Ramakrishnan Chandrasekaran

The needed fillip and the resultant impetus for Insuretech - from Regulator

Recently, the Insurance Regulator has issued a circular capping the acquisition and operating cost an insurance company can incur. As per the Insurance Regulatory and Development Authority of India (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations, 2023, no insurer carrying on General Insurance Business in India shall incur expenses of management in excess of 30% of gross premium written in India in a financial year. For standalone health companies the percentage is 35%. Many in the industry have welcomed this move. This is bound to bring down the acquisition cost. The indirect way of paying over-riding commission on different expenses head, which has earned the wrath of GST and IT authorities, will be gone. The term ‘expenses of management’ includes both operating expenses and commissions paid to all intermediaries. Both put together cannot exceed the percentage prescribed. 

While putting a cap on overall management expenses, a beneficial provision has been carved out to the insurers to expend an additional amount over and above the percentage prescribed towards Insuretech and Insurance Awareness to widen customer reach.  The Regulation allows an insurer an additional allowance towards Insuretech and Insurance Awareness expenses to the extent of 5% of the allowable expenses of management.  Generally, when the insurance companies embark on cost cutting by adopting austerity measures, the budget towards technology used to be the early victim. By allowing the Insuretech expenses in addition, clearly the emphasis is laid on the importance of technology for higher penetration and business growth. It is a shot in the arm for Insuretech companies, who should be more aggressive in collaborating with insurance companies in product innovation, better distribution and customer satisfaction. This concession by the Regulator is definitely a much needed fillip to the technological innovations and provides an impetus to the Insuretech companies.

The market has become more dynamic. The expectations of policyholders are ever increasing. The boilerplate wordings should replace specific, customer centric and tailor-made contracts with clarity and simplicity. The coverage, add-on covers, exclusions and conditions should be transparent. While homogenous risks can be priced and worded uniformly, the commercial risks should capture large volume of data to assess and price them. The Insuretech can play a large role in helping the insurers. 

Needless to say, with ChatGPT from MS, Bard AI from Google the technology companies face a stiff challenge in the future and the Insuretech companies are no exception to this. They also need to pull up their socks and should have a knowledgeable pool of domain persons and developers.