By Venkatachari Jagannathan
Chennai, Dec 29 (IANS): The year 2023, like its predecessor, is going to be action packed and transformative for the Indian insurance sector given the far reaching legal and regulatory changes proposed/made, said top industry officials.
They also said the macroeconomic factors may have an impact on the purchase of life insurance covers in the short run.
The amendments proposed to the Insurance Act 1938 and the Insurance Regulatory and Development Authority Act 1999 proposed by the Indian government alters the basic architecture on which the industry grew over the past 20 plus years.
Scrapping of the statutory Rs 100 crore startup capital for life, general and health insurance business and Rs 200 crore for reinsurance business, allowing different kinds of insurers including captives, changing the investment provisions; allowing insurers to provide services related or incidental to insurance business and distribute other financial products as specified by and subject to regulations. are some of the major amendments proposed by the Indian government to the insurance laws.
Welcoming the proposed amendments, Niraj Shah, Chief Financial Officer, HDFC Life Insurance Company, told IANS that it is important from the perspective of overall development of the sector.
"Another key change proposed is allowing insurance companies to distribute other financial services products. This has also been an ask from HDFC Life and would give the industry the ability to earn fee income by leveraging our existing distribution architecture to offer a one stop solution to customers," Shah said.
"The proposed regulation on composite licences -- insurers allowed to sell life and general insurance policies -- may result in expanding business lines for insurers and a potential increase in M&A (mergers and acquisitions) activity," he added.
However not all in the industry are in favour of the proposed amendments.
The existing players want the government not only to retain the existing minimum capital but also increase the same taking the inflation into consideration.
The industry is also not in favour of other amendments like allowing multi-level marketing and others.
Be that as it may, on the inflation and the rate hike by the Reserve Bank of India (RBI) and its impact on the life insurance sector Shah said the interest rate movements can potentially impact the consumption and purchase of long term protection products in the short run.
"Over a medium to long term, life-stage products such as annuity and protection are relatively insulated from such factors," Shah said.
According to Shah, the life insurance sector is expected to grow faster than the nominal gross domestic product (GDP).
"Though some macroeconomic factors seem to have impacted recent growth and cannot be ignored; the overall outlook for the industry seems very positive," Casparus Kromhout, MD & CEO, Shriram Life Insurance, told IANS.
"The industry has picked up well post pandemic and we expect the growth trend to continue," Kromhout added.
As in 2022, technological transformation will continue to play a vital role in business transformation even in 2023, said Shanai Ghosh MD & CEO, Edelweiss General Insurance Company Limited.
"While technology continues to play a pivotal role, the industry needs to deploy digital solutions to collectively work towards improving penetration of insurance in the country by adapting to customer requirements," Ghosh told IANS.
Insurers need to strike a balance between digital adoption and human intervention that will not only help simplify the entire customer journey, right from search to purchase to claims to customer service, but it will also lead to building positive experiences, Ghosh added.
"Insurance penetration continues to remain a challenge for the industry. While low awareness is one part, trust deficit is a major issue. The key to attempting to solve this by having an empathetic approach," Ghosh said.
Be that as it may, the government owned general insurance and reinsurance companies will face different sorts of issues with their employees on a warpath against the government and the management.
The employee unions in the five government owned insurance companies -- The Oriental Insurance Company Limited, National Insurance Company Limited, The New India Assurance Company Limited, United India Insurance Company Limited and General Insurance Corporation of India Ltd (GIC Re) -- have given a strike call for January 4, 2023.
The unions are opposed to the manner in which the report of EY on restructuring their companies is being implemented without taking the employees into confidence.
The business of the GIC Re is expected to be impacted in FY24 as the sectoral regulator scrapped the 'burning cost' model of pricing by reinsurers.
The Insurance Regulatory and Development Authority of India (IRDAI) has advised all non-life insurers and reinsurers to ensure that the Insurance Information Bureau (IIB) published premium rates for fire and engineering policies are not embedded as the minimum rates within the reinsurance treaty agreements for the risks commencing on and after April 1, 2023.
Simply put, the burning cost rate is arrived at by dividing claims paid by sum insured.
In 2020, the GIC Re, decided to accept reinsurance placement only if their clients belonging to certain industries are charged a premium rate on burning cost basis as arrived by IIB.
The industry is also expecting the Central government to hike the deduction limits under the Income Tax Act and a reduction in the Goods and Services Tax (GST) from the current 18 per cent on the premium paid.