Parliamentary panel for introduction of composite licence for insurers

A parliamentary panel on Tuesday suggested the introduction of composite licence for an insurer to undertake life, general, or health insurance under one entity to increase penetration of insurance in the country.

The panel headed by BJP leader Jayant Sinha suggested the government to introduce a provision of composite licensing for insurance companies and make the related amendment in legislation at the earliest.

As per the Insurance Act, 1938, and the regulations of the Insurance Regulatory Development Authority of India, composite licensing for an insurer to undertake life, general, or health insurance under one entity is not allowed.

The panel also suggested a reduction in the GST rate on insurance products, especially health and term insurance, which is 18 per cent at present.

The high rate of Goods and Services Tax (GST) results in a high premium burden, which acts as a deterrent to getting insurance policies.

The committee, with a view to making insurance more affordable, recommended that GST rates applicable to health insurance products, particularly retail policies for senior citizens and microinsurance policies (up to the limit prescribed under PM Jan Jan Arogya Yojana capped at Rs 5 lakh), and term policies, may be reduced, the report said.

Observing that allowing composite licensing could provide further impetus to the insurance sector, owing to its various benefits, the report said it can cut costs and compliance hassles for insurers, as they can run different insurance lines under one roof.

It can also offer customers more choice and value, such as a single policy that covers life, health, and savings, the report tabled in Parliament said.

It can boost insurance reach and awareness in India, as customers can get one insurance from one provider, with lower premiums and easier claims.

The committee are aware that to enable composite licensing in India, the government and the IRDAI are planning to bring amendments to the existing insurance legislation, it said.

"However, there are some challenges and issues that need to be resolved, such as the capital and solvency requirements for the composite insurers, as they have to deal with different risks and returns from different types of insurance; the accounting and reporting standards for the composite insurers, as they have to keep separate funds and records for different types of insurance; etc," it said.

The committee, therefore, recommended that the government should hold deliberations with stakeholders to find solutions to these issues.

The panel also said that an inter-ministerial working group with participation from IRDAI, National Health Authority, other concerned agencies, consumers, healthcare providers and health insurers should be established to develop a long-term plan to be able to cover all sections of society with tailored government and private sector health insurance solutions.

On the issue of insurers being permitted to offer Value Added Services, the panel expressed the view that these services are ancillary to the insurance business.

With regard to the financial health of public sector general insurance companies, the report said they need to improve their performance, exit from unprofitable lines of business and rebalance the business mix.

They need to do organisational restructuring, involving bringing more people on the marketing side of their operations rather than sitting in the back office, have been identified, as per the report.

"The Committee, in view of the above, recommend that an appropriate strategic roadmap to implement all the remedial steps should be established for these companies to improve their competitiveness and enable them to attract sufficient capital and talent to grow," it said.

This roadmap should have appropriate timelines for demonstrable performance improvement, it added.

Out of four, three PSU insurers -- National Insurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company -- are in losses.

To improve their financial health, the government has already infused Rs 17,450 crore into these insurance firms.

The Board of each of these Public Sector General Insurance Companies should approve these strategic road-maps and commit to performance would like to be apprised of the details of such roadmap drawn and the concrete action taken thereof to improve the performance of these companies, it added.