Foreign insurers welcome, but policy unclear
Hello, this is Priyanka Salve, writing to you from Singapore.
Welcome to the latest edition of “Inside India“ — your one-stop destination for stories and developments from the world’s fastest-growing large economy.
India’s insurance sector has held a lot of promise for global companies, given low penetration rates and consequent reforms that have liberalized the industry. But recently proposed rules reintroducing commission caps could pour cold water on insurers’ plans.
Any thoughts on today’s newsletter? Share them with the team.
The big story
Global insurers eager for a bigger slice of the world’s 10th-largest insurance market, after it allowed for 100% foreign ownership in the sector last December, are in for a rude surprise as the country’s regulator plans to reverse one of its key reforms.
Last week, India’s insurance regulator proposed the reintroduction of product-level commission caps, reversing its move in 2023 that allowed insurers flexibility over their commission structures.
While India’s insurance market remains a long-term opportunity, experts warned that operational complexities ushered in by the frequent shifts in policy will make foreign investors pause their plans. If the proposals are agreed upon, insurers will have to comply by year ending March 2029.
NEW DELHI, INDIA – JULY 14: Commuters confused where they go as traffic jam ahead on UP link road near Mayur Vihar Phase -I during heavy rain on July 14, 2021 in New Delhi, India.
Hindustan Times | Hindustan Times | Getty Images
The market was primed for cross-border deal activity after the foreign direct investment limit was raised to 100%, Debashish Banerjee, partner and insurance sector leader at Deloitte India, told CNBC.
But deals will be paused as managements and boards of foreign insurers will need to deliberate on the recent changes, he said, adding that more importantly, discussions will hinge on “what if six months down the road there will be another policy change?”
On Sept. 23, the regulator proposed new rules that seek to reinstate commission caps, tighten expense management limits and restructure remunerations to reward policy renewals instead of upfront sales volume.
State-owned firms such as the Life Insurance Corporation, SBI Life and New India Assurance are already operating within the proposed caps, as per local media reports. Other insurance companies, however, will need to cut total management expenses sharply, according to Indian credit rating agency Care Edge.
The proposals require private life insurers to cut total management expenses from 20% to 15% of gross direct premium income within two years and to 12.5% within five years, and general insurers to reduce it from 30% to 20% over five years, according to Care Ratings said.
“20 of 22 life insurers and 28 of 31 general insurers are above the proposed FY29 expense ceiling,” the agency said.
Insurers take a hit
Currently, the commission structures are very front-ended, with almost 35%-40% being paid out…
Read More: Foreign insurers welcome, but policy unclear