IRDAI Five Product Cap May Put A Brake On Insurers' Growth

In what could change the contours of the under-penetrated life insurance sector in the country, life insurers may soon have to limit the number of product launches every year, if a recent advisory by the insurance regulator has its way going forward.

The Insurance Regulatory and Development Authority of India (IRDAI) has urged life insurance majors not to file more than 5 new products in a year, an advisory that could attract mixed reactions from both insurers and customers.

"The insurance regulator has recently sent an email to certain companies who have filed more than 5 new products in 2015," said a source directly familiar with the development condition of anonymity. Currently, on an average, life insurers file 8-9 products in a year with the regulator and their approval takes anywhere between six and nine months.

While on one hand, the regulator's move is to bring in more clarity for consumers on the products available in the industry thereby removing clutter, confusion and overlapping, it could also limit consumer choice and dampen and restrict innovation in the already under-penetrated sector, say experts tracking the sector. At a time when life insurance penetration has declined from 4.6 in 2006 to 3.1 of the GDP in 2015, innovation is key in the market.

Also, with the insurance market opening up in rural areas and insurance majors tying up with payment banks to tap the new markets, further innovation will be required in the coming years. These customer segments will have specific requirements and hence life insurance companies need to offer new products or customize existing products to meet their needs.

 "There should not be any restrictions on the number of products that an insurer can file with the IRDAI," said Chandrajit Banerjee, Director General at CII. "Sometimes, after a product is launched, the insurer seeks certain modifications based on experience gained. Often these modifications are minor and do not result in any changes in product features or pricing," he added.

The advisory applies to all kind of products currently available in the market- term insurance, unit liked products, traditional policies and those which come with riders. As per the recent advisory, even a minor change will have to go will be considered as a new product with the regulator. For instance, if an insurer files a product with the insurance regulator and lists "agents, brokers and corporate agents including banks" as distribution channel, for incorporating "web aggregators" as an additional distribution channel, will also come under the purview of new product filing limit.