The Insurance Regulatory and Development Authority of India (IRDAI) has approved eight principle-based consolidated regulations, including setting up the insurance e-marketplace Bima Sugam for buying, selling and servicing insurance policies, and settling claims.
Six of these regulations are the outcome of consolidation and streamlining of 34 existing regulations, while two new regulations have been approved—one for the much-awaited Bima Sugam, and the other to cover the corporate governance aspect of insurers. Most importantly, for now, the surrender values for non-linked and linked life insurance products have been left broadly unchanged, thus continuing the progressive hike in surrender values with increasing persistent years of the policy.
The IRDA (Insurance Products) Regulations, 2024, is largely maintaining the status quo regarding the surrender values of non-linked or linked life insurance products and is a big departure from the exposure draft of December 2023.
According to Emkay Global Financial Services, the status quo provides a big relief to the life insurers, who otherwise had the tough task of balancing the impact of increased surrender value to the lapsing customers by tinkering with the distributor's payout, providing benefit to the persistent policyholders, and maintaining shareholders' profitability (VNB margins).
It says, "Notwithstanding this relief, the life insurers continue to work toward offering cost-efficient products to address the customers' needs, and not the other way, by demanding higher cost allowance for the complicated products. The life insurers also need to overcome the prey-predator relationship with their large distributors."
"However, we believe that competitive forces in the savings and investment market, and the changing customer preferences will drive life insurers to offer cost-efficient products. Backed by favourable demography-led structural growth story and attractive valuations, we maintain our positive view on life insurers," Emkay Global says in the report.
These consolidated regulations encompass pivotal domains such as safeguarding of policyholders' interests, rural and social sector responsibilities, electronic insurance marketplace, insurance products and operation of foreign reinsurance branches, as well as aspects of registration, actuarial, finance, investment and corporate governance.
In a statement, IRDAI says, "Following a comprehensive review of the regulatory framework for the insurance sector, it has approved eight principle-based consolidated regulations. It marks a significant milestone in regulatory governance, replacing 34 regulations with six regulations and introducing two new regulations enhancing clarity and coherence in the regulatory landscape."
Six of these regulations are the consolidated and streamlined versions of the existing 34 regulations, while two new regulations have been approved - one to drive the Bima Sugam initiative and the other, to address the corporate governance aspects of insurance companies.
"With nearly 25 years since the beginning of liberalisation of the sector, the regulator is slowly moving away from rule-based regulations to more of principle-based regulations. This is done to enhance flexibility and foster innovation in the sector, so as to achieve the regulator's vision of 'Insurance for all by 2047'," Emkay Global added.
Focusing on the rural sector, the IRDAI (Rural, Social Sector, and Motor Third Party Obligations) Regulations, 2024, consolidate two erstwhile regulations pertaining to minimum business obligations in the rural, social sector and motor third party business for insurers. IRDAI also revised the compliance and measurement of these statutory obligations where the unit of measurement under the rural obligations will now be the gram panchayat.
Beyond the noise of regulatory turbulence, Emkay Global says the listed life insurance companies are well-positioned to grow in the teens and maintain their value of new business (VNB) margins in the mid-20s, with some of the variation driven by the product-mix changes and (un) favourable distribution-mix.
"Against this backdrop, the embedded value (EV) compounding or operating return on embedded value (RoEV) of the listed private life insurers will be in a narrow range of 15-18%, leading to a narrow price/embedded value (P/EV) multiple range. With the structural drivers of life insurance remaining intact, we maintain our positive view on the listed life insurers, backed by their franchise strength and favourable valuation," the report added.
