The IRDAI in the opening half of the 2019-20 financial year has introduced or proposed significant changes to the presently existing insurance regulatory framework, by way of norms providing guidance on policyholder communications, introduction of exposure drafts on new product structures, amendments to existing IRDAI regulations, proposing the formation of a regulatory sandbox framework for promoting innovation, standardisation of common exclusions in health insurance, and appointment of common directors and promoters between insurance entities. The IRDAI has also notified the applicable third party liability motor premium rates for the financial year 2019-20. Comments were invited from the stakeholders with respect to the various regulations and changes proposed by the IRDAI.
A brief overview of some of the key regulatory notifications issued so far is provided below.
Amendment to Brokers Regulations
The first amendment to the IRDAI (Insurance Brokers) Regulations 2018 (Brokers Regulations) was notified on 21st January 20191, pursuant to which the restriction on a subsidiary company being a promoter in an insurance broker was relaxed. The Brokers Regulations earlier restricted an Indian subsidiary company of an insurance broker from being a promoter of the broking entity. The amendment to the Brokers Regulations now expressly grants the Chairman of the IRDAI the power to relax the restriction on an Indian promoter not being a subsidiary of any other company, including any insurance broker, by assessing the merits and conditions on a case-to-case basis in the interests of the policyholders and the sector at large.
Motor TP Premium
The IRDAI had earlier extended the motor TP premium rates applicable for the previous financial year 2018-19 to the current financial year until the time new premium rates were notified2. After considering the data provided by the Insurance Information Bureau of India and the industry data on claims paid and gross written premium, the IRDAI has notified the premium rates for motor third party (TP) liability for the financial year 2019-203, effective from 16th June 2019.
The motor TP premium rates for two wheelers with engine capacity of up to 350 cc and for private cars with an engine capacity of up to 1500 cc, has been increased. However, there is no change in the motor TP premium rates for two wheelers with engine capacity exceeding 350 cc and for private cars with an engine capacity exceeding 1500 cc. Further, the motor TP premium rates for electrical vehicles and vintage cars have been introduced, which offer a 15% and 50% discount respectively on the premium rates applicable on private cars.
Information to the Insurance Policyholders/Claimants
The IRDAI has issued norms governing communications made by Insurers to policyholders/claimants4 with respect to servicing of policies and claims. Insurers have been directed to collect contact details of the policyholders, at both the point of sale and on an ongoing basis. Insurers are required to send communications to the policyholder with respect to the issuance and servicing of policies, and the status of the claim through various stages.
Insurers have also been instructed to send 'brief' messages to policyholders for enhancing awareness apart from other necessary cautionary messages against spurious calls/offers to ensure that their interests are protected. In addition, Insurers are required to provide the policyholders/claimants with information on their claims reference number and claim status through electronic means.
With respect to the communications made to policyholders, Insurers have been directed to use simple, easy to read and understandable language, in regional or local languages wherever feasible. The Insurers have also been expressly directed to ensure confidentiality and consent of the policyholders, to ensure that no unsolicited information is sent to the policyholder.
In February 2019, the IRDAI had published the committee report on a proposed regulatory sandbox framework in the insurance sector with a view to facilitate innovations in the sector, and strike a balance between the sector's development and protection of policyholders' interests5. Subsequently, the IRDAI has now notified the "Exposure draft on IRDAI (Regulatory Sandbox) Regulations" of 18th May 2019 (Draft Sandbox Regulations). The Draft Sandbox Regulations provides that an Insurer or insurance intermediary or a person (other than an individual) having a net-worth of minimum ₹10 lakhs for the last 1 financial year, may file an application with the IRDAI for relaxation of the regulatory provisions for enabling innovations under the regulatory sandbox. The categories under which an application can be made, include, insurance solicitation and distribution, insurance products, underwriting, policy and claims servicing.
The Draft Sandbox Regulations lay down the procedure for seeking permission of the IRDAI and the conditions on which the permission of the IRDAI will be granted. The regulatory sandbox does not offer any relaxation from compliance with statutory provisions, such as those contained under the Insurance Act 1938 and the IRDA Act 1999. Further, regulatory relaxations may be granted for a maximum period of one year.
Standardized Health Product
The IRDAI has issued draft guidelines for introduction of a basic insurance product termed as the 'Standard Mediclaim Policy' (Mediclaim Policy)6. The Mediclaim Policy shall offer a fixed set of benefits to the policyholders without an option for additional covers and add-ons. The sum insured under the Mediclaim Policy is proposed to be within the range of ₹50,000 to ₹10,00,000. The policy period shall extend throughout the life of the insured for those in the age group of 18 to 65 years, while for people below 18 years of age and above 65 years of age, the policy period shall be 25 years.
The Mediclaim Policy proposes to covers expenses incurred on hospitalization, AYUSH treatment subject to sub-limits, pre-hospitalization for a period not less than 30 days prior to the date of hospitalization and post hospitalization (consultant fees, diagnostic charges and medicines and drugs) incurred for a period of 60 days or more from the date of discharge. In addition to the above, the proposed Mediclaim Policy shall also contain wellness incentives which will include periodic health consultations once in a policy year, access to professional medical services, follow up care, parametric indices, outpatient consultations or treatments. With a view to incentivize the policyholders, the proposed Mediclaim Policy also offers no claim bonuses on continuous renewals.
Standardization of Exclusions in Health Insurance
With an objective to standardise the exclusions prevalent in health insurance, the IRDAI has issued the "Exposure Draft on Guidelines on Standardization of Exclusions in Health Insurance Contracts and Modification Guidelines on Product Filing in Health Insurance" of 16th May 2019 (Draft Exclusions Guidelines) which lay down standardized wordings for specific exclusions used across various health insurance policies. The Draft Exclusions Guidelines provides a fixed set of exclusions which are not permitted under health insurance policies, including inter alia, treatment of mental illness, stress or psychological disorders, neurodegenerative disorder, internal congenital diseases, genetic diseases or disorders. The Draft Exclusions Guidelines also provides a list of various existing diseases allowed to be permanently excluded, including, alzheimer's disease, parkinson's disease, HIV & AIDS and any existing physical disability.
The Draft Exclusions Guidelines allow Insurers to incorporate waiting periods for any specific disease condition(s) for a maximum period of four years, and prescribes a 'moratorium period' of eight years for all health insurance policies, after which the policy shall be contestable only on grounds of proven fraud and the permanent exclusions. In addition, the Draft Exclusions Guidelines also introduce norms regarding handling of cases of non-declaration/misrepresentation of material facts that surface during the course of the policy contract. Further, the Draft Exclusions Guidelines modify the definition of pre-existing disease under the "Guidelines on Standardization in Health Insurance" of 29th July 2016, to include diseases which were diagnosed or for which medical advice or treatment was recommended before the effective date of the first policy issued.
Conflict of Interest Guidelines
The IRDAI has issued an "Exposure Draft on Insurance Regulatory and Development Authority of India (Conflict of Interest) Guidelines" of 8th March 2019 (Draft Conflict Guidelines) which provides guidance on the procedure and conditions for obtaining approval of the IRDAI for the appointment of common directors between the Insurers and insurance intermediaries. The Draft Conflict Guidelines prohibit a common director from holding a position as a key management person or a CEO in more than one Insurer or insurance intermediary. Further, the Draft Conflict Guidelines prohibit the appointment of common independent directors between an Insurer and another Insurer/insurance intermediary of different groups. The Draft Conflict Guidelines stipulate the measures to be undertaken by the Insurer and the director/officer in situation of a conflict of interest with respect to director/officer being involved in other insurance entities.
The Draft Conflict Guidelines expressly prohibit an entity from being a promoter for more than one General Insurer, Life Insurer, a stand-alone Health Insurer and a Reinsurer. Further, the Draft Conflict Guidelines provide additional conditions to be complied with where a promoter of a General Insurer wishes to set up health insurance business, and vice versa. Further, Insurers are required to have a Board approved policy on conflict of interest situations arising due to common directors or officers.
Minimum Information Regulations
The IRDAI has released "Exposure Draft on IRDAI (Minimum Information for Inspection or Investigation) Regulations" of 17th May 2019, pursuant to which the Insurers and insurance intermediaries are required to maintain minimum information at their principal place of business, including inter alia, information pertaining to policies issued, claims incurred, products related documentation, records of the employees of the Insurer including agents and insurance intermediaries, correspondence with respect to registration with the IRDAI and corporate governance records including, policies, minutes of meetings, related party transactions, filings and records made under various IRDAI regulations. In addition, Insurers are required to maintain records of reinsurance or coinsurance arrangements entered into by them.
Further, Insurers and insurance intermediaries are mandatorily required to have a Board approved policy on maintenance of records. In addition, insurance intermediaries are also required to maintain records of all phone numbers used for solicitation of insurance business.
Fire & Allied Perils Product Structures
Taking into consideration the economic losses resulting from the occurrence of catastrophic events, the existing gap between 'economic' losses and 'insured' losses and in order to target the penetration of insurance in dwellings, offices, hotels, shops and MSMEs against fire and allied perils, the IRDAI has proposed the introduction of new and simplified product structures namely, Griha Raksha Insurance Policy, Micro-Commercial Enterprises Building & Contents Insurance Policy, and Small-Commercial Enterprises Building & Contents Insurance Policy7, with different scopes of cover and sums insured based on the levels of risk to avoid mis-selling and inadequate coverage. The proposed product structures are stated to have been specifically designed for catering to the needs of home-owners and micro and small commercial enterprises, and perils such as earthquake are now automatically covered as opposed to an optional rider in the existing insurance policies available. In addition to the policy wordings, the IRDAI has also released the proposed key feature documents, prospectus, add-ons and special clauses for the proposed products.
It is relevant to note that currently the policy wordings and other basic terms and conditions for insuring against fire and allied perils are driven by the All India Fire Tariff 2001 for all categories of risk.
1. IRDAI (Insurance Brokers) (First Amendment) Regulations 2018.
2. IRDAI's order on "Premium Rates for Motor Third Party Liability Insurance Cover" of 28th March 2019.
3. IRDAI's order on "Premium Rates for Motor Third Party Liability Insurance Cover for the Financial year 2019-20 effective from 16th June, 2019" of 4th June 2019.
4. Circular on "Information to the insurance policyholders/ claimants about various insurance policy services" of 10th April 2019.
5. IRDAI's "Exposure draft on IRDAI (Regulatory Sandbox) Regulations" of 18th May 2019; IRDAI's "Report of the Committee on Regulatory Sandbox in Insurance Sector in India" on 5th February 2019.
6. IRDAI's "Draft Guidelines on Standardization of Individual Health Product" of 19th February 2019.
7. IRDAI's "Exposure Draft on Revisiting the product structure for Dwellings, Offices, Hotels, Shops etc and Micro, Small and Medium Enterprises against Fire and allied perils" of 20th May 2019.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.