Irdai allows firms to offer customised insurance to match customer needs

From April 1, when we buy insurance for a car or take out a health cover, insurance companies can offer a product totally customised for us.

This is the biggest change in the insurance product place to have happened in the Indian market.

That there is no flash in the pan has been made clear by the insurance regulator when it announced these changes through a series of gazette notifications on Friday.

This is a big deal for someone planning to buy insurance, as most of us do.

This also offers a big elbow room to the companies to reward customers who take care of themselves, giving them cheaper products. For the economy, this means good news as insurance penetration rises. 

“The regulator will effectively have no say in how an insurance company prices its products,” said Alok Yagnik, former head of reinsurance business at Oriental Insurance Company. 

For big insurance companies like New India Assurance, HDFC Ergo or ICICI Lombard, the development offers them the chance to stand out in a crowded market.

It will be particularly necessary, as in a related development the regulator has launched Bima Sugam, the insurance e-marketplace. 

The Indian insurance market, both life and non life, was pushing towards liberalisation in recent years. The trend had become sharper under the present Insurance Regulatory Development Authority of India (Irdai) chairman Debasis Panda. 

The most drastic of these was those announced last week.

In them, the regulator has replaced 34 regulations with a bunch of eight “principle-based consolidated regulations, following comprehensive review of the regulatory framework for the insurance sector,” noted a release issued after the board meeting. 

What do these changes mean for the customer after the regulator has scrubbed clean those maze of regulations? The change is likely to be felt most in the retail sector.

From April, when someone wishes to buy insurance against fire risks, the underwriter will not pore over rules set by the regulators to decide which risks to cover. 

For a person taking out a motor or a health insurance, the best options till now were limited to getting discounts, from a menu as established by Irdai.

If those applied, the customer was in luck.

In most cases, for two persons approaching the desk of adjacent insurance companies for the same type of risks, the premium was the same. Not any more. Each of these risks will mean different premiums for different customers. This massively raises the scope of savings even as people take out more insurance products.

For the insurance industry, this is a big deal.

As new types of manufacturing process come into play, new hazards also appear. But whether to cover those was something the underwriters at the 23 insurance companies till now decided based on several guidelines.

Instead, it will be the boards of these companies which will decide them.

For instance, in the case of fire risk, the companies got the freedom to set rates for most categories in 2008. But ruinous competition among them — where discounts sometimes reached a dizzying 99 per cent of the rack rates — forced the sole Indian reinsurer GIC Re to step in by 2017 and establish some order.

In this context, Irdai has now just put the onus on every sort of fire and engineering risks onto the board rooms of the underwriting companies. 

How Irdai has wiped the slate clean is evident from the simple language used in the gazette notification. “In exercise of the powers conferred by sub section (1) of Section 64 ULA of the Insurance Act, 1938 (these risks) stand entirely de-notified and no longer in force”, from April 1, 2024.

“Denotification of various tariff-driven businesses was a much-needed step. So, Irdai has moved in the right direction,” said BK Sinha, senior vice-president, Unison Insurance Broking Services. 

But it also has risks. “Just 10 days before the new financial year, this is a huge change,” said the chief executive officer (CEO) of an insurance company. Companies may have to convince their reinsurance partners that costs will not rise. 

There is no doubt that the liberalisation will also benefit the bottom line of the underwriting companies. In recent years, as customers got Net savvy and did more digital purchase of insurance products, the role of insurance bazaars became prominent.

Standing out from the crowd had become difficult for the companies which sold the insurance products. Now, they can attract customers to their tents for a personalised buy.