Standing Committee on Finance headed by BJP MP Jayant Sinha has recommended the introduction of an ‘open architecture’ concept for insurance agents so as to facilitate a larger outreach of insurance products and a stronger distribution infrastructure in the country.
This recommendation, if and when accepted by government and consequent legal amendments are introduced, would pave the way for insurance agents to associate with multiple insurance companies.
Currently, under the Insurance Act 1938, an insurance agent can associate with one life, one non-life and one health insurance company for distribution of insurance products.
An ‘open architecture’ for agents would result in higher insurance penetration while accelerating financial inclusion and lower distribution costs, the Parliamentary Panel said in a report titled ‘Performance Review and Regulation of Insurance Sector’.
It will also provide an equitable footing for the insurance agents vis-à-vis the insurance intermediaries, it added.
Also, customers would have access to more options at a competitive price. However, the Committee recommended extensive industry consultations on this matter to ensure that policies provide a level-playing field to all players and do not unduly disadvantage incumbents. Additionally, any changes should be implemented over a period of time to enable all participants to prepare for these major changes, the report added.
Insurance regulator IRDAI had, in the year 2022, widened the open architecture for bancassurance by allowing a bank to distribute products of 9 insurers (earlier 3) in each of life, general and health segments.
Low penetration
Although the insurance industry in India has shown dynamic growth in recent years, with total insurance premiums increasing rapidly, the penetration and density of Indian insurance products are still low, reflecting the under development of the sector.
Comprising around 2 per cent of the global insurance market in 2020, the Indian insurance sector has a long way to go compared with the insurance sectors in advanced economies, the Parliamentary Panel report said.
Value-added services
Parliamentary Panel has also recommended that insurance companies may be permitted to provide risk management and other value-added services that are ancillary to the insurance business.
The Standing Committee highlighted that insurance is not just about the underwriting of risk but also the management of risk and value-added services.
“Preventive risk mitigation activities on a standalone basis would not only help in the popularisation and penetration of insurance but would also help to reduce the incidence of losses, thereby resulting in better-priced products and lower overall risk for the nation. Further, insurers would be able to provide a comprehensive risk mitigation solution to customers,” the Panel report added.