IRDAI approves reforms to push insurance penetration, ease of doing business

As part of a slew of reforms, the board of Insurance Regulatory and Development Authority of India (IRDAI) has on Friday allowed private equity (PE) funds to directly invest in insurance companies and made forming a special purpose vehicle optional.

“The insurers now can also raise subordinate debt or preference shares without prior approval of the authority to enable them to respond to market conditions in a speedy manner,” Debasish Panda, IRDAI chairman, said.

Capital limit

Addressing a press conference here on Friday, he said the board has enhanced the limit for raising such capital to 50 per cent from 25 per cent of the paid up capital and premium subject to net worth of the company. Further, the subsidiary companies are also allowed to be promoters of insurance companies.

Investments up to 25 per cent of the paid up capital by a single investor will now be treated as investor and investment over and above will be treated as promoter, Panda said.

The solvency norms have been tweaked in response to a long-pending request from insurers. The solvency factors (as per calculating norms) for crop insurance have been reduced to 0.50 per cent from 0.70 per cent, while in life insurance, factors for unit linked business and Pradhan Mantri Jeevan Jyothi Bima Yojana have been reduced to 0.60 per cent from 0.80 per cent and to 0.05 per cent from 0.10 per cent, respectively.

“This will release capital of ₹1,460 crore and ₹2,000 crore for general and life insurers, respectively,” said Panda.

Bancassurance tie-ups

On the distribution front, the upper tie-up limit for intermediaries has been increased to ensure last mile connectivity, he said, adding that a competitive environment in the market would make pricing more affordable. Now, a corporate agent can tie up with nine insurers (from the earlier three) and insurance marketing firms (IMFs) can tie up with six insurers from previous two in each line of business — life, general and health.

“With a view to leveraging technology for innovation in insurance, the regulatory sandbox norms have been relaxed. Instead of a cohort model with deadlines, sandbox approach will be an ongoing process now,” Panda said.

The experimentation period has also been increased from six months to 36 months to facilitate proper study.

The IRDAI board gave the final approval to Go-digit General Insurance Company for listing and also approved the merger of Exide Life Insurance with HDFC Life insurance. “For the first time after five years, registration of a new general insurance company, Kshema General Insurance, has been approved. Another 18 applications are under review,” he said.

To improve ease of doing business, IRDAI will approve any new registration of a company within 60 days from the date of application subjected to certain conditions, he added.

When asked on the rationale behind the major reforms, Panda said: “We are focussing on strengthening the three pillars of insurance ecosystem — policyholders, insurers and distributors — and to improve insurance penetration and promoting ease of doing business.”


RM Vishakha, MD & CEO, IndiaFrist Life Insurance, said: “These guidelines are progressive and in line with the growth of the industry and the vision for insurance for all by 2047.”

According to Bhargav Dasgupta, MD & CEO, ICICI Lombard GIC, the reforms are path-breaking, and will improve ease of doing business, free up distribution models, encourage customer centric innovations and make the sector attractive for investment.

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