Insurance Regulator IRDAI Eases Approval Norms for Life, Health Insurance Products

India’s insurance regulator IRDAI recently relaxed approval norms for insurance products in life and health category, by bringing them under the “Use and File” method. Under the new procedure, insurance companies will no longer require prior approval before launching the product. Along with fostering ease of doing business, this move will also help in augmenting insurance penetration in India. Foreign investors must note that India has a huge underserved insurance market, with FDI cap at 74 percent.

In a bid to improve ease of doing business, the Insurance Regulatory and Development Authority of India (IRDAI) recently allowed insurers to offer life and health insurance products to customers without its prior approval. According to the notification, IRDAI has extended the “Use and File” procedure to insurance companies dealing in life, and health insurance products and riders, which implies that these insurers can now introduce products in the market and later file updates with the regulator.

The move is envisaged to enable insurers to launch most of the products in a timely manner. The insurance industry is expected to use this opportunity for introduction of customized and innovative products and expansion of the choices available to the policyholders in order to address the dynamic needs of the market.

This move will further augment insurance penetration in India, which was 4.2 percent in FY 2021. The life insurance industry, which has captured the largest market share in India, is expected to growth at a rate of 5.2 percent between 2019-2023. Further, in the non-life insurance general category, health insurance business is one of  the fastest-growing segments, accounting for a 33.33 percent market share.

What is the existing process for approval in the health and life insurance segments?

Under the existing “File and Use” system, an insurance firm wishing to introduce a new product has to first file an application with the IRDAI and use the product for sale in the market only after getting all regulatory approvals.

What is the “Use and File” procedure?

Under “Use and File”, insurance firms are permitted to market products without the regulator’s prior approval, thereby avoiding the lost waiting process.

This procedure allows insurance firms to swiftly introduce new schemes with innovative features, enabling people to participate and cover their health expenses.

What are the new approval norms for insurance companies?

As per the new norms, general and health insurance companies dealing in health insurance and life insurance companies can launch, modify or revise all categories of products and add-ons or riders in the health insurance business through the “Use and File” method.

Life insurance

The life insurance companies can now launch most of the products (except individual savings, individual pensions and annuity) before taking prior approval of the regulator. These companies must have a “Board Approved Product Management and Pricing Policy (BAPMPP).”

This Board shall constitute a Product Management Committee (PMC), which must have Appointed Actuary, Chief Risk Officer, Chief Marketing/Distribution Officer, Chief Technology Officer and Chief Compliance Officer of the insurer as members. In addition to the above, the insurance company may also include other members of its senior management in the PMC as members or as invitees.

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The PMC shall review and approve the products/riders in accordance with BAPMPP, before filing with the Authority under the new procedure. The PMC shall also be responsible for carrying out due diligence to ensure compliance with regulatory requirements.

The new “Use and File” method will be applicable to the following products:

• Individual non-linked pure term products
• Individual non-linked term products with return of premium
• Individual non-linked health products
• Individual unit-linked products which are offered with the existing approved funds only
• Group non-linked term insurance products (including one-year renewable, single premium)
• The following group non-linked savings insurance products:
  • Group non-linked superannuation product
  • Group non-linked gratuity product
  • Group leave encashment product
  • Group post-retirement medical product
• Group non-linked credit life insurance products
• Group non-linked health products
• All riders for individual & group business, including:
  • Term rider
  • Accidental death benefit rider
  • Accidental total / partial permanent disablement rider
  • Waiver of premium rider
  • Critical illness rider
  • Terminal illness rider

Health insurance

Insurance companies dealing in health insurance products must get the approval by the Board of those products that are to be offered, or modified. The PMC of the insurer shall ensure compliance to the policy of the board while signing of the new products or modification of products.

Insurance companies must file the proposed name of the product, date of approval by PMC and shall obtain the Unique Identification Number (UIN). Thereafter, they must file the product along with relevant documents with the IRDAI within seven days of launch of the product.

The guidelines also prescribe that the revision in the price, if any, shall be effected only based on the underlying claims experience and to make the product viable and self-sustainable. Insurers shall disclose the rationale for revision in price along with the underlying claim experience) of the product that lead to the revision in the price in their website.

What if IRDAI raises concerns over such a product later?

If a customer has already taken an insurance policy launched under “Use and File”, and the IRDAI later raises concerns about it, then it can initiate a process of deliberations. Meanwhile, the customer will continue to get the benefits of the policy for the first year, and if the insurance company makes amendments in line with regulator’s apprehensions, the customer will still get these renewed benefits.

However, if the policy is withdrawn as a result of IRDAI’s intervention, the product will no longer be available for renewal in the second year. In such a scenario, the insurance company may provide the policyholder with similar options from its existing policies, and the customer may agree to taking one.

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