Insurers may get to sell related non-insurance value added products and services but not MFs
Exploring the Opportunities: Insurers Venturing into Value-Added Non-Insurance Products and Services
As the insurance industry continues to evolve, companies are constantly seeking new ways to add value and enhance their offerings to customers. One of the emerging trends is the provision of related non-insurance value-added products and services. While insurers may find multiple avenues to explore in this expanding market, it is crucial to note the regulatory restrictions that prohibit them from selling mutual funds (MFs). In this blog, we will discuss the key points surrounding this development and the potential opportunities it creates for the insurance industry.
Key Points
1. Rationale for Offering Non-Insurance Value-Added Products
Insurers are recognizing the growing demand for comprehensive solutions that extend beyond traditional insurance policies. Customers are seeking seamless and integrated experiences that can cater to their varied financial and lifestyle needs. Thus, offering related non-insurance value-added products and services allows insurers to:
- Enhance Customer Loyalty: Providing added value can build stronger relationships and customer loyalty, as policyholders perceive greater benefits beyond their standard coverage.
- Expand Revenue Streams: Diversifying into related products and services opens new revenue opportunities and mitigates reliance on premiums alone.
- Improve Competitive Edge: By offering exclusive and innovative services, insurers can differentiate themselves in a crowded market and attract new customers.
2. Types of Non-Insurance Value-Added Products and Services
Insurers are well-positioned to offer a variety of related products and services that complement their core offerings. Some of these include:
- Health and Wellness Programs: These programs may include gym memberships, diet plans, mental health resources, and telehealth services. By providing such initiatives, insurers can promote healthier lifestyles, which may lead to lower claims.
- Home Assistance Services: For policyholders with homeowners or renters insurance, value-added services such as emergency repairs, home security consultations, and maintenance discounts can be very appealing.
- Travel Assistance: Travelers often purchase insurance for trips, so insurers can add value by offering additional services like travel assistance, rental car discounts, and concierge services.
- Financial Education and Planning: While insurers cannot sell mutual funds, they can still offer value-added financial education resources, tools for budgeting, retirement planning guides, and other advisory services to help policyholders manage their finances more effectively.
3. Regulatory Restrictions on Mutual Funds
Despite the opportunities in related non-insurance products, insurers must navigate the regulatory landscape carefully. One key restriction is the prohibition on selling mutual funds. This regulation ensures that insurers stay focused on their core competencies and maintain clear distinctions between insurance products and investment vehicles like mutual funds. This measure is designed to:
- Prevent Conflicts of Interest: Avoiding the sale of mutual funds helps prevent any potential conflicts where insurers might prioritize investment products over insurance coverage.
- Maintain Consumer Protection: Ensuring that policyholders receive unbiased insurance advice and coverage without the complexity and risk associated with investment products.
- Promote Market Stability: Keeping mutual fund distribution separate helps maintain the integrity and stability of both the insurance and investment markets.
4. Challenges and Considerations
While venturing into value-added services offers numerous benefits, insurers must also be mindful of certain challenges and considerations:
- Compliance and Regulation: Ensuring that new products and services comply with industry regulations and standards is paramount.
- Integration with Core Offerings: Insurers must integrate these value-added services seamlessly with their core insurance products to provide a unified customer experience.
- Cost vs. Benefit Analysis: Evaluating the cost of implementing and maintaining these services against the projected benefits and revenue potential is crucial.
- Customer Education: Educating customers about the availability and benefits of these value-added services to ensure maximum engagement and utilization.
5. Future Outlook
As insurers continue to explore the realm of non-insurance value-added products and services, we can expect several exciting developments:
- Innovative Partnerships: Collaborations with tech firms, health providers, and other industry players can lead to innovative service offerings.
- Customized Solutions: Leveraging data analytics and customer insights to provide personalized value-added services that meet specific needs and preferences.
- Focus on Technology: Digital platforms and mobile apps will play a key role in delivering these services conveniently and efficiently.
Insurers may get to sell related non-insurance value added products and services but not MFs
Summary
Government proposes to give flexibility to insurance companies to bundle their core products with non-insurance products and services to help raise insurance penetration in the country and allow companies to offer competitively priced risk mitigation solutions.
Auto repair from your car insurer and fire extinguishers courtesy your home insurer? Not outlandish ideas, but part of the government’s plans to allow insurance companies to sell related products and services.
The government may allow general insurers to bundle their core insurance products with non-insurance products and services to increase insurance penetration and allow companies to offer competitively priced insurance products, two persons aware of the plans said.
The plan, if rolled out, will allow the sale of gym memberships and basic healthcare by health insurers; vehicle repairs, diagnostic services and roadside assistance bycar insurers; and safety consultations, fire extinguishers and safety alarms from home insurers.
The thinking is that insurers would provide comprehensive risk mitigation solutions that would help reduce the incidence of losses for them, resulting in better-priced products and lower overall risk for the nation, one of the two persons cited above said on the condition of anonymity.
Seeking amendments
Insurers have sought amendments to permit the sale of value-added services as they try to deliver new and valuable services to customers, the finance ministry said, citing the Insurance Regulatory and Development Authority of India (Irdai). “The proposal to enable insurers and insurance intermediaries to provide services related or incidental to the insurance business as specified by Irdai is under consideration,” the ministry said in response to the observations of the Parliament’s standing committee of finance on the matter.
The second person cited above said that the finance ministry is working on the Insurance Amendment Bill, which will also redefine insurance. The bill is expected to be presented in the Parliament’s budget session after securing Cabinet approval, the person added. This will allow the Centre to notify any other or ancillary business that insurance companies may be permitted to undertake beyond their core operation of providing insurance and risk coverage products to customers in consultation with Irdai, the person added.
A query emailed to the finance ministry remained unanswered till press time.
“These are good suggestions theoretically. In practice, Insurance is still a push product. If an insurance company runs a diagnostic centre, does it mean that their customers should only use that to get an insurance claim? Car repair is still a domain of OEMs and dealers. No dealer makes money in selling a car. They make money in service/repair of vehicle. My view is that insurers should focus on their core business,” said C R Vijayan, former secretary general of General Insurance (GI) Council, the official representative body of the general insurance industry.
Better auxiliary services
“In my opinion, this is fine. To provide better auxiliary services while selling insurance products is a must-have, as customer demands have changed and they are looking for combined products. Like, if I am going to the gym, then I need better pricing for a health product; if I drive better, then I need a competitive quote on my motor insurance. So, allowing these frills baked into the insurance products will not only ensure innovation and provide a competitive edge to insurers, but will also help customers get very personalized coverages. So, it’s in the right direction,” said Debashish Banerjee, partner and insurance sector leader at Deloitte India.
However, insurers may still not be allowed to sell financial products such as mutual funds on the lines of banks, as the government and regulators fear these specialized financial products could add more risk to their insurance operations.
Irdai had earlier suggested permitting insurance companies to sell even mutual funds, but the proposal did not find favour with the government, the first person said.
According to Banerjee of Deloitte, keeping insurers out of mutual funds is fair, since MFs are regulated by the Securities and Exchange Board of India (Sebi), while insurance comes under Irdai.
In countries where a single regulator for banks, insurers and stock markets oversees all financial products, it’s easier to sell all products under a single umbrella. In India, unless an insurance company also takes a banking licence and is regulated by Reserve Bank of India and Sebi, they won’t be able to sell MF products.
DFS, Irdai to decide
The department of financial services (DFS) in the finance ministry and the insurance regulator would decide on a list of related activities or activities incidental to the core insurance business. These may include services and wellness packages clubbed with general insurance products.
According to a note on the insurance amendments by law firm Cyril Amarchand Mangaldas published earlier, insurers need to be customer-driven in their approach towards products and services and offer a range of value-added services to their customers in addition to the core insurance product.
“Typically, value-added services include non-core services in an industry, or the enhancements made to the core product or service offered to customers. The UK permits both value-added services and cross-selling services by insurers. Singapore allows life insurers to provide financial advisory to its clients, while Malaysia allows life insurers to provide services incidental to the insurance business,” the note said, adding that Australian law, on the other hand, permits the conduct of business that is incidental to the insurance business of general insurers. However, life insurers are permitted only to carry out life insurance.
Conclusion
The insurance industry’s shift towards offering related non-insurance value-added products and services presents significant opportunities for growth and enhanced customer engagement. While navigating regulatory restrictions, such as the prohibition on selling mutual funds, insurers can still provide a wide array of services that complement their core offerings. By integrating health and wellness programs, home and travel assistance, and financial education resources, insurers can create a comprehensive and appealing value proposition for their customers. As this trend continues to evolve, those who embrace innovation, compliance, and customer-centric strategies will undoubtedly secure a competitive edge in the market.
By strategically expanding into value-added non-insurance services, insurers can not only meet the diverse needs of their customers but also foster loyalty, boost revenue, and solidify their position in an increasingly dynamic industry landscape.
Disclaimer
The insights and information provided by Estabizz Fintech Private Limited are for general informational purposes only and should not be interpreted as financial, investment, or legal advice. While we strive for accuracy and relevance, we recommend consulting with our qualified professionals for advice tailored to your specific circumstances. Estabizz Fintech disclaims any liability for actions taken based on this content. For further guidance, please contact our team of experts.
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