India to have regional insurers soon

But high capital requirement may dissuade new entrants

India might soon have regional insurance companies operating only in select locations and regions. In its proposed amendments to the Registration of Indian Insurance Companies Regulations, the Insurance Regulatory and Development Authority of India (Irdai) has asked new applicants to specify the city, region or concentration (rural/urban) that they will concentrate on.

“Prospective applicants need not open branches all across the country. They can have operations only in few cities or rural, urban centres,” said Irdai officials. Rather than opening branches in multiple regions, these insurers would concentrate on a few places with their products and services, they added.

In its draft norms, issued on May 11, Irdai has asked insurers applying for a new licence to mention where they wish to carry on insurance business. Here, options of regions including north, south, east, west and central have been given.

Similarly, insurers should also give the details of which metropolitan city they wish to operate in, including Mumbai, Delhi, Kolkata or Chennai. Their rural, urban concentration can be pre-determined at the time of application for a licence with the regulator.  

Insurance sector officials said while new applicants might not look into having operations only in a few metro cities, having a rural or urban presence can help them build a niche. Till now, all insurers have all-India presence, although business is generated only from a few cities.

“Of the 50-plus insurers, each insurance company is strong only in a few locations and regions. Public-sector insurers have largely been dominating in the rural areas. It will be beneficial for policyholders if there are new insurers only looking into specific regions,” said the CEO of a private life insurer.

However, some insiders said the capital requirement of Rs 100 crore could be a deterrent to very small players entering as regional insurers. In its draft, the regulator has specified that irrespective of where they operate, all new entrants should maintain a minimum capital of Rs 100 crore.

Earlier, when it was proposed that the capital requirement be brought down to Rs 50 crore, there were a few firms wanting to enter the sector as regional health insurers. Regulatory officials had also decided to give a go-ahead to these firms, but the capital requirement was not brought down.

To have a niche category of insurers that differentiate themselves from others, the applicants have also been asked to specify which distribution channel they would use, including online, direct, tied-agents and brokers, among others.

Irdai will accept comments to the draft norms till June 8.