Indian Insurance Industry: Reaching

out to Exponential Growth

Recent Industry Trends

Part 6

Some recent regulatory

reforms introduced by IRDA
Some recent regulatory reforms introduced by IRDA
a) IRDA issued revised guidelines in the File & Use Procedure
in the general insurance segment - Until very recently, the
IRDAI's Guidelines on "File and Use" Requirements for General
Insurance Products of 28th September 2006 governed the
procedures and processes for introducing, modifying and
withdrawing general insurance products.

Some recent regulatory

reforms introduced by IRDA
The procedures and processes have now significantly changed
with the introduction of the IRDAI's revised guidelines on
"Product Filing Procedures for General Insurance Products",
which were introduced on 18th February 2016. The revised
guidelines come into force on 1st April 2016 and will,
therefore, apply to all new general insurance products filed on
or after 1st April 2016. The revised guidelines apply to all
general insurance products except health, personal accident
and travel insurance products which are governed by the IRDA
(Health Insurance) Regulations 2013 and the accompanying
guidelines.

Some recent regulatory

reforms introduced by IRDA
As per the revised guidelines, all general insurance products are
meant to be classified as "retail products" or "commercial
products" where, broadly, retail products are those issued to
individual customers (and their families) and commercial
products are those issued to entities other than individuals such
as firms, companies or trusts. The Revised Guidelines do not
require products approved under the previous File & Use
Guidelines to be re-filed, but if Insurers wish to continue offering
those products, they will need to classify those products as
"retail products" or "commercial products" and file a list of those
products (duly certified by the CEO and Appointed Actuary) with
the IRDAI within 60 days of the issuance of the revised
guidelines. Insurers may also choose to withdraw any of their
existing products by following the procedure set out in the
Revised Guidelines.

Some recent regulatory

reforms introduced by IRDA
The revised guidelines set out detailed guiding principles for
product introduction, product design and rating. One of the
most significant changes introduced by the Revised Guidelines
is the role of the Product Management Committee (PMC). All
Insurers are required to form a PMC which shall include "high
level officers" of the Insurer and perhaps including the
Appointed Actuary, Chief Underwriting Officer, Chief Financial
Officer, Chief Marketing Officer, Chief Risk Officer, Compliance
Officer and Head Reinsurance.

Some recent regulatory

reforms introduced by IRDA
The PMC is required to act as a self governing body to
ensure quality product design, filing with complete compliance
of the regulatory requirements and performance review. The
revised guidelines make it clear that the CEO of the Insurer
shall have overall responsibility to ensure that a robust due
diligence process is in place to "mitigate risks of new and
current products. Another significant change is the revised
requirements pertaining to the lawyer's certification of the
terms and conditions in each product.

Some recent regulatory

reforms introduced by IRDA
The revised guidelines have been largely received positively
within the industry. These guidelines are a significant step
towards a self- regulated regime where Insurers will be
required to carry out their own internal due diligence and
certification with significantly increased responsibility on the
management of the Insurer.

Some recent regulatory

reforms introduced by IRDA
b) Revised listing guidelines for insurers- IRDA plans to come
up with revised IPO guidelines soon to enable companies enter
the capital markets. Besides improving transparency and
corporate governance, listing would improve governance and
disclosure to public and customer perception. Few big players
like HDFC Standard Life and ICICI Prudential Life Insurance are
already firming up plans to raise funds from the capital
markets by diluting equity. As per the norms laid down earlier
by the regulator, it was mandatory for companies in operation
for more than 10 years to list their shares.

Some recent regulatory

reforms introduced by IRDA
The regulator considers the financial performance, capital
structure after offer and solvency margin, among other
factors, to give its approval. Though it was earlier anticipated
that life insurers would bring out IPOs soon after completing
10 years in the industry, none of them did so. That was due to
stress in business, low foreign direct investment cap (it has
now been raised to 49 per cent) and poor market conditions,
among other things.

Some recent regulatory

reforms introduced by IRDA
c) IRDA has issued the final norms on corporate governance
for the insurance sector. It aims to strengthen the boards of
insurance companies. As per the new norms, the Board will
have to look at a broad range of areas such as overall
direction of business of the insurance company, including
policies, strategies and risk management across all functions.
It would also have to look at projections on capital
requirements, revenue streams, expenses and profitability.
While laying down projections, the Board must address
expectations of shareholders and policyholders. All compliance
to the Insurance Act would rest with the Board. The Board is
also required to set up committees like audit committee, risk
management committee, policyholder protection committee,
investment committee, nomination and remuneration
committee and CSR committee.

Some recent regulatory

reforms introduced by IRDA
d) IRDA has formulated a draft regulation, IRDAI (Obligations
of Insures to Rural and Social Sectors) Regulations, 2015, in
pursuance of the amendments brought about under section 32
B of the Insurance Laws (Amendment) Act, 2015. These
regulations impose obligations on insurers towards providing
insurance cover to the rural and economically weaker sections
of the population.
e) IRDAI has set up a 7-member committee for establishment
of insurance service centers with an aim to provide prompt
servicing of policyholder in the most cost efficient manner
f) IRDA has formed two committees to explore and suggest
ways to promote e-commerce in the sector in order to
increase insurance penetration and bring financial inclusion.

General insurers are making

underwriting losses in the motor
and
health
segment
g. General insurers are making underwriting losses in the
motor and health segment
Off late, it has been witnessed that General insurers are
incurring substantial losses in their insurance business mainly
due to underwriting losses in health and motor segments.
Almost 75 percent of premiums in the industry come from
motor and health segment. This is mainly on account of
increasing trend of claims in health and motor insurance
including own damage and third party claims. While Insurers
are making profits in segments like fire, engineering and
others where volumes are relatively small, the health and
motor insurance are not profitable. With rising medical costs,
there may be a requirement of price correction and change in
the insurers business strategies to make health and motor
insurance profitable in the times to come.

Conclusion & Way Forward

The insurance companies have played a major role in the
development of the country. The Insurance sector has
supported the Governments various developmental activities,
be it in providing capital for infrastructure projects or the
implementation of government's insurance schemes. After
going through a difficult phase in recent years, the forecast for
the Indian life insurance industry looks buoyant. The recent
spurt of regulatory reforms and positive policy action is
expected to drive the next phase of growth in the insurance
industry.

Conclusion & Way Forward

In order to realize its full potential, the industry must focus on
building value for all its stakeholders- Customers, Distributors
and Shareholders. Customer centricity and creating value for
customer will go a long way in securing long their term loyalty.
Insures can leverage global best practices from foreign
partners to enhance the level of customer experience through
the adoption of new and innovative mobile applications /
technologies. The insurance industry also needs to create
significant value for the distributor. This can be achieved by
working towards developing distributor capabilities and
creating an environment which offers them prospects for long
term growth in earnings. The insurers should also aim to
create substantial shareholder value.

Conclusion & Way Forward

This can be realized if it successfully caps costs across the
value chain, primarily in the area of claims, by adopting robust
claims administration systems, greater use of analytics for
preventing frauds and adopting new methods of accurately
pricing new business. Finally, the insurer should create value
for itself by focusing on a sustainable growth. Besides
employing the capital effectively, the insurer should also
ensure adequate skilling of its employees and setting
practices aimed to make it future ready.
The insurance sector is now looking forward to a rejuvenated
time ahead. A favorable regulatory framework and positive
demographic factors such as growing middle class, young
insurable population and growing awareness of the need for
protection and retirement planning will support the growth of
Indian insurance sector.

THANK YOU
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Email: jyoti.gadia@resurgentindia.com
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