IRDAI to allow insurers to undertake product testing before launch

The Insurance Regulatory and Development Authority of India (IRDAI) will allow companies to test products in a particular geography, or among a set of policyholders before they are made available in the market.

Currently, about 780 life insurance and over 1,000 general insurance products are being sold in the market for individuals and groups.

This will help companies have a better success rate with their products. According to industry estimates, for every 10 new products that are filed, two fail to make the mark at present.

IRDAI Chairman Subhash C Khuntia said, “There will be a concept called sandbox method where products can be tested out. If they are successful, such products can be filed for approval.”

Sandboxing, a term used in software development refers to a testing environment that isolates untested code changes and experimentation from the production environment.

Currently, most products follow the file-and-use method. Here, products have to be filed with the regulator for approval. Only after receiving a go-ahead from IRDAI are insurers allowed to sell them in the market.

There have been cases in the past where poor sales have led to insurers discontinuing or withdrawing products from the market.

During his address at the Assocham insurance summit, Khuntia said more products are being allowed under use-and-file category wherein insurers can sell products after giving a certification to regulators about its features and pricing.

Low persistency concerns

At his maiden address in Mumbai after taking over as IRDAI chairman, Khuntia expressed concerns about the low levels of persistency or policy renewals in the life insurance sector. He said the highest levels of 13th month persistency in India are at 81 percent while the world average is 90 percent.

Similarly, the 61st month persistency is around 50 percent in India while the world average is 65 percent. This refers to policies that are on insurers’ books after five years.

“The persistency levels need to improve. Affordability and misselling are two factors that impact the persistency of life insurance policies,” he said.

He said the insurance industry has Rs 35 lakh crore of assets under management (AUMs). In comparison, he said mutual funds have Rs 23 lakh crore of AUMs.

“However, MFs outpace insurers in the rate of growth. I hope that insurers catch up and outpace MFs soon,” he added.

Ayushman Bharat and insurance model

The government-sponsored Pradhan Mantri Jan Arogya Abhiyan also called Ayushman Bharat will be launched on September 25. The scheme will offer Rs 5 lakh health insurance to 100 million families below a certain income level.