IFRS).

Adopting RBC will sharpen risk-management practices and ensure the optimal use of capital. It will improve insurers’ ability to absorb financial shocks as they maintain sufficient capital to cover risk exposures.

RBSF will replace the existing compliance-based supervision model. Keeping in mind enterprise-level risk management, it will evaluate each insurer's risk profile and ensure real-time monitoring.

Collectively, transitioning to a risk-based capital regime, implementing a risk-based supervisory framework, and aligning with IFRS will make Indian insurers globally competitive. The IRDAI plans to roll out these changes by 2025.

It also proposes to allow 100 per cent FDI in insurance companies through the automatic route to fuel growth. This will be done by relaxing certain restrictions on FDI rules, introducing a composite licence system (whereby one company can dabble in both life and non-life insurance businesses), permitting insurers to offer value-added services, and granting perpetual licences to intermediaries.

Returning to the cricket analogy, the IRDAI seems to be playing a Test match with the spirit of a T-20 game. Panda wants to hit every ball for innovation and inclusivity.

As principal secretary in Uttar Pradesh, he revolutionised emergency management with the UP112 Police Emergency Management System. This innovation dramatically improved response times and modernised law enforcement with new forensic labs and disaster response capabilities. Many states and Union Territories have adopted this model.

Let’s hope Panda’s hacks for innovation shapes a resilient and inclusive insurance industry.

The writer, a consulting editor with Business Standard, is an author and senior adviser to Jana Small Finance Bank Ltd.  

His latest book: Pandemonium: The Great Indian Banking Story  

To read his previous columns, please log on to www.bankerstrust.in   

Twitter: TamalBandyo