Over-the-counter product norms for insurance soon

Over-the-counter (OTC) products might soon become a reality in the insurance sector. Sources said the regulator is giving final touches to rules in this regard which could be issued in the next few weeks. Once done, insurance companies will be able to sell simple products without lengthy forms or documentation.

Presently, a product is first designed, priced and then sent to the regulatory body for approval. Once satisfied with the broad contours, the regulator approves.

In the recent past, the Insurance Regulatory and Development Authority of India (Irdai) has said commercial products in general insurance may be sold under File and Use procedures, the term for an insurer being permitted to market a product without its prior noting.

This could soon be extended to life insurers, said sources. The segment has started to design products that are simple, so that these can be sold as OTC ones.

Complex products like unit-linked insurance might not be allowed to be sold OTC, as they are difficult to understand. Pure term or endowment policies could be sold freely if the regulations permit. File and Use require the products to be necessarily filed with the Authority before these are marketed. In guidelines on product filing for general insurance companies, Irdai said all retail products (including their modifications) shall first be filed with it.

India stands 15th globally with respect to premium income, in Swiss Re’s sigma study. This is because insurance penetration, measured as a percentage of premiums to a country’s gross domestic product, has been on a constant drop in India. The study says insurance penetration fell to 3.3 per cent in 2014-15, from 3.9 per cent in FY14. This has been the lowest since 2005-06, when penetration was 3.14 per cent.

It is anticipated that a number of smaller touchpoints will be activated like medical stores, grocery stores and petrol pumps from where OTC products can be purchased. This would not require any special training for the staff, except basic training in the concept of insurance and broad product categories.

Once the norms are approved, insurance companies will be able to sell simple products without lengthy forms or documentation