The government’s insurance reforms aim to lower costs for insurance companies by capping commissions, which will bring down premium costs for policyholders.
However, insurance companies are pushing back against these changes. They express concerns that such measures could negatively affect their businesses and their ability to attract intermediaries, including brokers, corporate agents, insurance web aggregators, third-party administrators, and marketing firms.
Unique Business Nature
R. Doraiswamy, CEO and Managing Director of the Life Insurance Corporation of India, said that the insurance business is distinct from the financial services sector. He noted that it involves a long-term relationship and various services provided over a person’s lifetime.
Additionally, he pointed out that insurance products require intermediaries and an extra effort, leading to higher costs compared to other financial services and products. He felt optimising the distribution process and costs would be the way out.
Swaminathan S Iyer, a member of the Insurance Regulatory and Development Authority of India (Irdai), acknowledged that there is often resistance to any reforms initiated by regulators. However, he stressed that the primary goal is to benefit customers.
Iyer stated that the regulator aims for the industry to reduce costs at all stages of the insurance life cycle. He mentioned that reducing distribution costs is not the only strategy to lower costs for policyholders. Improvements can also be made through better underwriting quality, operational efficiency, simplified products, and enhanced analytics.
These measures could lead to better pricing of products and greater affordability for consumers, Iyer said in a media interaction.
Advancing Life Insurance
Doraiswamy and Iyer were speaking at the 27th annual C.D. Deshmukh Memorial Seminar on advancing life insurance held at the National Insurance Academy (NIA) in Pune. In his keynote address, Iyer said that the government had taken significant steps to reform the sector and make it more inclusive to ensure insurance access for all by 2047.
He highlighted the removal of GST on health and life insurance premiums, which had contributed to growth, with health insurance increasing by 22% and life insurance growing at 19-20% in the last quarter. Iyer said lower premium rates have positively influenced insurance purchasing trends.
Iyer called on the industry to simplify insurance products, as the current offerings in the market tend to be complex.
Amit Roy, a partner and leader in insurance and allied business at PWC, said that distribution is crucial for mobilising insurance, especially given the uneven income levels and financial literacy in the country. This means that much of the responsibility lies with the distributors.
However, he highlighted that the insurance industry is facing challenges in attracting agents. Many individuals prefer gig work with quick commerce companies or becoming drivers, rather than taking on the difficult job of selling insurance.