Products beyond insurance, composite licence being mulled in sector revamp

The insurance industry is currently exploring new ways to make insurance engaging for common people. Among the proposals currently under review is one where your insurance company may not just be selling you insurance, but also fitness wearables, wellness programmes and telematics devices, according to sources.

And even when it comes to selling insurance, there could be a sea change, with the likes of LIC probably being able to offer health and personal accident policies. India currently has clearly defined lanes of what a life, general and health insurer can sell. But a composite licence, as proposed by the Indian government, would allow insurance companies to offer both life and non-life insurance products under one entity.

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The possibility of these radical changes, according to sources, is now being examined by the Dinesh Khara Committee, set up by the Insurance Regulatory and Development Authority of India (IRDAI) to review proposed amendments to the Insurance Act, 1938. While it has been widely reported that the Dinesh Khara committee will be looking to increase the foreign direct investment (FDI) cap in the insurance sector from 74 per cent to 100 per cent; what is lesser known is the possibility of a composite licence and permits for insurers to sell products other than insurance.

Timing of IRDAI’s move

IRDAI formed this committee led by Dinesh Khara, former chairman of State Bank of India, this February. The IRDAI move has come at a time when the Indian government is gearing up to introduce the Insurance Amendment Bill in Parliament, which proposes allowing 100 per cent FDI in the insurance sector.

While the committee has already held its first meeting, industry insiders are puzzled by the committee’s formation at this stage. The Budget Session that began on March 10 will culminate on April 4. And with the Insurance Amendment Act set to be tabled in Parliament soon, the committee’s recommendations may not influence the legislation’s initial passage.

The committee’s timeline is expected to span about three months, during which it will study and provide recommendations on the proposed changes. By the time these recommendations are ready, the Insurance Amendment Act would likely have been tabled in Parliament and sent to a senate committee for review. This raises questions about the committee’s impact, as the senate committee will comprise parliamentarians rather than insurance experts.

More powers to IRDAI

Despite these timing concerns, the Dinesh Khara Committee’s work could still shape future regulatory frameworks and amendments. Sources say the committee might look into changes in the Insurance Act to give more powers to the IRDAI.

For instance, there has been a long-time demand from insurance agents that they should not be restricted to selling products of just one life insurer, one general insurer, and one health insurer. Like brokers, they’ve demanded that they should have the option to sell any insurer’s products.

Currently, the scope of an insurance agent comes under the ambit of the Insurance Act. But if the Dinesh Khara committee looks to empower IRDAI, it could recommend changes to both the Insurance Act 1938 and IRDAI Act, 1999.

Also read: Economic Survey | Insurance sector grows despite decline in penetration

While the Khara committee’s recommendations may or may not be of any use to the proposed FDI cap increase to 100 per cent – still its focus on streamlining regulatory processes and introducing a composite licence system could lead to significant reforms in the insurance sector.

The seven-member committee includes NS Kannan, former MD and CEO of ICICI Prudential Life Insurance; Girish Radhakrishnan, former CMD, United India Insurance; Rakesh Joshi, former member, IRDAI; Saurabh Sinha, former executive director, RBO; Alok Misra, MD and CEO of MFIN.

Composite licence

Sources say it is possible that even today with insurance being a push product, the regulator is looking at ways to make insurance products more appealing to consumers to boost sales. Also if a composite licence is issued then India will no longer have 25 life insurers and 34 non-life companies but have composite entities that can sell both.

In 2024, a Swiss Re report predicted that the Indian insurance industry’s premium growth would be as high as 7.1 per cent, above the global average of 2.4 per cent and emerging markets average of 5.1 per cent. With India being a high-growth market, the regulator may be seriously examining if composite licences would result in higher sales.

Even the proposed FDI cap increase to 100 per cent could pave the way for top global insurers to enter the market, leading to significant changes in the industry. Just this month, Allianz has exited its joint venture with Bajaj Finserv, selling its stake and expressing interest in new opportunities in India.

Meanwhile, Prudential plc’s UK subsidiary will hold a 70 per cent stake in its JV with HCL Group’s Vama Sundari, which will own the remaining 30 per cent. Additionally, Niva Bupa Health Insurance CEO Krishnan Ramachandran indicated that Bupa may increase its stake in the firm following the budget announcement of 100 per cent FDI in the sector.

India permitted 26 per cent FDI in the insurance sector starting in 2001. In 2015, the FDI cap was increased from 26 per cent to 49 per cent; and then in 2021 from 49 per cent to 74 per cent.

Engaging customers with value-added services

Sources say IRDAI is keen on allowing insurers to offer value-added services alongside their policies. For instance, health insurance policies might include fitness trackers to monitor health metrics. For instance, if a customer was consistently reaching his target of 10,000 steps a day, it could potentially lead to lower premiums for those maintaining a healthy lifestyle.

Similarly, car insurance could come with telematics devices that track driving habits, enabling personalised premiums based on driving behaviour. These initiatives aim to make insurance more consumer-centric and rewarding.

Also read: GST Council postpones decision on slashing tax on life, health insurance

Sources said integrating services like yoga classes or gym memberships into health insurance plans has been proposed to create a holistic approach to healthcare management. Additionally just like reward points on an Amex or Diners card or air miles offered by airlines, insurers too could in the future have loyalty reward programmes.

Since general insurers have annual contracts that need to be renewed, such loyalty reward programs could incentivise customers to stay with one insurer longer. This could include benefits such as premium discounts or enhanced coverage for long-term policyholders.

Former IRDAI Chairman Debasish Panda in earlier interviews has spoken about the need for insurers to be more customer-focused, suggesting that high-priced products are making health insurance unaffordable for many.