PwC s Insurance Insights. Analysis of regulatory changes and impact assessment for May 2018

Transcription

1 PwC s Insurance Insights Analysis of regulatory changes and impact assessment for May 2018

2 Preface During FY , there has been an increase in the amount of premiums that have been collected, particularly from private life insurance companies. Presented below are few key points regarding general and life insurance sectors: Life insurance sector Premium in crore (INR) During April 2018, LIC s market share remains unchanged at 69% of the life insurance market in India. Over FY , there has been a significant shift in favour of private life insurance companies. In April 2017 private life insurance companies collected 2,562 crores INR as premium and has increased to 2,924 crores INR for April In the general insurance category, although the market is dominated by public and private sector insurers, standalone private health insurers have had a 29% increase in the amount of premiums collected for FY2018. In April 2017, the premium collected was 474 crores INR, which increased to 612 crores INR in April However specialised PSU insurers have had a 15% decline in premium collected from 88 crores INR in April 2017 to 74 crores INR in April Upto April 2017 Upto April 2018 Private life insurers LIC Market share up to March % Private life insurers LIC 69% Source: IRDAI 2 PwC PwC s Insurance Insights

3 Preface General insurance sector New Business Premium for Standalone Health Insurers and Speciaised PSU (INR Crore) Market share up to April % 4% Private and public sector general insurers Stand-alone private health insurers Specialised PSU insurers % 0.00 Upto 30 April 2017 Upto 30 April 2018 Source: IRDAI Stand-alone private health insurers Specialised PSU insurers Private and public sector general insurers Premiums Collected (INR Crore) For April 2017 For April PwC PwC s Insurance Insights

4 on insurance sector Blockchain In today s digital era, technology and digitalisation are playing a major role in shaping people s lives and their decision making. Improvement in technology has played a paramount role in solving societal issues. Simple examples such as the usage of batteries and microchips being used in medical research are all cases of the positive impact of technology. One such application is Blockchain, which was dubbed as a potential beating heart of the global financial system in a report released by the World Economic Forum in According to the report, it is predicted that Blockchain will account for 10% of GDP at a global level by A Blockchain is a peer-to-peer distributed ledger that is cryptographically secure, append-only, immutable, and updatable only via consensus or agreement among peers. There is a significant opportunity that has arisen for insurance companies to implement Blockchain to solve major problems that are affecting the entire industry. Blockchain can be applied in different areas. For example in the case of mandatory Third Party Insurance in motor insurance. According to the Motor Vehicles Act, 1988 third party insurance is mandatory. Road transport authorities, insurers and car manufacturers, can create a chain wherein motor vehicles can be monitored whether every vehicle is insured through third party insurers. This will ensure that no vehicles on road are operating without insurance and will also reduce cases of fake insurance policies held by vehicle owners/drivers to effectively operate vehicles on road. 4 PwC PwC s Insurance Insights

5 This edition talks about the history and the current state of (ULIPs) in the Indian insurance industry. A ULIP is a product that offers investors insurance and investment under a single plan. Over the years, there has been an increase in popularity for ULIP s in insurance markets. History of Unit-Linked Insurance Plans (ULIP) 1971 In India, ULIP was first introduced by the Unit Trust of India in It was initially difficult for this product to be successful due to the rules and regulations and level of transparency during that time for mutual funds. Once private companies were allowed to enter the insurance market in India, ULIP was introduced as an insurance product. April 2010 In April 2010, The Securities and Exchange Board of India (SEBI) banned 14 life insurance companies from issuing fresh ULIP schemes. At that time ULIPs were contributing almost 50% of the life insurance business. The money received in premiums were collected and then invested in equities by insurance companies After the IRDA introduced major guidelines for ULIP in 2005, insurance companies started to enter the ULIP business. June 2010 Later in 2010, the Government of India decided that ULIPs will be regulated and managed by the Insurance Regulatory and Development Authority of India (IRDAI). In June 2010, IRDAI released a circular IRDA/ACT/CIR/ ULIP/102/06/2010, stating the changes to be made by insurance companies to issue ULIPs. Source: IRDA: Handbook on Indian Insurance Statistics PwC PwC s Insurance Insights

6 Below are given some of the changes suggested by IRDAI to issue ULIPs: The lock-in period for all ULIPs will be increased to five years as against three years previously. During these five years there will be uniform premium payment; if there are to be any additional premiums these will have to be considered as single premiums and any charges will be distributed across the tenure. Another important change is that no partial withdrawals are allowed during the initial accumulation phase of premiums. In terms of returns, all ULIP pension or annuity products will offer a guaranteed minimum return of at least 4.5% or the rate as specified by the IRDA. Importance of ULIPs ULIPs have gained popularity over the last decade, among insurance companies and customers. There are many reasons for the following: Investors find ULIP an attractive option due to its lock-in feature. The lock-in period creates a habit of disciplined investment in customers. ULIPs have two important aspects: investors can avail life cover and an avenue for long-term investment. Investors will also be able to avail tax benefit every year till the end of the term for paying the premium. With customers required to pay a consolidated premium for investment option and life insurance cover, the premium includes a mortality charge, which customers do not need to separately pay for. 6 PwC PwC s Insurance Insights

7 In India, over the last decade, there has been a significant increase in the total investments of life insurer s funds comprising traditional and ULIP products. Particularly, in the case of ULIP funds, the investment amount has doubled since ULIP Fund Investment (Rs. Crore) ULIP Fund Investment (Rs Crore) Way forward For a unit-linked product to continue to be successful, insurers must ensure that they make it easy for the policyholder/prospect to access the information relevant to their investment decisions and which enables them to make comparisons with other providers. The sales literature must disclose all key elements, which are essential to enable the policyholder/prospect to make effective and informed choices. It is also important to note that the level of information/disclosure should match customer needs. At the same time, an overload of information may prevent consumers from making an appropriate assessment of a product and therefore, just adding additional disclosures may not be the solution. Thus, under a unit-linked policy, the disclosures should give the customers confidence that their funds are managed fairly in line with their expectations so that they can take effective and informed decisions Source: IRDAI Annual Reports 7 PwC PwC s Insurance Insights

8 Panel of actuaries Ref. no.: IRDA/ACT/MISC/MISC/066/05/ Date of issue: 1 May 2018 This circular is in reference to the requests that IRDAI has received from insurers to avail services of empanelled actuaries. This is primarily required to value actuarial liabilities of insurers on a quarterly basis. In order to enhance the availability of actuaries from the panel and ease the process of utilising the services of such actuaries, the following changes have been made: In the case of general insurance, a panel actuary can be involved during any quarter of a financial year in the valuation of, maximum of: Implication In India, there is a shortage in number of actuaries as well as in the expertise of actuaries. Hence, in order for strong growth within the industry, the IRDAI has facilitated this arrangement of asking all insurance companies to be a part of this panel. By forming a panel of actuaries, this will lead to strong growth and enhanced skills within the insurance industry. a. One stand-alone health insurer b. One general insurer c. General insurance business of one reinsurer (including general insurance business of a foreign reinsurer s branch office) In the case of life insurance, a panel actuary can be involved during any quarter of a financial year in the valuation of, at the most, one life insurer and life insurance business of one reinsurer (including life insurance business of a foreign reinsurer s branch office. All these conditions are also applicable to annual statutory actuarial valuation as at 31 March of any financial year being the last quarter of a financial year PwC PwC s Insurance Insights

9 Cross border reinsurers (CBRs) granted approval under guideline no. 6 of the Guidelines on CBRs ref. IRDAI/NL/GDL/RIN/017/01/2016 Ref. no.: IRDA/RI/CIR/MISC/068/05/ Date of issue: 9 May 2018 Applicability: To all CEOs/CMDs of all insurance/ reinsurance companies Basis the said circular, IRDAI has granted special approval to sixteen CBRs, as stated below- Approval Number Cross Border Reinsurer Place IRDA/Rl/CBR/ /001 # Republican Unitary Enterprise Belarus IRDA/Rl/CBR/ /002# Anadolu Anonim Turk Sigorta Sirketi Turkey IRDA/Rl/CBR/ /003# Joint Stock Company Russian National Reinsurance Company Russia IRDA/Rl/CBR/ /004# CICA Re Kenya IRDA/Rl/CBR/ /005# GIC - Bhutan Reinsurance Company Ltd. Bhutan IRDA/Rl/CBR/ /006# East Africa Reinsurance Company Ltd Kenya IRDA/Rl/CBR/ /007# Nepal Reinsurance Company Ltd Nepal Approval Number Cross Border Reinsurer Place IRDA/Rl/CBR/ /010# Asian Reinsurance Corporation Thailand IRDA/Rl/CBR/ /011# Ingosstrakh Joint Stock Insurance Company Russia IRDA/Rl/CBR/ /012# FAIR Pool Morocco IRDA/Rl/CBR/ /013# HDFC International Life and Re Company Ltd UAE IRDA/Rl/CBR/ /014# PT Reasuransi Indonesia Utama (Persero) Indonesia IRDA/Rl/CBR/ /015# PICC Reinsurance Company Ltd China IRDA/Rl/CBR/ /016# Iran Insurance Company (Bimeh Iran) India IRDA/Rl/CBR/ /009# Bao Viet Insurance Corporation Vietnam PwC PwC s Insurance Insights

10 Constitution of central database of licensed insurance sales persons in India (ENVOY) at IIB- Phase II 3 Ref. no.: IRDA/INT/CIR/CDB/082/05/2018 Date of issue: 30 May 2018 With reference to circular IRDAI/INT/CIR/CDB/19708/2017 dated on 24 August 2017, all insurance intermediaries have been advised to upload details of qualified persons, specified persons and authorised verifiers on the database of Insurance Information Bureau of India. Mandatory compliance The following are the requirements: Insurers are required to upload details of their individual agents. Insurance marketing firms are required to upload details of their insurance sales persons in the prescribed format. Implication Applicability: To all Insurers and all Insurance Marketing Firms This database is required for the purpose of better tracking and monitoring by the IRDAI. If, in case, there are circumstances whereby customers may complain in the future or have any issues with the sales persons, the regulator will be able to maintain better control and be able to undertake an analytical approach towards handling of these cases PwC PwC s Insurance Insights

11 Solvency margin for crop insurance business Ref. no.: IRDA/ACT/CIR/SLM/090/05/ Date of issue: 31 May 2018 Applicability: CEOs/CMDs of all non-life insurance companies and registered Indian reinsurers including foreign reinsurance branch offices The circular is issued under the powers of subsection 2(e) of Section 14 of the IRDA Act. Reference is drawn to the provisions of Para 6 and Para 8 of the Circular No. IRDA/ACT/CIR/SLM/066/03/2017 dated 28 March The provisions of Para will remain effective for one more year, that is, for the period up to 31 March 2019 and the situation will be reviewed accordingly. Other provisions of the aforesaid Circular will remain unaltered. This circular will be effective from 1 April, Paragraph 6 of the IRDA/ACT/CIR/SLM/066/03/2017 circular talks about concessions regarding the determination of solvency margin. Any premiums that were relating to any state or Central Government schemes should be placed with a value of zero. Crop insurance will now appear as a line item number 10 under line of business in Table 1 as under Schedule III of the regulations PwC PwC s Insurance Insights

12 Vivek Iyer Partner Mobile: Joydeep K Roy Partner joydeep.k.roy@pwc.com Mobile: Dnyanesh Pandit Director dnyanesh.pandit@pwc.com Mobile: Saigeeta Bhargava Associate Director saigeeta.bhargava@pwc.com Mobile: Yugal Mehta Manager yugal.mehta@pwc.com Mobile: Varsha Mehrotra Consultant varsha.mehrotra@pwc.com Mobile: Prateek Kannan Consultant prateek.kannan@pwc.com Mobile: PwC PwC s Insurance Insights

13 About PwC At PwC, our purpose is to build trust in society and solve important problems. We re a network of firms in 158 countries with more than 2,36,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at In India, PwC has offices in these cities: Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune. For more information about PwC India s service offerings, visit PwC refers to the PwC International network and/or one or more of its member firms, each of which is a separate, independent and distinct legal entity. Please see for further details PwC. All rights reserved pwc.in Data Classification: DC0 This publication contains certain examples extracted from third party documentation and so being out of context from the original third party documents; readers should bear this in mind when reading the publication. The copyright in such third party material remains owned by the third parties concerned, and PwC expresses its appreciation to these companies for having allowed it to include their information in this publication. For a more comprehensive view on each company s communication, please read the entire document from which the extracts have been taken. Please note that the inclusion of a company in this publication does not imply any endorsement of that company by PwC nor any verification of the accuracy of the information contained in any of the examples PricewaterhouseCoopers Private Limited. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity. MJ/June