Insurance industry must embrace innovation, enhance capabilities: Irdai

The biggest challenge is to draft a regulation which can foresee, predict and provide guidance for payments, said Panda

Insurance Regulatory and Development Authority of India (Irdai) Chairman Debasish Panda said the insurance industry should accept innovation in the sector and strengthen its capabilities to address emerging risks and opportunities.
 

Speaking at the recently held Business Standard BFSI Insight Summit 2023, Panda said, “Insurance industry must embrace innovation and enhance its capabilities not only to meet the evolving demands of customers, but also to proactively address emerging risks and opportunities.” He expressed concerns on rising cyber-security and climate-related risks and the need for insurance companies to develop policies that will address these concerns.
 

“There is a rise in frequency of natural disasters that necessitates a proactive approach, and the need to adapt by leveraging advanced climate modelling to anticipate and mitigate climate-related risks. Policies aimed at promoting sustainability and resilience, while factoring in climate-related concerns, must be developed,” Panda said while speaking at the BFSI Insight Summit.
 

Further, “Now, as we embark on the journey towards the digitised world, cybersecurity assumes a position of paramount importance. I firmly believe that the insurance sector is rising on occasion by providing comprehensive coverage against cyber attacks, data breaches and digital vulnerability,” Panda added. He spoke about using the technology for the betterment of customer servicing and simplification of insurance procedures.
 

“Policyholders today would demand accessible, transparent and responsive services. Therefore, it is imperative that insurance companies must invest in streamlining process access, claim processing and introduction to digital platforms, embracing tools like mobile application chatbots. This will enhance customer engagement and simplify insurance procedures,” he said.

Panda anticipates a need to be ready for the future where the current ecosystem will make way for newer technological advents like fintech, insurtech, blockchain and AI, among others. The time is not far away when quantum computing becomes a reality, overtaking the current ecosystem, making it important to be future ready.
 

In every aspect of insurance, technology advancements are being included like the start of regulatory sandbox experimentation, holding hackathons and insurtech working day in and day out.
 

Numerous coverage options are also being introduced like surety bond insurance. In this scenario, the major concern is considered to be framing regulations, which will cater to the rising risks from the sectors.
 

“The biggest challenge is to draft such a regulation, which can actually foresee, which will predict, and which can provide guidance for payments of the future. We need to create an agile framework, which will allow for revisions and adaptations to accommodate emerging trends and risks,” Panda noted. To preserve the insurance industry, in an era of rapid technological advancement and merging risks, the regulatory framework must display flexibility and adaptability, he added.
 

The regulations must be proactive in recognising emerging risks, and regulation needs to be continuously adjusted to effectively address these challenges. This may require revising capital requirements of insurance companies. Or, it may involve evolved reporting standards or implementing specific regulations tailored to the emerging issues.
 

Therefore, regulation is a continuous job and doesn’t remain static. We’ve got to be on our toes all the time.A dynamic approach will reflect the scenarios and also the continued relevance of the adaptability in regulation. It is a fine balancing act. It’s about creating an environment within an industry to try, innovate and respond effectively to emerging risks while ensuring that consumers are protected and overall stability of the sector is maintained at all times. This leads to the insurance initiatives and reforms that have been started since the last financial year with a focus on building a progressive and supportive insurance ecosystem.
 

A new paradigm

There is an emergence of a new insurance landscape, which emphasises on the interests of the policyholders. It focuses on the key pillars like ease of doing business, enhancing growth opportunities, promoting healthy competition and exclusive technological adoption, the regulator said.

This environment will encourage innovation, and promote more empowerment to the boards for taking business and operational decisions, and that too independently. Insurance companies can launch any product without waiting for the regulator’s approval and collaborate with multiple distribution partners.
 

The modifications in registration-related regulations and elimination or setting up a new insurance company allow new entrants with reduced timelines. There is a dedicated facilitation cell, which crops up the moment an application is filed for establishment of a new insurance company. It handholds every applicant, who wants to enter the insurance market.

The regulator is also taking several steps to make the sector future ready by ensuring the successful achievement of the three pillars by around 2025.
 

The three pillars of Irdai are the adoption of a risk-based capital approach, convergence to International Financial Reporting Standards (IFRS) and transitioning from a rule-based approach to a principle-based one.
 

Irdai has actively worked and introduced several measures to make the sector future ready. The adoption of a risk-based capital regime will reduce the risk-based supervision framework and aid in the convergence to IFRS. The new regime would enable the insurers to have capital commensurate with their risk profile. It will also allow the insurance company to efficiently utilise the capital. Similarly, convergence to the IFRS will enable insurers to align their financial statements with global standards. This will help improve transparency and also build investor confidence.
 

While the industry moves away from a rule-based regulatory regime, it is also important that the supervision framework is strong and personalised.
 

“The three pillars again are something which we are thinking about in our mission mode, and work is in progress. And, we are expecting to really come around maybe by 2025. All this will not be possible without the extensive use of technology, and therefore, insurtech players are being utilised in a big way,” said Panda. The regulator is also looking at other possibilities where new risk coverages can be bought under the fold of insurance. Efforts are also being made to enhance customer experience in the health sector, moving towards 100 per cent cashless claim settlement and interoperability in hospitals where the work is in progress. Efforts are underway also to strengthen the Insurance Information Bureau as a valuable data source for the entire industry that will play a significant role in supporting the scope of the insurance sector.
 

Irdai has also proposed amendments to the Insurance Act, which will create an even more robust and innovative insurance landscape with various players catering to different needs and different regions. The focus is on expanding insurance coverage to smaller towns —rural and semi-urban areas — to both physical and digital limits, phygital as you might like to call it, involving multiple stakeholders.
 

A similar important development is the BIMA Trinity, which includes BIMA Vistaar, BIMA Vahak and BIMA Sugam. BIMA Vistaar includes a simple welfare-based product to be distributed by BIMA Vahak, which could be a localised women-centric insurance distribution network. BIMA Sugam is an electronic place. The e-marketplace offered by BIMA Sugam is expected to help in streamlining the insurance processes by offering end-to-end solutions for policyholders, access to real-time data, and the platform for intermediary activities. However, regulatory reforms will be less successful if the process lacks sufficient consultations, collaboration and cooperation among the stakeholders. The insurance industry is a complex ecosystem that encompasses insurers, regulators, technology experts, and other stakeholders, and a documented, adaptable and agile regulatory framework. These diverse stakeholders must work in synergy.
 

Such synergy enables the pooling of expertise and insights from various segments of the industry. It further fosters an environment where profound understanding of the challenges can begin and opportunities can be effectively harnessed.

The mutual understanding will allow creation of regulations that are well informed and balanced, simultaneously promoting growth of the industry, and most importantly, safeguarding the consumer’s interests. Moreover, collaboration allows for a proactive response to multiple challenges. When various stakeholders work together, they can collectively identify and address issues as they arise, like consumer trends, changes in customer behaviour, or the impact of climate change, and so on and so forth.
 

Collaborative efforts ensure that the industry is better prepared to adapt and respond efficiently. It’s also worth noting that collaboration can take various forms. It can involve regular adaptation to financial regulators and industry stakeholders, it can be the establishment of industry-wide best practices, or even could be joint research and development initiatives to address specific types of challenges.
 

Along with collaborative efforts, there is also a need for a robust corporate governance framework that should be integrated in the system. This will ensure transparency, accountability and ethical conduct within insurance companies and also heighten the public trust in the sector.
 

Also, the regulator noted that the policyholder is not an active participant in the process, making it the primary responsibility of the regulator to empower supervisors by actively promoting financial awareness.
 

Further, Panda said the proposal to set up a State Level Bankers Committee (SLBC), which was introduced in May 2023, is still under consideration.
 

“The proposal is still under consideration. Several state governments have already taken the initiative to constitute state level committees. Some states have also constituted district level committees,” Panda said.