Article
Executive Summary
- Regulatory changes by the IRDAI could significantly expand access to insurance across India.
- Integrated models will allow for wider distribution but come with potential operational challenges.
- The productivity and success of expanded and integrated insurance offerings are contingent on strong customer connections and training offerings.
- Banks, insurers, and customers can all benefit from innovation and offerings available as a result of these proposed regulatory changes.
The Insurance Regulatory and Development Authority of India (IRDAI) has announced regulatory changes for expanding the average Indian’s access to life and general insurance under its vision of “insuring India by 2047.”
In recent years, IRDAI implemented rules to increase the number of distribution partners for banks or corporate agents, introduce new products more quickly using the “use and file” process, and replace individual commission caps with overall “Expense of Management” guidelines.
IRDAI is considering other reforms, such as introducing risk-based capital and composite licensing (life, health, and general insurance under one license in a single entity) and permitting insurers or agents to sell other financial products. These could be introduced over the next several months but first require parliamentary approval involving amendments to the Insurance Act, 1938, and the Insurance Regulatory and Development Authority Act, 1999.
While these changes could significantly expand access to insurance, there are potential far-reaching implications for the insurance industry across both insurers and distributors.
Integrated insurer models
Large life and health insurers can now consider merging into an integrated entity, bundling life and health solutions to customers and associated operational collaborators.
Large life insurers can cross-sell health insurance to existing customers by acquiring Standalone Health Insurers (SAHIs). Life insurance with at least 25 lakh agents has a significantly wider distribution footprint than health insurance with 10 lakh to 15 lakh agents across SAHIs and general insurers.
This could allow more access to health insurance. Consider the GDP of India compared to Brazil, Singapore, and Mexico.
Health insurance is attributed to 0.5% of the GDP in India compared to 3.1%, 1.1%, and 0.5% in Brazil, Singapore, and Mexico, respectively. Life insurance in India is at 3.2% of the GDP and is higher than Brazil at 2.2% and Mexico at 1.2%.
However, these integrated models need to work through multiple operational challenges, which include health insurance being more operationally intensive, the need for a strong hospital partner network, and the life channel’s reluctance to sell health (given more frequent claims and their impact on customer experience).
These channel issues are easier to control for insurers having strong proprietary channels (like tied agents) compared to those that are more bancassurance dependent. SAHIs that deliver a superior customer experience through a singular focus on the health insurance product and journey could continue to scale profitably.
Globally, countries with a composite license, such as Singapore, have seen an emergence of integrated players like AIA and Great Eastern. In the US, where life and health licenses are separate but may be acquired by a single entity, specialized players like MetLife, New York Life, and Northwestern Mutual have focused on life, while specialists like UnitedHealthcare, Anthem, and Cigna primarily offer health.
Previously, banks in India were allowed to distribute products of up to three each for life, health, and general insurers—this choice set now expands to nine each. It’s unlikely that banks will use all of this increased flexibility given the complexities of staff training, IT integration, and commission negotiation with each insurer. However, a niche insurer can now work with a partner to offer a bespoke product for a specific customer segment of the bank. Two examples:
- A bite-sized protection-plus-health offering to the urban lower-middle class sits well with the target segment of a small-finance bank.
- A well-structured annuity offering complements a private sector bank’s wealth management offering.
Product and customer journey innovations here can benefit banks, insurers, and customers.
Financial and technology incentives
For insurance distributors, such as agents and large brokers, the proposed rules now enable a wider play across customers’ financial service needs. In addition to various types of insurance, distributors can offer investment and loan products, increasing customer loyalty and improving unit economics.
A distributor also can stitch together an omnichannel offering—for example, a pure digital interface for do-it-yourself journeys (such as viewing your portfolio), call center-based support for specific queries (like changing your residential address), and a physical agent for converting leads into new customers. Technology and training would need to play a key role for this to be effective in smaller towns and across agents with varying capabilities.
Generative artificial intelligence (AI) is an exciting new option to help agents—pilots are being conducted globally in wealth management and insurance distribution. AI tools can log customer conversations, recommend next-best actions, and summarize notes and next steps for the agent.
Expanding distribution channels
The recent and upcoming regulatory changes by IRDAI have the potential to expand insurance access in India and spawn multiple opportunities for carriers and distributors. For carriers, there is the potential for a large integrated life and health option, and a niche option focused on specific customer segments, products, or geographies. For distributors, enabling strong customer connections across multiple channels and equipping their field with training and interventions will be essential to productivity and success.