Insurers may get to sell related non-insurance value added products and services but not MFs

Auto repair from your car insurer and fire extinguishers courtesy your home insurer? Not outlandish ideas, but part of the government’s plans to allow insurance companies to sell related products and services.

The government may allow general insurers to bundle their core insurance products with non-insurance products and services to increase insurance penetration and allow companies to offer competitively priced insurance products, two persons aware of the plans said.

The plan, if rolled out, will allow the sale of gym memberships and basic healthcare by health insurers; vehicle repairs, diagnostic services and roadside assistance bycar insurers; and safety consultations, fire extinguishers and safety alarms from home insurers.

The thinking is that insurers would provide comprehensive risk mitigation solutions that would help reduce the incidence of losses for them, resulting in better-priced products and lower overall risk for the nation, one of the two persons cited above said on the condition of anonymity.

Seeking amendments

Insurers have sought amendments to permit the sale of value-added services as they try to deliver new and valuable services to customers, the finance ministry said, citing the Insurance Regulatory and Development Authority of India (Irdai). “The proposal to enable insurers and insurance intermediaries to provide services related or incidental to the insurance business as specified by Irdai is under consideration,” the ministry said in response to the observations of the Parliament’s standing committee of finance on the matter.

The second person cited above said that the finance ministry is working on the Insurance Amendment Bill, which will also redefine insurance. The bill is expected to be presented in the Parliament’s budget session after securing Cabinet approval, the person added. This will allow the Centre to notify any other or ancillary business that insurance companies may be permitted to undertake beyond their core operation of providing insurance and risk coverage products to customers in consultation with Irdai, the person added.

A query emailed to the finance ministry remained unanswered till press time.

“These are good suggestions theoretically. In practice, Insurance is still a push product. If an insurance company runs a diagnostic centre, does it mean that their customers should only use that to get an insurance claim? Car repair is still a domain of OEMs and dealers. No dealer makes money in selling a car. They make money in service/repair of vehicle. My view is that insurers should focus on their core business,” said C R Vijayan, former secretary general of General Insurance (GI) Council, the official representative body of the general insurance industry.

Better auxiliary services

“In my opinion, this is fine. To provide better auxiliary services while selling insurance products is a must-have, as customer demands have changed and they are looking for combined products. Like, if I am going to the gym, then I need better pricing for a health product; if I drive better, then I need a competitive quote on my motor insurance. So, allowing these frills baked into the insurance products will not only ensure innovation and provide a competitive edge to insurers, but will also help customers get very personalized coverages. So, it’s in the right direction,” said Debashish Banerjee, partner and insurance sector leader at Deloitte India.

However, insurers may still not be allowed to sell financial products such as mutual funds on the lines of banks, as the government and regulators fear these specialized financial products could add more risk to their insurance operations.

Irdai had earlier suggested permitting insurance companies to sell even mutual funds, but the proposal did not find favour with the government, the first person said.

According to Banerjee of Deloitte, keeping insurers out of mutual funds is fair, since MFs are regulated by the Securities and Exchange Board of India (Sebi), while insurance comes under Irdai.

In countries where a single regulator for banks, insurers and stock markets oversees all financial products, it’s easier to sell all products under a single umbrella. In India, unless an insurance company also takes a banking licence and is regulated by Reserve Bank of India and Sebi, they won’t be able to sell MF products.

DFS, Irdai to decide

The department of financial services (DFS) in the finance ministry and the insurance regulator would decide on a list of related activities or activities incidental to the core insurance business. These may include services and wellness packages clubbed with general insurance products.

According to a note on the insurance amendments by law firm Cyril Amarchand Mangaldas published earlier, insurers need to be customer-driven in their approach towards products and services and offer a range of value-added services to their customers in addition to the core insurance product.

“Typically, value-added services include non-core services in an industry, or the enhancements made to the core product or service offered to customers. The UK permits both value-added services and cross-selling services by insurers. Singapore allows life insurers to provide financial advisory to its clients, while Malaysia allows life insurers to provide services incidental to the insurance business,” the note said, adding that Australian law, on the other hand, permits the conduct of business that is incidental to the insurance business of general insurers. However, life insurers are permitted only to carry out life insurance.