IRDAI Recent and Proposed Developments in The Extant Regulations to Ensure Ease of Doing Business

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IRDAI Recent and Proposed Developments in The Extant Regulations to Ensure Ease of Doing Business

Background

The insurance regulatory regime in India is quite extensive. The industry is regulated by the Insurance Regulatory and Development Authority Of India which was set up in accordance with section 26(1) and section 114A of the Insurance Act, 1938. IRDAI also derives its power to make regulations in accordance with these sections. The primary objective of the Authority is to protect the interest of policyholders. This has resulted in the development of a strict regulatory regime, which acts as a market barrier for new entrants.

The regulatory framework looks to provide a code of conduct, manner and form of administration, and financial soundness for the regulated entities. The Authority also enjoys certain executive powers such as levying of penalty, suspension of registration, inspection and investigation of regulated entities, etc. to ensure strict compliance with the extant regulations. While it is crucial to regulate the sector to prevent mis-selling of policies to financially vulnerable groups, we must understand that a strict regulatory framework has adversely affected the ease of doing business in the industry.

The absence of viable alternatives has played a vital role in the low market penetration of insurance. Although the industry has seen some commendable growth compared to its past performance, it is pertinent to note here that the insurance penetration in India is still low when compared to global levels.  Time and again, the industry saw initiatives by the Government to liberalise the sector but to little or no avail. The majority of the Indian insurance market is still captured by public sector insurance companies like LIC. Moreover, there is a certain segmental monopoly that we have observed. Over 75% of the market penetration is through term life insurance plans. Therefore, it is needless to say that the industry was in desperate need of certain changes in the regulatory framework to provide a level-playing field for new market players.

IRDAI under the leadership of its new chairman, Mr. Debashish Panda has brought about some recent developments that ensure ease of doing business for insurers. IRDAI also aims to encourage the use InsurTech in its drive to improve the insurance industry’s market penetration in India. In this article, we will analyse some recent and proposed changes in the extant guidelines that will ensure ease of doing business for the market players.

1. Use & file (U&F) procedure for life insurance products & riders

IRDAI issued the U&F procedure for life insurance products & riders on 10th June 2022 with a view to providing the necessary means to the insurers to adapt to the dynamic needs of the market. Under these guidelines, the insurers will now not need prior approval of the authority before launching a new product. This will provide the customers with a wide range of products to choose from. The U&F regulations also represent IRDAI’s growing confidence in the industry. When the industry was still in its evolutionary phase, prior approval of IRDAI was needed before launching a new product. The new U&F procedures are certainly a welcoming step to promote ease of doing business in the industry. Let’s look at some of the key points that the guideline puts forth:

  1. A)     Para 6 of the Regulation provides for the formation of Board Approved Management And Pricing Policy. Furthermore, the Board is also required to constitute a Product Management Committee consisting of an appointed Actuary, Chief Risk Officer, Chief Marketing/Distribution Officer, Chief Technology Officer, and Chief Compliance Officer of the insurer as members.
  2. B)     Para 7 of the Regulation states that it will be the PMC’s responsibility to review and approve products and riders and ensure that they are in line with the Board Approved Management and Pricing Policy. Upon approval, the PMC will file the product with the Authority under U&F Procedure.
  3. C)      Para 11 of the Regulation provides a non-exhaustive list of products/riders on which the U&F procedures are applicable.
  4. D)     Para 13 of the Regulation provides the procedure for filing a new product/rider under these regulations. Para 13 states that once PMC approves a new product/rider, the insurer can file the product/rider with the Authority via an online platform (BAP). This will generate a UIN and the insurer can launch the product within 15 days from the generation of UIN. However, a final intimation to the Authority will be required before launching the product.
  5. E)      Para 14 of the Regulation states the details of the products eligible for modification under this regulation. According to this section, the list of products provided in para 11 shall also be eligible for carrying out modifications under the U&F procedure.

2. Use and file procedure for all categories of products under health insurance business

IRDAI issued the U&F procedure for all categories of products under the health insurance business on 1st June 2022 with a view to providing modifications to the Consolidated Guidelines on Product Filing in Health Insurance.  This was done as a part of the Insured India plan. The modifications would mean that insurers can now introduce the new group and retail products on the market as soon as they file the products with the Authority. The modifications will ensure that the insurers operating in the health insurance sector are able to keep up with the dynamic nature of the market. This would also mean that the customers will now get a wide range of innovative products to choose from. Let’s take a look at some of the key changes brought about by IRDAI:

  1. A)     Para 1(i) of the Regulation states that the insurer must have a Board approved product policy in place. Additionally, the Board must also ensure that the product policy is in compliance with the provisions laid down in this regulation.
  2. B)     Para 1(ii) of the Regulation states that in order to obtain the UIN, the insurer has to file the proposed name of the product and the date of approval of the product by the committee. Once the UIN is generated, the insurer can launch the product. However, the insurer has to file the requisite documents and the product with the Authority under Consolidated Guidelines on Product Filing in Health Insurance within 7 days from the product launch.
  3. C)      Para 1(xi) states that Pilot Products, Health plus Life Combi Products, and Health Package Products are also eligible to be filed under these U&F guidelines. Moreover, products for which UIN has already been obtained can also be filed under these procedures.

3. EXPOSURE DRAFT – INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA (EXPENSES OF MANAGEMENT OF INSURERS TRANSACTING LIFE INSURANCE BUSINESS) REGULATIONS, 2022

IRDAI issued an exposure draft on 2nd August 2022 proposing key changes in INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA (EXPENSES OF MANAGEMENT OF INSURERS TRANSACTING LIFE INSURANCE BUSINESS) REGULATIONS, 2022 with a view to consolidating the expense management regulations for life insurance and non-life insurance products. This is a welcoming draft because it will remove segmental compliance and make the business operation easier for the insurers. Moreover, some products need more capital than others, so a single limit will allow the insurers to fund the growth of certain innovative non-life insurance products without running the risk of exhausting the expense limit. Additionally, the Authority has also proposed some additional allowance for expenses incurred towards the rural sector. A fixed composite limit will be beneficial for companies that deal in a variety of insurance products. Let’s take a look at some of the key proposed changes:

  1. A)     Para 3 of the Expense Management Regulations states that an insurer dealing in general life insurance and health insurance cannot spend more than 30% of gross premium on management expenses.
  2. B)     Para 4(2) of the proposed regulatory changes state that any insurer who reports a growth in premium received from the rural sector shall be allowed an extra expense limit of 10% of such incremental premium collected from the rural sector. This proposed change will incentivise the private players to invest in the rural insurance sector, thereby, leading to greater market penetration.
  3. C)      Para 4(3) of the exposure draft on Expense Management Regulation states that 20% of the expense incurred towards the implementation of InsurTech can be sourced from the gross premium collected in a financial year.
  4. D)     Para 11 states that the Authority shall have the power to exempt such insurers under these guidelines that have been operating for less than 10 years. However, if such insurers acquire a market share of 1.5% in a financial year, they can be brought under the purview of these guidelines.

4. EXPOSURE DRAFT – INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA (INSURANCE INTERMEDIARIES) (AMENDMENT) REGULATIONS, 2022

IRDAI issued an Exposure Draft related to Insurance Intermediaries Regulations and proposed some key changes to facilitate greater market penetration. The draft proposal is seen as a positive move toward improving insurance accessibility for the consumers and ease of doing business for Corporate Agents and Insurance Market Firms. Let’s look at the proposed changes in these regulations:

  1. A)     The exposure draft has proposed an increase in the tie-up limit for the Corporate Agents. Corporate Agents under the amended regulations will be permitted to have up to 9 tie-ups with the insurers for each category of insurance. The earlier tie-up limit in this regard was three for each category of insurance.
  2. B)     Insurance Marketing Firms will be able to have 6 tie-ups with insurers for each category of insurance. The earlier tie-up limit in this regard was 2 for each category of insurance.

5. EXPOSURE DRAFT INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA (REGULATORY SANDBOX) (AMENDMENT) REGULATIONS, 2022

IRDAI issued an Exposure Draft related to Sandbox Regulations with a view to promoting ease of doing business for the InsurTech market players. Sandbox is an environment created to test new business models, record the market response, and note the challenges. The products introduced under the Sandbox scheme may or may not be fully compliant with the extant regulatory framework. IRDAI gives leeway to such products because it believes that InsurTech is the only way to ensure greater market penetration. Here are two key changes proposed in Sandbox regulations:

  1. A)      IRDAI proposed an extension of the testing period for Sandbox products from 6 months (extendable by 6 months) to three years. This proposal is aimed at providing a good enough time for the upcoming InsurTech companies to test new products and make adjustments to eliminate the shortcomings accruing from the market response.
  2. B)     IRDAI via this exposure draft has also proposed to remove the limited validity period.

Conclusion

Indian market is yet quite raw when it comes to insurance accessibility. Moreover, the intermediaries, in order to, avail of the incentive, often mis-sell the policies to the customers, which hampers the credibility of the sector. Therefore, IRDAI’s rigid regulations to protect consumer interests were rightly founded. However, these regulations were hampering the growth of the insurance business in India so a balance was needed.

Under the leadership of the new chairman, Mr. Debashish Panda, IRDAI has taken an initiative to facilitate insurance market penetration by promoting ease of doing business in the sector. The aforementioned regulatory developments clearly lay down the Authority’s vision for the industry.

Author: Pushpam Raj,
Dr. Ram Manohar Lohia National Law University, 2022

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