Health Insurance May Get a New Regulator
India stands on the brink of a pivotal transformation in its insurance landscape as the interim budget on February 1st may unveil a new era for health insurance regulation. The authorities are considering a composite license for life and general insurance, which will potentially reshape the Indian insurance industry, facilitating ‘Insurance For All By 2047.’ This ambitious vision necessitates not only a separate regulator for health insurance but also an intensified digital drive for insurance distribution and sales, according to sources familiar with the deliberations.
Easing Entry Barriers and Enhancing Product Design Freedom
To foster innovation and tailor insurance products to consumer needs, the government may lower the entry barriers for insurance providers. This move marks a significant step forward, offering insurers the liberty to craft their insurance products with greater flexibility.
Reforms like these would require amending the prevailing insurance laws of India. These changes aim to deepen insurance penetration, ensuring every citizen is under the protective umbrella of insurance by the year 2047.
Improvement in Insurance Penetration: A Key Indicator of Growth
Swiss Re reports that while the global insurance penetration rate is expected to reach 6.5% in FY24, India is projected to lag behind at 3.8%. Delving deeper into the categories, life insurance penetration in India is estimated at 2.9%, and non-life insurance, which includes health insurance, is at a meager 1%.
Insurance penetration, a critical metric measuring the ratio of total premiums to gross domestic product, reflects the maturity and reach of the insurance sector in a country.
Tax Policy Revisions and Digital Innovation
Despite the progress, inquiries to the finance ministry seeking confirmation and details remain unanswered. However, a significant aspect of the reform initiative is the expected collaboration with the GST Council to rationalize the tax rate on health insurance policies from 18%. The industry is advocating for parity with life insurance that enjoys a lower rate of 5%.
“Insurance reforms are imperative to achieving ‘Insurance For All By 2047.’ Current penetration rates are insufficient, particularly in health insurance,” insists Devansh Sharma, a chartered accountant in Delhi. To address this, the government is contemplating raising the income tax deduction cap for health insurance premiums to encourage broader coverage.
Digital Banking Units: Frontiers of Financial Inclusion
Furthermore, digital banking units (DBUs) stand poised to expand their financial product offerings, including insurance policies. This progression might start with the inaugural 75 DBUs before a broader rollout. The objective is to harness digital infrastructure to dispense a variety of financial products, thereby transforming DBUs into major conduits of financial inclusion.
DBUs represent a new type of business hub equipped to provide digital banking facilities and service financial products in a user-friendly manner.
Stricter Regulations Against Misselling and Enhanced Agency Channels
The government, in coordination with the Insurance Regulatory and Development Authority of India (Irdai), anticipates introducing stringent measures to prevent insurance misselling. This strategy complements efforts to expand agency channels for general insurance, aiming to penetrate the market more deeply.
The Possibility of an Exclusive Health Insurance Regulator
A pressing need is emerging for a dedicated health insurance regulator to render health coverage affordable and address the standardization of treatment costs and the expeditious settlement of claims. Dialogue between the finance and health ministries has been ongoing, with a concrete plan likely to surface soon.
According to CareEdge, the non-life insurance market in India, which encompasses health insurance, is forecast to grow 13-15% medium-term. The health insurance segment alone might surpass the ₹1 trillion threshold, while motor insurance is also expected to see robust growth.
In conclusion, as the ‘Health Insurance May Get a New Regulator’ narrative unfolds, the confluence of regulatory innovation, digital revolution, and fiscal incentives heralds a promising dawn for the insurance sector in India. With the goal of ‘Insurance For All By 2047’ guiding this transformation, the Indian government’s proactive stance is set to redefine health insurance policies, accessibility, and affordability, benefiting millions and ensuring that India’s insurance infrastructure meets the demands of its burgeoning economy.
