Page 39 - India Insurance Report 2023- BIMTECH

India Insurance Report - Series II 27

The relaxation of foreign direct investment (FDI) norms to 74% from the previous limit of 49% is
another example of a progressive policy change that is attracting more global players and investment
into the Indian insurance market.

Furthermore, the inclusion of general insurance in the Pradhan Mantri Jan Dhan Yojana (PMJDY),
a financial inclusion program, has the potential to further increase insurance penetration. This move
signifies the growing recognition of insurance as a critical financial tool for the economically weaker
sections of society.
To deepen insurance penetration in India, the regulator allowed the “use & file” procedure for all
health insurance products, almost all general insurance products, and most life insurance products. We
expect this to encourage more product innovation to meet the evolving needs of the consumer and
improve insurance penetration.

India’s insurance regulator intends to introduce risk-based capital (RBC) solvency requirements for
insurers. The aim is to ensure that insurance companies have adequate capital and will be able to withstand
the impact of any socio-economic crises in the future. Currently, India follows the solvency standard
under which insurers have to maintain a formulaic solvency margin, irrespective of the risks faced or the
liabilities that arise from the pricing of policies. The immediate impact of the introduction of RBC could
be on the equity and solvency position of insurers, which will likely shift towards capital allocation
based on the nature of the risk in the underwriting portfolio. The risk-weighted approach for capital
allocation should result in a freeing up of capital in certain cases, possibly for large insurers with more
diversified underwriting portfolios, while requiring higher capital requirements on insurers underwriting
more risky business.

The IRDAI is also in talks with the government to relax the INR 1 billion entry capital requirement
for insurance companies and permit the regulator to fix the amount based on the business plan of the
prospective company. This would aim to facilitate the entry of small, specialised and niche players to
help increase insurance penetration and density in India.

Recently, the IRDAI has approved amendments to rules on registering insurance companies and
investing in them. The amendments allow private equity funds to directly put money into insurance
companies. Earlier, they could invest only through special purpose vehicles. These amendments are
intended to lower entry barriers, promote ease of doing business and also the process of setting up an
insurance company in India.

There are host of developments and open architecture platforms on the anvil specifically to drive
penetration in rural or untapped areas. The most recent measure on this by IRDAI has been the
conceptualisation of ‘Bima Vahak’, ‘Bima Vistaar’ and the digital platform – Bima Sugam.
Bima Sugam will be an online portal that will be a one-stop shop for all insurance-related queries,
policy purchase, claim settlement and insurance advice. It is envisioned as a trusted platform by the IRDAI.

Bima Vahak will help insurance products reach the last mile. Each Gram Panchayat would have a
‘Bima Vahak’ who would be tasked to sell and service simple insurance products. It would be similar to
the Banking Correspondents present in rural banking. As part of the programme, insurance companies
will adopt a state each and will develop state-level insurance plans with the help of state governments.