Combi Products Offering Life, Health Insurance Soon? Major Insurance Changes in Budget 2024
Combi Products Offering Life, Health Insurance Soon? Major Insurance Changes in Budget 2024
The government plans to introduce a Bill seeking amendments to the Insurance Act of 1938 during the upcoming Budget session.
Finance Minister Nirmala Sitharaman will announce Budget 2024 on July 23, 2024. Some of the key provisions could include a composite insurance license allowing life insurers to underwrite other insurance policies, simplified investment rules, one-time registration for intermediaries, and permitting insurers to distribute other financial products. Here are the expected changes in the insurance sector.
According to the current Insurance Act, life insurers can only offer life insurance, while general insurers can offer non-life products such as health, motor, fire, and marine insurance. The Insurance Regulatory and Development Authority of India (IRDAI) currently does not allow composite licensing. However, the upcoming amendment is set to change this rule, enabling a single entity to offer both life and non-life products.
President of the Insurance Brokers Association of India (IBAI), commented, “Allowing life insurers to underwrite health insurance will be a good idea as the Life Insurance companies have a good background about the health of the insured (while underwriting him for life proposal) and it is their interest about the longevity of the insured through better medical facilities to save on the claims under life insurance policies.”
If permitted, insurance companies are likely to launch combi products where the life insurer acts as the lead insurer. This will allow customers to buy comprehensive insurance coverage under a single policy.
Eased Capital Requirements and Solvency Norms
The draft Insurance Laws (Amendment) Bill, 2023, likely to be presented during the Budget session, aims to ease the minimum capital requirements for insurers while reducing the solvency norms. Currently, a minimum capital of Rs 100 crore is required for life, general and health insurance businesses, and Rs 200 crore for reinsurance businesses. The proposed amendments are expected to allow the regulator to set varying minimum capital based on the classes/sub-classes of insurance businesses the insurer engages in.
Experts highlight that easing capitalisation requirements can help more players. The ones who, focus on micro-insurance or agriculture insurance can enter the market. This change could bring more affordable insurance options for customers while creating more jobs in the insurance sector. However, “Differential capital requirements depending upon the area of operation or sector is a welcome move but the reduction in solvency margin may not be a good idea as this may lead to systematic risk build up in future.”
Captive Licenses and Distribution of Financial Products
Proposals include issuing captive licenses for insurers, changes in investment regulations, one-time registration for intermediaries. It will also allow insurers to distribute other financial products. A “captive insurer” will be a general insurance company undertaking business exclusively for its holding/subsidiary/associate companies. This move may enable conglomerates to incorporate an insurer to cover business-related risks within their groups.
There is also a proposal to allow insurers to distribute other financial products as specified by regulations issued by the insurance regulator. Sources indicate that insurance companies may be allowed to distribute mutual funds. While this cross-selling of products through insurance channels could be advantageous, Bohra expresses concerns: “I am not in favour of the distribution of other financial line products as we need a specialist for every field and cross-selling will lead to mis-selling or forced selling and may not be favourable to the customer.”
“The draft Bill is ready and it has to go to the Cabinet for its approval,” sources said, adding that the finance ministry hopes it will be introduced in the upcoming session.
