Context: The Insurance Regulatory and Development Authority of India (Irdai) has constituted a committee of 12 members to simplify insurance policy wording.

• The committee is expected to submit its recommendations within 8-10 weeks.

State of Insurance Sector in India

• According to the Economic Survey 2022-23, life insurance density in the country increased from USD 11.1 in 2001 to USD 91 in 2021. Total global insurance premiums in 2021 increased 3.4% in real terms, with the non-life insurance sector registering 2.6% growth, driven by rate hardening in commercial lines in developed markets.

• According to the Economic Survey 2022-23, India's insurance market is poised to emerge as one of the fastest-growing markets globally in the coming decade.

• As per the IRDAI, insurance penetration in India increased from 3.76% in 2019-20 to 4.20%in 2020-21, registering a growth of 11.70%.

• India is at present the 10th biggest market in the world it is projected to be 6th biggest by 2032.

Need of this committee formation

Addressing Complexity

• This comes in the backdrop of the IRDAI's observation that policyholders often find it difficult to understand the terms and conditions in insurance policy contracts.

• This is due to the complex language used in the policy, stopping them from making informed decisions while purchasing an insurance policy.

IRDAI’s Commitment

• As a step towards IRDAI's goal of Insurance for all by 2047, the regulator is putting efforts towards creating a progressive, supportive, facilitative and forward-looking architecture, which will foster a healthy environment leading to wider choice, accessibility and affordability to the policyholders.

• In this endeavour a committee with following members is constituted for simplification of policy wordings by using language understandable to policyholders.

About the Committee

• The Insurance Regulatory and Development Authority of India has constituted a 12-member committee for simplification of insurance policy wordings.

• The eight-member committee has been asked to submit its recommendations within 8-10 weeks.

• The panel has been asked to examine the existing insurance policy wording and suggest 'simple and plain' wording that is legally correct and enforceable.

• The committee, which will be headed by L Viswanathan, a member of the Insurance Advisory Committee (IAC), will also include the Secretary Generals of the Life Insurance and General Insurance Council along with the president of the Insurance Brokers Association of India (IBAI) and the Principal Officer, State Bank of India (Corporate Agent) as well as other senior members of the insurance industry. Further, the committee can also include external experts if found necessary.

The Committee’s Mandate

The newly formed committee has a clear mandate. It is tasked with:

• Examining Existing Policy Wording: The committee will review the language used in existing insurance policy contracts and recommend changes to make it “simple and plain” while ensuring it remains legally correct and enforceable.

• Specifying Obligations and Responsibilities: One of the committee’s objectives is to suggest policy wordings that clearly outline the obligations and responsibilities of each party involved in the insurance contract.

• Readable and Comprehensible Specifications: The committee will also propose specifications, including typefaces for written materials and their presentation, for both print and electronic records. These specifications should enhance readability and comprehensibility for policyholders.

IRDAI Vision 2047

Objective

• Insurance for All by 2047 aims that every citizen has an appropriate life, health and property insurance cover and every enterprise is supported by appropriate insurance solutions.

• It also aims to make the Indian insurance sector globally attractive.

Pillars

• Insurance customers (Policyholders)

• Insurance providers (insurers)

• Insurance distributors (intermediaries)

Focus Areas

• Making available right products to right customers

• Creating robust grievance redressal mechanism

• Facilitating ease of doing business in the insurance sector

• Ensuring the regulatory architecture is aligned with the market dynamics

• Boosting innovation

• Competition and distribution efficiencies while mainstreaming technology and moving towards principle based regulatory regime.

Significance

• It can help people in households all over the country to have access to an affordable insurance policy that covers health, life, property, and accidents.

• These policies would offer faster claim settlements, sometimes within hours, and additional benefits like gym or yoga memberships.

Challenges Related to Insurance Sector

Lower Adoption Rate

• Insurance is not widely adopted in India compared to other countries. This is because many people are not aware of insurance or don't trust it.

• In rural areas, where a large portion of the population lives, only a small percentage have life insurance coverage.

• The insurance industry's contribution to India's GDP (Gross Domestic Product) is less than 5%, which is lower than the global average. In simple terms, insurance is not widely used in India, and efforts are needed to increase awareness and trust in insurance products.

Lack of Product Innovation

• The insurance sector in India has been slow in product innovation. Many insurance companies offer similar products, which leads to a lack of differentiation in the market.

Fraudulence

• Fraud includes things like making false claims and lying about information.

• The use of digital technology and customer-focused policies may have unintentionally given fraudsters more chances to steal identities and make fake claims.

• Over 70% of Indian insurers have seen an increase in fraud cases in the past two years.

Talent Management

• The insurance sector in India faces a talent shortage. The industry needs skilled professionals in areas such as actuarial science, underwriting, claims, and risk management.

• Attracting and retaining talented professionals is a challenge for the industry.

Slow Rate of Digitalization

• The insurance sector in India has been slow to adopt digitalization compared to other industries, which has resulted in several challenges such as inefficient processes, lack of transparency, and poor customer experience.

Claims Management

• The claims process in India is often seen as complicated, slow, and opaque, which can lead to customer dissatisfaction and loss of trust in the insurance industry.

• This can be due to a lack of transparency, inefficient processes, and poor communication with customers.

Insurance Regulatory and Development Authority of India (IRDAI)

• IRDAI, founded in 1999, is a regulatory body created with the aim of protecting the interests of insurance customers.

• It is a statutory body under the IRDA Act 1999 and is under the jurisdiction of Ministry of Finance.

• It regulates and sees to the development of the insurance industry while monitoring insurance-related activities.

• The powers and functions of the Authority are laid down in the IRDAI Act, 1999 and Insurance Act, 1938.

Road Ahead

• To improve the insurance sector in India, several steps can be taken to leverage technology, align with customer behavior, optimize data usage, simplify claims management, adopt hybrid distribution models, and tackle fraud.

• Digitalization should be a priority across the value chain to reduce costs, improve efficiency, and support ecosystem development. This involves using technology to enhance employee skills and productivity through upskilling programs.

• Insurers need to align with dynamic changes in customer behavior and preferences. By offering quick personalized products and prioritizing flexibility over mass offerings, insurers can better meet customer needs and manage perceptions.