The regulator’s measures will help the industry grow
As interest rates harden across the globe, there is at least one financial sector gleeful about this development. The insurance industry is understandably happy about the northward movement in rates as this leads to higher pricing for risk and pushes up the risk-reward trade-off.
“The repricing of risk in the real economy and financial markets is actually healthy and a long-term positive. Higher risk-free rates should mean higher returns for investing into the real economy. During today’s challenging times the insurance industry can show its value as it provides financial resilience at all levels,” Jérôme Haegeli, Swiss Re Group Chief Economist, said recently.
The world’s leading re-insurer’s view is echoed in India too where the insurance industry is at an inflection point, thanks in the main to the slew of changes initiated by the Insurance Regulatory and Development Authority of India (IRDAI) recently.
With insurance penetration (premium to GDP) at 4.2 per cent and density (premium per capita ) at $78, below the global averages of 7 per cent and $380 respectively, there is large ground to be covered in India, especially in “inclusive insurance”.
The thrust given to insurance awareness among those who are “excluded”, since 2015 when the Prime Minister’s two mass low-premium schemes, the accident cover through Swasthya Bima Yojana (PMSBY) and the life cover through the Jan Jeevan Beema Yojana (PMJJBY) were launched, has been phenomenal.
While PMSBY has enrolled about 25 crore, 12 crore people have been covered under the latter, at premiums which are the lowest in the world.
Over the next decade, the Indian market, currently at about ₹11 lakh crore, is expected to achieve an annual growth of 15 per cent.
This bodes well for three objectives — greater coverage of people, inclusive insurance as a developmental thrust and the long-term funds it can provide for infrastructure development.
Commercial banks may have asset-liability mismatches if they take on longer term infra projects. Moreover, private banks in India tend to play safe on project finance.
So, debt through long-term funds from insurance becomes crucial to infra capacity-building.
5 IRDAI measures
(i) Private equity funds can now directly invest in insurance companies. Investment through special purpose vehicles has been made optional. Further, a single investor with 25 per cent in equity will be classified as “investor” and any investment more than that only will make for a “promoter” (as against 10 per cent earlier).
(ii) Insurers can now launch all health and general insurance products, as well as a majority of life products, without prior IRDAI approval, expanding coverage and options.
(iii) The regulator has repealed 85 circulars and rationalised 70 returns. A provision for compulsory review is now added to all regulations so that the norms are aligned with market conditions.
(iv) In October, insurers were given the authority to appoint network hospitals meeting standards set by their boards. Earlier, only those network providers registered with the Registry of the Insurance Information Bureau (IIB) could be empanelled.
(v) IRDAI is now targeting to leverage technology, community-centric distribution partners and simplicity of the products to ensure universal coverage through the trinity of Bima Sugam (a one-stop portal for all consumers), Bima Vahak (women agents in rural areas) and Bima Vistaar (aimed at parametric insurance to cover even natural calamities), Bima Sugam itself is poised to become the UPI moment in India’s insurance journey.
IRDAI as a regulator through its various measures is ensuring that the market reaches an optimal size.
The writer is a commentator on banking and finance