The proposed amendments to insurance laws likely to be tabled in the Budget session of parliament can usher in widespread changes in the insurance sector. This because it virtually reimagines how the insurance sector operates. And while this does throw up several opportunities for new and existing players, it can also crimp the style of several established insurers.
Let’s take a look at the changes.
RULES OF INSURANCE CHANGE
Of the several changes proposed, the most significant one is the one relating to the businesses insurers can conduct and the amount of capital needed to venture in to these. Till now, there were primarily three types of insurers: life insurers, general insurers and standalone health insurers. With the proposed amendments, these lines get blurred. Any insurer can get a license for any line of business be it life, general or health, and / or within them any particular segment of such businesses. An insurer can also choose to restrict itself to only serving a certain region.
So, effectively, a HeroMoto or Bajaj Auto can decide to get into only two-wheeler insurance. Or a local bank in Assam can start offering insurance to tea gardens or a bank in Kerala can offer insurance to local fishermen. Similarly, a life insurer can venture into health insurance, a long-standing demand by the industry, while a health insurer can venture into other lines of general insurance or even into life insurance.
This opportunity along with lower capital needs, that are linked to the nature and segment of business to be pursued, can lead to entry of several new players, while also allowing existing players to sharpen or expand their roles. As life insurance isn’t an easy business to get into and requires a certain scale for viability, there is a threat of greater disruption in the general insurance segment. This could distort pricing and exert pressure on profitability of some general and health insurers in the short-term.
A DISTRIBUTION FILLIP
The proposed rules while opening up the entire insurance landscape to players also has a clause that allows the insurance regulator to allow insurers to distribute other financial products. Whether these will be restricted to other insurance products or even mutual funds and bonds is not clear. Also, whether this will require a buy-in from other regulators is unclear. However, in both scenarios, this can be a win-win.
Life insurers not wanting to get into health insurance, for instance, could now sell health insurance products manufactured by other health insurers. Also, if permitted, insurers with large agency-driven businesses like LIC and Star Health Insurance could leverage their network to sell mutual funds and bonds. While several agents may already be doing so under separate entities, I suspect there would still be a significant share of agents who aren’t and that can spell an expansion of the business.
AN INVESTOR’S PERSPECTIVE
For those looking to invest in the insurance sector stocks, one would expect the dice is loaded in favour of life insurers with these proposed norms and against general insurers. So, if you are looking to bet on the sector, trying to spot undervalued opportunities in life insurance may prove more fruitful.
Happy investing!
First Published: Dec 4, 2022 2:03 PM IST
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