Revamped IRDAI norms liberalise the selling of insurance products

The Insurance Regulatory and Development Authority of India (IRDAI) vide multiple circulars dated 01st June 2022 and 10th June 2022 has extended the ‘use and file’ procedure to all health insurance products, most general insurance products under fire, motor, marine and engineering insurance, and most life insurance products. This relaxation is in line with the regulator’s agenda of having a fully insured India and to enhance insurance penetration in the country.

What is use and file procedure?

Insurance products introduced under the ‘use and file’ procedure are products that may be introduced without prior approval of IRDAI. However, insurers providing such products are required to register the product with the regulator within a certain time period. This essentially enables insurers to introduce a product without waiting for IRDAI’s approval and offer innovative insurance solutions to customers in order to address the dynamic business environment.

What was earlier permitted under the use and file procedure?

Prior to the issuance of these circulars, commercial products were permitted to be introduced under the ‘use and file’ procedure, i.e., products sold to entities other than individuals, which include firms, companies, trusts etc. These commercial products included group insurance products where an entity purchases insurances for the needs of its members and typically cover all members in these commercial entities. However, other insurance products, including life insurance products, required prior approval from IRDAI before the launch of such products in the market.

IRDAI has issued two circulars dated 1st June 2022 and a third circular on 10th June 2022 to extend the applicability of the ‘use and file’ procedure.

The first circular of 1st June 2022 extended the use and file procedure to all categories of products and add-ons or riders to be introduced under the health insurance business offered by general and health insurers. The circular lists down certain key norms which are required to be followed while issuing such products:

a.   The insurer must ensure that the products that are offered, are as per the policy approved by its board of directors;

b.   Insurers must ensure that the product pricing is viable, self-sustainable and affordable to the targeted market. The revision in the price, if any, must be affected only based on the underlying claims experience;

c.  The insurers are required to file the proposed name of the product, date of approval by product management committee and shall obtain unique identification number (UIN) along with the file of the product to IRDAI, within 7 days of the introduction of the product;

d.   The pricing of the products / add-ons must be based on the generally accepted actuarial principles;

e.    If any insurer is found to be non-compliant with the conditions as provided under the circular and other applicable laws, the regulator may ask them to withdraw the product, and / or withdraw the use & file facility for a specified duration.

This change shall be applicable with immediate effect and all existing products filed under the ‘file and use’ procedure and whose UIN have not yet been issued will be deemed to be withdrawn, and insurers can launch the same insurance products under the ‘use and file’ procedure.

In the second circular of 1st June 2022, the IRDAI has allowed general insurers to file all products under fire, marine, motor, and engineering lines of business under the use and file procedure for both retail and commercial categories. However, the retail products of miscellaneous lines of business having an initial sum insured up to INR 50 million would be continued to be filed with the IRDAI under the ‘file and use’ procedure.

Further, IRDAI through its third circular dated 10th June 2022 has extended similar relaxations to a large number of life insurance product categories as well. The circular will not be applicable to products related to individual savings, individual pensions, and annuity. The circular also lists down certain conditions applicable to life insurance products introduced under the ‘use and file’ procedure.

a.  Life insurers need to have a board approved product management and pricing policy to launch new products;

b.  Insurers must constitute a product management committee which shall review and approve the products in line with the board approved policy, and carry out due diligence and record its concurrence on the product related risks;

c.  The chief executive officer of the insurer shall be responsible for ensuring the existence of a robust due diligence process to mitigate product related risks.

The changes in the insurance regime may be seen as steppingstones towards improving the ease of doing business in the insurance industry by moving from the current regime of obtaining prior approval, to a new regime where insurance products may be launched without any prior approval. Such continued reform in the insurance sector will enhance India’s capability to deal with future black swan events such as the pandemic, as well as ensuring persistent increase in the insurance penetration in the country.

Authors: Souvik Ganguly and Tanuj Modi

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