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The Insurance Regulatory and Development Authority of India (IRDAI) notified the Insurance Product Regulations 2024 on March 20. The notification lays out a roadmap for issuing insurance products — be it life, non-life or health insurance. The notification supersedes a number of existing insurance product regulations.
The objectives of the notification include facilitating a faster customer response to emerging market trends, designing innovative products, promoting ease of doing business, improving insurance penetration without sidelining policyholder protection, and promoting good product governance with effective oversight and due diligence for insurance products.
It was probably felt that the existing guidelines, although they contained similar principles, did not help in bringing forth adequate products with customer orientation coupled with insurance penetration. The regulations call for reviewing and revising existing products, providing adequate insurance with right risk transfer, simple and not complex to understand terms including transparency, and clarity in policy wordings, terms, coverage, exclusions and conditions.
The basic principles of insurance of insurable interest, indemnity, utmost good faith, proximate cause, contribution, subrogation and salvage should be well adhered to, while framing insurance products.
On pricing insurance products, it is important that it is adequate and appropriate to the risk, that the premium rates are fair and equitable, non-discriminatory and provide value for money, besides being viable, self-sustainable for the insurer as well. The products are expected to fit into the risk appetite, capital availability, claim experience, reinsurance costs, and guarantees of the insurer vis-a-vis market requirement. The products are meant to be amenable to market practices, and supportive of correct underwriting principles.
Three detailed schedules have been drawn with Schedule I and III for life insurance, Schedule II and III for general insurance and Schedule III for health insurance products.
Fundamental problems
While the wording and the principle behind the notification need to be commended, it should be remembered that the industry was not operating without detailed product guidelines in the first place. What clearly emerges is the fact that the existing products did not offer insurance penetration to the deepest roots of India.
Penetration is abysmally short or inadequate in relation to the risk. Insurance after all has its edifice on the law of large numbers. Unless there is a larger market penetration, how far rationalising insurance cost and its risk return trade off will be practically feasible needs to be seen. To say that any policy wording needs to be read with a tooth-comb to understand the cover given, or that the exclusions in it need simplification of jargon, is stating the obvious. Much to the chagrin of most policyholders, most ‘fine prints’ emerge only before lodging a claim.
Product regulation is a must to standardise, streamline, regulate and to make them fit market needs. It needs to be factually seen how far the industry players and the regulator are going to walk the talk on this topic in the days to come. Cues may be taken from SEBI as well for its measures to improve stock market penetration in India. The fact is that insurance is always a need/risk-based product more than a profitable investment option. Unless there is genuine change in approach, this regulation will become like old wine in a new bottle.
The writer is a chartered accountant
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