“Stalemate and obstructionism can’t go on in perpetuity …” Arun Jaitley, Finance Minister in NDA 1, had said when he was questioned on what was the hurry to come with an Ordinance for hiking foreign direct investment in insurance sector to 49 per cent when a Bill was pending in the Rajya Sabha. This had set the tone for ushering in a slew of next generation reforms in the sector.

The insurance sector recorded rapid growth over the last decade. New products were launched in non-life segment and digitisation helped improve reach.

While the life insurance industry recorded a premium income of ₹3.28 lakh crore during 2014-15, a consistent growth was seen since then and the industry recorded premium income of ₹7.83 lakh crore in 2022-23. For the year 2023-24, per the Insurance Regulatory and Development Authority of India (IRDAI) expectations, the growth could be around 13 per cent.

A similar growth trend is also visible in the non-life industry as the total premium underwritten surged from ₹84,684 crore in 2014-15 to ₹2.57 lakh crore in 2022-23 registering 16.40 per cent annual growth.

But the industry has been plagued by mis-selling in life-insurance segment with investment products linked to life insurance being sold more than pure life covers. Non-life insurance segment suffers from poor claim settlement and a host of unhappy customers. While the regulatory reforms have been addressing these issues over the last decade, it is still a work in progress.

Driving innovation

The first term of NDA saw many significant changes in the insurance sector. The ULIP regulations of 2019, which tried to ensure that insurers follow prudent practices in designing insurance products and keep the interests of policy holders at heart, is among the most significant. Insurers were also encouraged to participate in a regulatory sandbox in 2019 whose objective was to increase the pace of the innovation in companies. It allowed flexibility in dealing with regulatory requirements while focussing on policyholder protection. The industry responded enthusiastically and a slew of innovative products have been approved in different tranches including ‘pay as you drive’, a customised vehicle insurance that takes into account the safe driving habits.

Further, IRDAI has implemented a significant change in the product filing process for the life and non-life insurers during 2022-23. The transition is from the traditional ‘file and use’ procedure (which requires approval from IRDAI before launch) to the ‘use and file’ procedure (where products can be launched without prior approval) to assist general insurers in designing and promptly launching new and innovative products.

The most striking aspect of the insurance industry and regulator was the quick response to the Covid-19 pandemic, designing of special products to deal with the crisis with a specific product-centric approach and simultaneous efforts at standardisation.

From April 1, 2020, shortly before the country could feel the intensity of the peril of the pandemic, a standard health cover, Arogya Sanjeevani, was introduced as a solution to some key challenges to deal with the health insurance. The most baffling aspects a customer faces while buying health cover are the nature of disorders covered, lack of clarity and high premium. Arogya Sanjeevani was significant in addressing these challenges. When the heat of the pandemic was intense, the standard Corona Cover health policies such as Corona Kavach had resulted in significant relief to the people.

Big push

A major catalyst for positive shifts in the insurance industry in the last one decade was the pandemic. Notwithstanding the tragedy it inflicted on lakhs of families, it did augur well for the awareness on the need for financial and social security offered by insurance. The demand for health insurance surged. While the motor segment had a lion’s share in the non-life business, the health segment now leads the business with about 24 per cent annual growth.

There has been a significant rise in the contribution of health insurance cover to overall non-life insurance. The proportion of health insurance in business was 34 per cent, and at the end of the third quarter of the 2023-24, it reached 38 per cent, as per the latest data.

The higher demand for health coverage has also prompted insurers to introduce tailored products, leverage digital platforms for accessibility, and expand their healthcare provider networks.

There has been a renewed focus on digital push with platforms and mobile apps enhancing policyholders’ convenience in purchasing, claiming, and accessing essential information.

Shifting gears

Last two years stand apart in terms of revolutionary changes in the regulation to promote ease of doing business for the industry, led by the current Chairman Debasish Panda.

In March 2024, IRDAI announced a major regulatory revamp encompassing pivotal domains such as safeguarding of policyholders’ interests, rural and social sector responsibilities, electronic insurance marketplace, insurance products and operation of foreign reinsurance branches, as well as aspects of registration, actuarial, finance, investment and corporate governance.

The revamp, which came to effect from FY25, will be a game-changer for the industry and all stakeholders. It marks a significant milestone in regulatory governance which has replaced 34 regulations with 6 regulations and introduction of 2 new regulations enhancing clarity and coherence in the regulatory landscape.

Centre’s role

An interesting aspect about the insurance industry is the role played by the Centre as a facilitator. The NDA Government did bring insurance closer to the commoners by introducing low-cost insurance schemes such as Pradham Mantri Jeevan Bima Yojana and Pradhan Mantri Suraksha Bima Yojana. The agricultural insurance too got a boost with Pradhan Mantri Fasal Bima Yojana.

The landmark decision by the Government was to increase the permissible FDI limit in insurance from 49 per cent to 74 per cent and allow foreign ownership and control with safeguards. All these developments, most probably, will define the growth for next 10 years for the insurance industry.

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