The insurance industry, in its liberalised avatar, is young. Where large international insurers are over a 100 years old, we have been in existence for just 18. If business is a race, then these 18 years are just a start off the block. But what a start it has been. Between 2000 and 2005, the basic regulatory framework was established. From 2005 to 2010, new products such as term insurance and unit link were established, and bank distribution was allowed. Between 2010 and 2015, products came into the spotlight dramatically as unit-linked life insurance was restructured for better returns; and the industry saw its first years of degrowth. In 2015, the new insurance law increased foreign ownership to 49%.
This is the backdrop in which Insurance Regulatory and Development Authority of India’s (Irdai) new chairman has taken charge. These periods of change are opportunities for the industry to pause, reflect, plan and start anew.The next phase must bring policyholders centre-stage. Some initiatives that can achieve this are listed here.
Make participating policies more consumer friendly: Even though participating plans are savings oriented, investment returns are poorly communicated. Annualised returns are not stated and bonuses are declared as sum assured increases. Getting out of these policies mid-way is expensive. In the early years, policyholders may want to move out because the insurance was mis-sold; in later years because money is needed. Often, the surrender value is low, and there should be a higher threshold of money returned.
Build complaint handling capacity: A recent paper, Fair Play in Indian Health Insurance, published by the National Institute of Public Finance and Policy, specifies that India has the highest complaint rate compared to places such as Canada, Australia, the UK and California, which have similar common law jurisdiction. The paper also argues that complaints in India are significantly understated because litigation rates are low.
Customers do not have access to timely resolution. A customer can approach the regulator, an ombudsman or the courts. The regulator does not evaluate complaints but sends them back to insurers for reassessment. The ombudsman process is slow and commercial or high sum assured cases are outside its purview. Resolution by courts is a long-drawn process. To build capacity, Irdai can have insurers appoint independent ombudsmen, or help staff the existing ombudsmen offices better.
Strengthen public disclosures: Public disclosures should now be made more usable by policyholders.
Persistency, claims and surrender rates should be declared product-wise rather than in aggregate. Some definitions need to be modified. Specifically, persistency is overstated as it includes single-premium policies that are not meant to be renewed.
Insurers must follow common definitions. For example, some insurers express claim complaints on a base of total policies rather than total claims. This deflates the incidence rate.
Introduce more flexibility in commercial insurance: Commercial policies bought by companies are a significant part of the industry and a well-established way to provide insurance for its employees. For example, group health insurance covered 72 million lives in 2016-17 compared to 32 million by individual health products. Currently, the degree of regulatory supervision across individual and commercial products is similar. This should not be the case because in commercial policies, both the buyer and the seller are companies with the ability to understand products, identify the best options and negotiate. Relaxing product, policy wording and compensation restrictions in this commercial segment will fuel growth and benefit policyholders.
Enable insurers to participate in large government schemes: The government has introduced several large-scale insurance schemes such as in crop insurance and the National Health Protection Mission. These schemes deepen insurance penetration but also present a dilemma for the industry. All insurers would want to participate, but the rock-bottom prices offered by the government or discovered through an auction process may be unviable. Irdai will need to manage its potential conflict of interest in this area. It is not independent of the government and yet must represent the needs of the industry.
Simplify distribution: Over the past decade, many new distribution channels have been created—agents, corporate agents, web aggregators, brokers and insurance marketing firms. For a customer, the distinction between these channels is blurred. Both corporate agents and brokers can offer products of multiple insurers. This makes it hard for customers to know whether the distributor is representing their interest or the insurers’. Distribution could be simplified to just two models, agents and brokers. Agents sell one insurer’s products and represent the insurer, whereas brokers, who operate with an open architecture, sell multiple insurers’ products and represent clients.
The insurance industry has had a tumultuous 18 years. An insurance veteran facetiously told me that initially insurance was seen as a sunrise sector, then sunset and now sunrise again. This is a perfect canvas for the new insurance regulator to paint on.[“Source-livemint”]