Time to open up insurance sector for 100% FDI: Irdai chief Debasish Panda

With the new regulatory framework focusing on ease of doing business, a reduced compliance burden, and a more robust and resilient risk management system through risk-based capital, risk-based supervision, and the International Financial Reporting Standard, the industry is now positioned to meet its evolving needs, said DEBASISH PANDA, chairman, Insurance Regulatory and Development Authority of India (Irdai). To fully capitalise on these changes, the industry must expand into underserved regions, developing products tailored to the specific needs of different geographies, he highlighted.

 

He also advised that embracing technology is crucial, along with implementing strong cybersecurity measures. Further, the claims experience for customers must be smooth and satisfying, ensuring a delightful journey throughout the process, which companies must prioritise and continuously enhance.

 

 

In a fireside chat with Tamal Bandyopadhyay, consulting editor, Business Standard, Panda spoke about the transformation the industry has undergone since he took over and what is next in store. Edited excerpts:

 

How is the insurance sector getting transformed?

Insurance has to reach every household, has to touch every citizen, and has to reach the enterprise. When we are talking of Viksit Bharat by 2047, we must have a fully insured society, a fully banked society, and a fully pensioned society.

 

In the past couple of years, we have looked at what the system was that existed and also looked at whether the regulatory system provides ample opportunities to what the policyholders would expect.

 

For Irdai, the policyholders and the prospects remain at the core. We looked at the agility of the framework. We looked at the progressive nature of the framework. We looked at whether it gives enough operational flexibility to the insurers. What we are looking at is how insurance could be made available, accessible, affordable, and, over and above that, how we build trust for insurance as a product.

 

To do that, first and foremost, was to completely revamp the regulatory system. So, we did it through multiple reviews by constituting several committees of stakeholders as the regulator and found what the gaps are and what is needed to make it more agile and progressive to cater to customer needs. We have moved away from a rule-based to a principle-based approach. I would give full credit to my team at Irdai, who took up this challenge to create this framework, which is evincing a lot of interest from international investors.

 

Additionally, technology was uppermost on our minds after regulatory revamping. The pricing part has also been looked at so that insurance can be affordable. But we don’t want to micromanage, as we want the market to determine pricing. However, we have built safeguards to protect the policyholders. Hence, we have introduced a limit on expenses at the company level, which allows the companies to decide how they want to remunerate their distributors and management.

 

Going forward, you see, there will be more and more personalised pricing possible. The millennial population will demand products, which we call do-it-yourself. So these kinds of personalised and hyper-personalised offerings, better risk pricing, are the modern trend, and it is only possible with further digitisation and technology.

 

Further, Bima Sugam is going to be a public digital infrastructure, keeping the policyholder at the core to offer an end-to-end journey of the lifecycle of the product and beyond. It will help customers to exercise their choice, and distributors will benefit immensely as they will be able to complete a transaction at a cheaper price and in less time.

 

Bima Sugam will be the game-changer. The advanced data analytics that we are developing at the Insurance Information Bureau (IIB) of India will help in providing all the analytical insights and data for insurance companies to shift to personalised risk pricing.

 

For the most efficient use of capital, we are moving from factor-based solvency to risk-based solvency. We have Bima Manthan next month to work out the details. We want a smooth transition, and it is in the larger interest of the ecosystem that the capital is utilised more efficiently, and hopefully, that will happen before the end of 2025.

 

What are your plans for IIB?

IIB is the insurance sector’s data repository, but we do not want it to be a repository alone but to go much beyond it and venture into data analytics and insightful data sharing, which will be utilised by the industry for underwriting, pricing, claim settlement, and fraud prevention.

 

We are trying to make it even more vibrant and dynamic. All life, general, and health insurance companies are participating in it. Every company is getting integrated with the IIB through a unique application programming interface. The industry does understand the importance and the power IIB has.

 

How is Bima Sugam going to be a game-changer?

It facilitates easy access to insurance for consumers and enhances distribution opportunities. Today we need perhaps three times the number of distributors that we have to cater to 1.4 billion people.

 

Bima Sugam allows the distributors to sell more products because everything is online. The customer need not give an ID requirement because it gets auto-populated through Aadhaar, as Bima Sugam will be connected with India Stack.

 

The payment will happen through the Unified Payments Interface, and the underwriting machine of the respective companies works immediately to generate policies, and the policy goes to the customer in a digitised format. So, the distributors become more efficient, and their remuneration will grow.

 

How are you transforming the reinsurance sector?

We have also made a series of changes as far as the reinsurance regulations are concerned. And we are opening the door for more domestic reinsurers to set up shop. We have got one application that is under process for domestic reinsurance.

 

We are looking at the other big investors to invest in the reinsurance space, who are already in the primary insurance space. We are also looking at cross-border insurers, who are operating from their jurisdiction, to come to India, either become a foreign reinsurance branch, become a domestic investor, or set up shop in the Gujarat International Finance Tec-City.

 

Insurers also retain very little risk on their books, so that rationalisation is also happening now. But at the same time, the creation of reinsurance capacity is a priority. The new regulations are moving towards that. And hopefully, in the near future, we’ll see more reinsurance players entering the domestic market.

 

When do you see the composite licence coming into effect?

The statute currently recognises three lines of business: life, non-life, and standalone health insurance. For composite insurance, there is a need for an amendment in the Act. If I have composite insurance, I can write all kinds of business.

 

The Government of India has taken up some of the recommendations we have made, and the composite licence is one of them. As and when the Act gets amended, it would open the way for a composite licence.

 

When will we see 100 per cent foreign direct investment (FDI) in the insurance sector?

When we are talking about Insurance for All by 2047, obviously we need a lot of capital, which means we need a lot of new entities to come in. Some consolidation may also happen. If the FDI route is also opened, that will just augment the domestic investment; otherwise, the domestic investment may get crowded.

 

Perhaps it is time to open up the insurance sector for 100 per cent FDI so that there could be more players who want to come to India to operate on their own terms without trying to look for an Indian partner. If somebody comes at 74:26, that is also fine. But opening up the sector for 100 per cent FDI will attract more investments to come into the country.

 

Do you think there should be more tax concessions for the insurance sector?

I fully agree that a tax concession can be more attractive. Having said that, you are right that in the long term, it will provide more financial protection to households. But at the moment, quite a bit of tax concessions are available under Sections 80C, 10D, 80D, etc. Beyond that, if something comes, it will be most welcome.