Life Insurance Corporation of India (LIC) is hopeful that the next set of proposed reforms to the insurance sector will soon go through Parliament, fuelling the pace at which the country marches towards “insurance for all” by 2047, its Chairman MR Kumar said on Sunday.
“I can’t give any timeline. It is hopeful that the next set of insurance reforms will get passed soon, as the mantra for everyone is insurance for all by 2047. If everybody is working on that mantra, then I am sure things will happen,” Kumar said when asked how confident he was about the passage of proposed insurance reforms in Parliament in the upcoming second leg of the budget session.
It may be recalled that the Centre had late last year proposed several amendments to the Insurance Act and the Insurance Regulatory and Development Authority Act as part of its overall efforts to enhance insurance penetration and encourage product innovation and diversification so as to achieve the goal of “insurance for all” by 2047.
These proposals are likely to find their way into an Insurance Amendment Bill, which may get introduced in the second leg of the budget session that is likely to begin mid-March.
On the anvil are a slew of big reforms, including the introduction of the concept of “composite insurance license,” captive insurers, differential minimum capital requirements after opening up registration to various classes, subclasses, and types of insurers, allowing services to insurers that are incidental or related to insurance business, and allowing insurers to distribute other financial products as specified by IRDAI.
The latest proposals, which had been exposed by the Department of Financial Services in the Finance Ministry for comments by December 15, are intended, among other things, to facilitate the entry of more players in the insurance market, leading to economic growth and employment generation and enabling ease of doing business.
Once composite licenses are allowed under law, insurers can offer life, general, or health insurance under one entity. Prospective insurers can even apply for sub-classes of business like accident, health, and motor insurance.
With the composite licensing framework, a life insurer can enter the general insurance or health insurance businesses. It will also work vice versa, with general insurance players being allowed to take up life or health insurance.
Kumar underscored the need for training of intermediaries to make it simple for the customers. “Products are simple. It is not that products are complicated. Products are pretty simple. How does the intermediary understand it? Training people to make it simple for the customer to understand is also a very major part of exercise”, he said.
The more you simplify the product, the easier it is to make people understand what they are buying and what they are going to get out of it. “That is going to be a game changer”, he said.
Kumar also highlighted that the time has come to make people more aware of why life insurance is more important before picking up anything like a mutual fund or direct equity.
“Covid-19 has created the sense that it is important, and life insurance should be the first financial product that somebody should have before they think of anything else”, Kumar said.
Other financial products
The proposed amendments also include allowing insurers to distribute other financial products. Once the distribution of other financial products is legally allowed, insurers may get to distribute financial products like loans, fixed deposits, mutual funds, or even insurance products from other segments.
This could open a new revenue stream for insurers, but much would depend on the products that would be approved by IRDAI for this purpose.
This proposal is going to benefit insurers who already have a well-built “agency network”, which could soon be leveraged for the cross-selling of other financial products once the law is amended, say insurance industry observers.
The proposals to expand distribution channels could potentially open the door for life insurers to distribute indemnity-based health products in the days to come. As of today, life insurers are allowed to distribute only benefit-based health insurance products.