Much like the year before, 2023 saw a flurry of activity on the regulatory front, with IRDAI rolling out expenses of management, payment of commissions and more recently, draft product regulations. The Budget announcement withdrawing tax benefits on maturity proceeds of traditional endowment policies with aggregate annual premiums over Rs 5 lakh was a massive dampener for life insurers.
Here's a look at the key events that changed the insurance sector in 2023 and how key trends could play out in 2024:
IRDAI new commission rules
The Insurance Regulatory and Development Authority of India (IRDAI) announced new expenses of management (EoM) and payment of commissions regulations, effective April 1. The new framework allowed more flexibility to insurers to compensate their intermediaries, within the overall EoM cap, doing away with product-wise limits.
“Removing the commission cap while implementing an overall limit on management expenses reflects a more mature and flexible industry environment,” said Casparus Kromhout, MD and CEO, Shriram Life Insurance.
Then, IRDAI initiated several other plans that are likely to have long-term bearing on the insurance space. “Initiatives like the State Insurance Awareness plan fostered collaboration among IRDAI, state officials, government authorities and insurers, aiming to enhance insurance penetration for India's underinsured population. Additionally, initiatives such as Bima Vistaar, Bima Vahak, and Bima Sugam are being worked upon and at an advanced stage of introduction to improve insurance accessibility and affordability,” added Ritesh Kumar, MD and CEO, HDFC ERGO General Insurance.
Also read: Higher insurance agent commissions to continue, but IRDAI asks insurers to adhere to EoM caps
Budget 2023 shocker
At the beginning of 2023, life and health insurance companies had drawn up Budget wishlists – a separate tax deduction bucket for life insurance premiums, a higher deduction limit for health insurance premiums and tax exemption to annuity income.
However, on February 1, finance minister Nirmala Sitharaman delivered a blow to the traditional endowment category, the core of insurers’ product portfolios. She announced the withdrawal of tax-free status to maturity proceeds of traditional endowment products where the annual, aggregate premiums paid by the policyholders exceed Rs 5 lakh. This is applicable to policies sold from April 1, 2023.
While the Life Insurance Corporation of India (LIC) said the impact would be minimal due to the low proportion (less than 1 percent) of such policies in its portfolio, several others have taken a hit. “It has had a major impact for most private players. Some tried to sell multiple policies to family members, while some launched single premium policies,” said Girish Malik, Principal Officer and Director, Xperitus Insurance Brokers.
Also read: How your endowment policies with premiums over Rs 5 lakh will be taxed
Higher surrender value for traditional customers
The final regulations are expected to be released in 2024. Life insurance companies are concerned about the rise in policyholders making an early exit due to IRDAI permitting lower surrender charges on endowment policies.
Take, for example, a traditional savings insurance policy with an annualised premium of Rs 1 lakh, policy term of 20 years and the assumed threshold premium of Rs 25,000. Under current rules, a policyholder is entitled to receive a surrender value of Rs 35,000 (35 percent of Rs 1 lakh) if she surrenders the policy after paying the third-year annual premium. Under the proposed rules, this payout could go up by 139 percent to Rs 2,51,250.
Now, life insurance companies want IRDAI to water down the relaxation, which could play out next year. However, even if the proposal is finalised in the current form, the fact remains that the surrender charges under life insurance policies will be much higher than the 0-1 percent exit load that pure investment products like mutual funds charge. It is best not to mix your investment and insurance needs. If you need life insurance cover, buy a pure protection term policy.
Work underway on Bima Sugam
The planned rollout of Bima Sugam picked up pace this and is likely to be the most anticipated event for the insurance industry in 2024. The IRDAI chief has referred to it as the potential united payments interface (UPI) moment for insurance. Policyholders will be able to make price and feature comparisons on a single tech-enabled platform backed by the regulator. Bima Sugam will also facilitate policy servicing, claim settlement and grievance redressal across insurers.
Guaranteed endowment plans, small-cap funds in Ulips hold sway
Nearly all life insurers launched non-participating (that is, guaranteed returns) endowment plans to capitalise on the prevailing higher interest rate environment in the country. This apart, several of them also launched small- and mid-cap funds to cash in on the upswing in the market fortunes of the small- and mid-cap space.
The rise of InsurTech
Insurers continued to increase the adoption of technology to boost policy sales, servicing and claim settlement efficiencies. This trend will continue and gain further traction in 2024 as well. “The industry witnessed increased competitiveness with new private insurers and the emergence of InsurTech players. Technology continues to be a driving force, enabling the development of customised insurance products, leveraging data analytics, AI for pricing, customer service, and improving overall customer experience,” said Kromhout.
Policyholders bear the brunt for higher health premiums
Higher and more frequent claims and rising medical inflation, particularly post COVID-19, triggered a rise in health insurance premiums. “The average claim size has gone up as has the claim ratio for non-life companies. As a result, on the individual health side, premiums have risen by 15-20 percent, while the group side (for example, employers’ group insurance) has seen a spike of 12-15 percent,” says Juzer Jawadwala, Director, Xperitus Insurance Brokers.
Senior citizens were the worst-hit category. “Premium hikes for those over 60 years of age have always been steep, but this year the premium jumps have become even sharper,” he adds. This age band sees more frequent and larger claims, and hence is seen a riskier group.
In 2024 and beyond, senior citizens and their children will have to brace up for steeper premium hikes, irrespective of whether they have made claims that year or not. A dedicated healthcare fund to take care of medical expenses would serve them well.
Insurer-hospital tussle continues
This year, insurance companies came together through the General Insurance Council to take action against hospitals that inflate treatment bills and indulge in fraud.
The Council decided to set up a committee with insurance companies, hospitals, and medical and legal experts as members. Errant hospitals would be excluded by all insurers collectively while hospitals would also get an opportunity to escalate their grievances against insurance companies.
“The number of hospitals blacklisted by insurers has gone up. For example, one leading private general insurer blacklisted around 1,100 hospitals this year, compared to the usual 15-20 in a year,” says Jawadwala.
Health claims exchange to minimise claim grievances
According to IRDAI chairman Debasish Panda, a common hospital network for all insurers and wider health insurance coverage are key to ensuring better underwriting and efficient pricing (and thus, lower premiums).
A National Health Claims Exchange, backed by the central government, which will support hassle-free claim settlement as well as prudent underwriting, is in the works.
The year 2024 could see these initiatives fructifying, potentially leading to better customer satisfaction.
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