Topic 4: Composite licence will give life insurers an advantage

The Insurance industry is at a crucial inflection point at this moment. The Insurance Amendment Bill 2022, which is likely to be tabled in the Budget Session of Parliament, is all set to transform the very nature of Indian industry. The two proposed amendments — composite licences for the insurers and permission for insurers to offer an Ecosystem of Services not necessarily linked to insurance — will impact the insuring public in many ways.

Composite licence

Composite licence allows the insurers to develop and sell life, non-life and health insurance products, provided they meet the necessary capital requirements. While this will give insurers economies of scale, customers also stand to benefit by getting all types of insurance cover from one insurer. Most life insurers, notably LIC, have a countrywide network of intermediaries and brick-and-mortar offices. Already more than 70% of the agents of non-life insurance companies are also agents of life insurance companies. So, life insurers are perfectly poised in distributing non-life products from almost all their operational units. Of course, if some non-life insurers have special product offerings, then the customers can take a call whether they should buy non-life products from the general insurers separately.

Ecosystem of services

Now, let’s see what Ecosystem of Services means for the insurance industry. In mature markets, insurers and insurance customers manage a wide range of risks together. After all, we live in a world of multi-dimensional risks. Customers look for both risk prevention and risk mitigation services which insurers can provide. Indian customers can similarly benefit once insurance firms are allowed to provide services related or incidental to insurance.

or example, life insurers can offer advice on pension and estate planning, finding and scheduling doctors, remote diagnosis and consultations. They can also help senior citizens (being customers of whole life and annuity products) in getting affordable housing, special medical care, and meal deliveries. Home insurers can arrange for emergency repair services, home security advice, remote monitoring and alerts, purchase of smart devices and automatic shutdown of appliances during floods and fires. Customers can be helped to save energy and can get discounts on household items.

Pandemics, natural catastrophes, cyber risks and terrorism risks are hard realities of life today. These can all lead to considerable financial losses. The individuals and small business entities can not always fathom the risks they are exposed to. Even when they can, they are just unable to manage such risks. The amendment can help Indians manage a lot of risks quite conveniently. Now, insurers are likely to assess a customer’s risks in totality and offer products which are more customised than ever before.