PwC’s Insurance

Insights
Analysis of regulatory changes
and impact assessment for
December 2018

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 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018 Contact us

Introduction
Reinsurance as an activity has played a major role in supporting the solvency
and capital efficiency of insurance risk transfer. Reinsurance has faced issues
pertinent for other primary markets as well. One of them has been excess
supply within the industry. Over the years, there has been an increase in the
amount of capital. This has been due to different pension funds, hedge funds
and high net worth investors trying to diversify their portfolio and, therefore,
investing significant amounts of capital. There has also been low demand
for reinsurance products over the last few years. However, there are many
opportunities for the industry to maintain and grow its importance on the global
economy. These opportunities include mitigating the risks that will arise from
worth of premiums that were underwritten by the top 40 global reinsurers, the
top 10 major reinsurers contributed around US$171.07 billion during 2017,
which equates to more than 73%, highlighting their dominance in the global
market. As India is developing as one of the fastest economies in the world
with high rates of GDP forecasted and increasing insurance awareness, the
expectation is that GIC will continue to grow and increase its market share both
in the domestic and international reinsurance markets.
Net reinsurance premiums written (billion US$)

emerging economies, the potential for reinsurers to collaborate to finance major 40 36.45
natural disasters, as well as being able to adapt to the ongoing regulatory 35 32.32
30
changes in today’s financial and global markets. 25 24.21
20 19.32
As future risks are realised and macroeconomic conditions tend to become 16.16
15 10.75 9.97 9.84
more complex, this will lead to risk activities taken by different entities and in 10 6.24 5.8
5
turn enhance the importance of reinsurance. Global reinsurers can also provide 0
other services such as assisting in evaluating risk, providing customised

Munich Re

Swiss RE

Berkshire Hathaway Re

Hannover Re

SCOR

Llyod's

China Re

Reinsurance Group of America

Everest Re

General Insurance Corporation of India

solutions, and also implementing risk and capital management solutions, which
further highlights their importance to businesses.
From a global market standpoint, there are around 10 major reinsurers in
the market. These include Munich Re, Swiss Re, Lloyd’s and also General
Insurance Corporation of India (GIC). In 2017, Munich Re wrote more than
US$36.45 billion in net reinsurance premiums. Out of the US$231.98 billion

Source: S&P Global

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 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018 Contact us

Challenges and shortcomings
The reinsurance industry has faced challenges over the last few years. One of
the main challenges has been the increase in the cost of capital globally over
the past few years. There were high rates of interest, and the volatility in the
rates affected capital costs, which have affected the operating conditions and
costs for global reinsurers. Moreover, another challenge has been managing
various natural disasters that have occurred over the years. During 2017, it was
estimated by Swiss Re that the hurricane season in North America and wildfires
of California led to the insurance and reinsurance industries incurring more
than US$144 billion.
However, one of the main reasons that reinsurers were able to manage their
losses effectively was their enterprise risk management capabilities. By having
a proper risk management framework set up in their organisation, firms have
been able to reduce and manage huge losses that have been incurred. Along
with the sound risk frameworks in place, global insurers have very healthy
capitalisation mechanisms, which is allowing them to manage their losses well
and therefore enabling them to underwrite more risk than earlier.
There are new emerging risks that are appearing, new products are being
created and most importantly, technology is helping to break boundaries
beyond the realms of insurance. InsurTech has been able to support insurers to
innovate beyond the current existing value chains. This is providing access to
new customers and markets, thereby expanding the market base for insurers
in general. Different companies are tying up with insurers and reinsurers to
help provide different and unique services and products to the customer.
Access to capital is crucial if InsurTech firms are to deliver on their promise
and help ensure that the industry remains relevant at a time of extraordinary
technological change. Substantial amounts of money have been raised over
the last five years and strong growth prospects indicate significant amounts will
continue to flow into InsurTechs in the near term.

Technology and its impact on reinsurance

In today’s world, several economies are interlinked. Hence, macroeconomic
conditions are affecting many different industries at the same time. The case is
similar with the reinsurance industry. With the advent of technology, especially
InsurTech, reinsurers have to continuously adapt to the market. As a growing
number of (re)insurers are looking to deploy technological innovations across
the traditional value chain. These offerings are starting to affect the way
carriers conduct business as InsurTech firms’ focus on innovative, efficient and
customer-focused solutions resonates at a time of squeezed margins.

3 | PwC’s Insurance Insights

 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018 Contact us

Indian perspective and growth in

reinsurance
All of the above has been about the global reinsurance market. As mentioned These guidelines issued by the IRDAI are
earlier, one of the leading global reinsurers is the General Insurance positive news for the industry. Not only does
Corporation of India (GIC). From its establishment in 1972 until 2016, it was it allow increased competition in the market,
the sole reinsurance company in India. In 2016, the reinsurance market was it allows for improved choices for customers.
open to foreign reinsurers. Along with GIC, there are 10 other major foreign There will be a wider product base, which will
reinsurers in the Indian market. As per the IRDAI Annual Report 2017-18, GIC only be beneficial in broadening the reinsurance
enjoyed more than 83% of the market share. In December 2019, the IRDAI base. This will lead to further strengthening
introduced guidelines which will enable foreign reinsurer branches to bid for of the management of underwriting risk and
reinsurance contracts along with Indian insurers. Moreover, the new guidelines performance. With the reinsurance market in
stipulate that reinsurance renewals have to be executed at the beginning of India currently around INR 450-500 billion,
the financial year and also that insurers are not allowed to seek quotes from there is only scope for more growth in the
any Indian insurer that is not registered with the IRDAI to conduct reinsurance industry. With the advent of InsurTech and
business. As per the previous guidelines, foreign reinsurer branches were given the introduction of such regulations, local
contracts only if GIC Re did not exercise its right and refused the business. insurers will be able to better manage risks,
which allows them to create different varieties
Market share of reinsurance in India - gross reinsurance premium (INR crore) within insurance products. These initiatives
will ultimately help the policyholder as well as
16.75% improve the risk-mitigating mechanisms in the
macroeconomy.
83.25%

GIC Re Rest of reinsurers

Source: IRDAI Annual Report 2017-18

4 | PwC’s Insurance Insights
 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018 Contact us

The insurance sector witnessed an increase in the amount of premiums

Figure 2
collected during November 2018. Specifically, within the life insurance sector,
the Life Insurance Corporation of India (LIC) continues to control and dominate Market share up to 30 November 2018
the market share. An overview of the general and life insurance sectors, in
terms of premium collection and market share, are presented below. 67 33

S. no. Key facts in the insurance industry Statistics

1 There has been a decrease in the gross 67% of the market share
premiums in the life insurance industry
for LIC. The market share has fallen from
the previous month.
(See figures 1 and 2.)
Private life insurers LIC
2 There has been an increase in the Until September 2017 –
gross premiums raised in the general INR 74,895 crore
insurance industry over the last one year. Until September 2018 – Source: IRDAI
(See Figure 3.) INR 83,235 crore
Figure 3
Life insurance sector
Snapshot of premiums in general insurance (INR crore)

Figure 1 80,000.00
72,319.88
70,000.00 65,668.04
Premium in INR crore
60,000.00
100000.00 50,000.00
40,000.00
80000.00
30,000.00
60000.00 20,000.00
6,086.76 6,498.98
10,000.00 3,140.25 4,416.66
40000.00
-
20000.00 Till September 2017 Till September 2018

General insurers Stand-alone health insurers Specialised insurers

0.00
30 November 2017 30 November 2017
Source: General Insurance Council
Private life insurers LIC
5 | PwC’s Insurance Insights
 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018 Contact us

Title: Intimation of receipt of premium through SMS by the insurer Ref no.: IRDAI/LIFE/MISC/CIR/203/12/2018
to the policyholder1
Applicability: All insurers
Date of Issue: 13 December 2018

Introduction
As the per the above circular, wherever there is a mobile phone number
of the policyholder available in the policy records of the insurance
company, any receipt of premium must immediately be intimated to the
policyholder through an SMS to the concerned mobile number. In case
of a new policy, it should be ensured that the correct mobile number has
been updated in the records in order to ensure that the SMS is being sent
to the policyholder.

Our point of view

This is a good initiative by the regulator as it takes into account the
importance of keeping the policyholder informed about receipt of
premium payments. The policyholder will be intimated that the premium
has been received by the insurer, and therefore, they will be able to
manage their financial planning with increased ease. It also allows for
improved tracking of premium payments for policyholders. Having the
updated information of policyholders is good for insurers, since this will
allow for increased ease of communication between the two parties.
An important point to note is that there is still the risk of policyholders losing
their phones or changing numbers that insurers have to consider. Today, most
phones are smartphones. Email accounts are required in order to set up these
phones. Hence, insurers can also use mailing addresses of the policyholders
as an additional tool for communication. This way, important information can
still be relayed to the policyholder in case of loss of phones or change of phone
numbers.

1 https://www.irdai.gov.in/ADMINCMS/cms/whatsNew_Layout.aspx?page=PageNo3686&flag=1

6 | PwC’s Insurance Insights

 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018
Title: Clarification on outsourcing activities undertaken by insurance web
aggregators and remuneration payable2
Date of Issue: 14 December 2018
Introduction
As per regulation 30 of the IRDAI (Insurance Web Aggregators) Regulations,
2017, insurance web aggregators can receive remuneration and rewards for
the leads that have been converted into insurance policies. Also, insurance web
aggregators can undertake outsourcing functions to provide insurance services.
Also, as per regulations 5 and 6 of the IRDAI (Payment of Commission or
Remuneration or Reward to Insurance Agents and Insurance Intermediaries)
Regulations, 2016, the maximum remuneration that is payable to intermediaries
is mentioned as well.
As per the above circular, the purpose of the outsourcing function is to provide
insurance services that will be undertaken after the sale of the insurance policy
and not for solicitation purposes.
2 https://www.irdai.gov.in/ADMINCMS/cms/whatsNew_Layout.aspx?page=PageNo3687&flag=1
Contact us
Ref no.: IRDAI/INT/CIR/WBA/202/12/2018
Applicability: All insurers and insurance intermediaries
Our point of view
This explanation is good for web aggregators, since it provides clarity on
the types of outsourcing functions they can perform. At the same time, this
circular explains those situations for which insurance web aggregators must be
remunerated by insurance companies, thereby avoiding non-compliance with
the regulator’s guidelines.
Remuneration will be paid to the aggregators only in case of a lead being
converted into policies that are bought by policyholders. However, “no charges
shall be paid to the aggregators for transmission of leads to the insurers”.
The regulator has limited the maximum value of commission or remuneration
to be payable to web aggregators. Web aggregators also charge insurance
companies an annual fee to display the companies’ products on their websites.
Insurance companies need to create any schemes or make any changes in the
system.
7 | PwC’s Insurance Insights
 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018 Contact us

Title: Guidelines on settlement of insurance claims of victims of recent Ref no: IRDA/LIFE/Andhra Pradesh & Tamil Nadu Floods/2018-19
cyclones in the states of Andhra Pradesh (Phethai Cyclone) and Tamil Nadu
Applicability: Chairman/CEOs of life insurers
(Gaja Cyclone)3
Date of Issue: 28 December 2018

Introduction Our point of view

This is a good initiative by the regulator, with many policyholders suffering from
According to the above circular, due to reports of loss of human life and loss
the devastation caused by floods. It allows for claims to be lodged and settled
of belongings in Andhra Pradesh and Tamil Nadu, the regulator has advised
easily. Moreover, for the people affected by the floods, quick action can be
insurers to take the following actions immediately:
provided.
1. Initiate any immediate action to ensure that all reported claims are
registered, and eligible claims are settled expeditiously.
2. In cases where difficulty is experienced in obtaining a death certificate due
to non-recovery of body, etc., the process followed in the 2015 Tamil Nadu
floods may be considered.
3. A suitably simplified process or procedure, including relaxations of the usual
requirements wherever feasible, may be considered to expedite claims
settlement.
4. Details of offices or special camps set up for the purpose may be publicised
in the press and electronic media to enable immediate filing of claims.
5. Progress report on the claims settled for the states of Andhra Pradesh and
Tamil Nadu should be submitted to the regulator on a weekly basis.

3 https://www.irdai.gov.in/ADMINCMS/cms/whatsNew_Layout.aspx?page=PageNo3695&flag=1

8 | PwC’s Insurance Insights

 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018 Contact us

Title: Exposure Draft on IRDAI (Registration of Insurance Marketing Firm) Applicability: All
Regulations, 20184
Date of Issue: 3 December 2018

Introduction
Based on the Insurance Regulatory and Development Authority of India
(Registration of Insurance Marketing Firm) Regulations, 2015, and the
Insurance Regulatory and Development Authority of India (Registration of
Insurance Marketing Firm) (First Amendment) Regulations, 2016, a committee
for review of IMF regulations was constituted by the Authority. Based on
the recommendations of the committee, a review of the existing framework
governing insurance marketing firms has been undertaken.
medium enterprises (MSMEs); crop insurance for non-loanee farmers and
combi products.
5. Significant increase in the threshold of change in shareholding from 10% to
25% beyond which approval of the Authority will be required.
6. Simplification of the process of resignation of insurance salesperson.
7. Reduction in work experience requirement of Principal Officer, and inclusion
of various professional qualifications in the eligibility criteria for Principal
Officer.

The following are some of the key changes proposed in the current regulations:
1. Reduction of net worth requirement to INR 5 lakh for applicants opting for
an aspirational district, designated as such by the Government of India, e.g.
NITI Aayog.
8. Relaxation of training and examination requirement for Principal Officer, if
the person has undergone training and examination required for Principal
Officer of an insurance broker.
9. Criteria of ‘domicile’ for insurance salesperson changed to ‘resident’.

2. Expansion of area of operation of an insurance marketing firm to a

maximum of three districts within a state.
3. Expansion of the scope of work of Principal Officer to include solicitation
and procurement of insurance business.
4. Expansion of the products, which can be procured by an insurance
marketing firm to include group insurance products for micro, small and

4 https://www.irdai.gov.in/ADMINCMS/cms/whatsNew_Layout.aspx?page=PageNo3674&flag=1

9 | PwC’s Insurance Insights

 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018 Contact us

Our point of view

These are good proposals that have been initiated by the regulator. This will
improve the number of channels available to the customer for purchasing
insurance products. By also allowing insurance marketing firms to sell
products, including group insurance and crop insurance, customers will have a
better variety of products to purchase.
Along with this, the regulator has eased the norms to benefit other parties.
Insurance marketing firms will also benefit from these proposals through
the expansion of their area of operations. This will allow them to enjoy a
large market, thereby increasing their revenue targets. Moreover, increasing
the number of products an insurance marketing firm can offer will allow for
increased variety of products for prospective policyholders and, in turn, improve
the marketability and visibility of insurance marketing firms to the public.

10 | PwC’s Insurance Insights

 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018
Title: Cover for Compulsory Personal Accident (CPA) for Owner-Driver under
Motor Insurance Policies5
Date of Issue: 11 December 2018
Introduction
With reference to the circular dated 20 September 2018 and 9 October
2018 issued by the IRDAI, a detailed examination of issues which has been
conducted in terms of Section 14 (2) (i) of the IRDAI Act, 1999, the Authority
has decided to unbundle the compulsory personal accident (CPA) cover and
permit the issuance of a stand-alone CPA cover for owner-driver. On the
contrary, if the policyholder chooses to opt for the CPA cover as part of the
liability only policy or the package policy as it exists today, he/she can continue
to do so. In the event the policyholder chooses to take a stand-alone CPA
policy, the CPA cover offered as part of the liability only or package policy shall
be deleted.
In this regard, the following are being stipulated:
1. Effective 1 January 2019, stand-alone CPA cover for owner-driver may be
issued. Keeping in view the date of implementation, as an interim measure,
insurers may price the product in accordance with their general pricing
philosophy, based on actuarial principles for the risk in question.
2. The product shall be filed with the Authority in terms of the Product Filing
5 https://www.irdai.gov.in/ADMINCMS/cms/whatsNew_Layout.aspx?page=PageNo3684&flag=1
Contact us
Ref no: IRDAI/NL/CIR/MOTP/ 200/12/2018
Applicability: General Insurers Carrying on Motor Insurance Business
Guidelines dated 18 February 2016 on or before 15 January 2019, failing
which the insurer shall not be allowed to sell the product as permitted in 4(i)
above beyond that date.
3. Accordingly, effective 1 January 2019, on expiry of a bundled CPA cover, it
may be replaced with a stand-alone CPA cover and the same may be taken
from any registered insurer transacting general insurance business.
4. Coverage under the stand-alone CPA will extend to all the vehicles owned
by the owner-driver under the same policy. In other words, the cover under
the stand-alone CPA policy would be valid when the owner-driver drives any
of the vehicles he/she owns.
5. The duration of the stand-alone CPA cover would be one year.
6. The coverage under the stand-alone CPA would continue to be that
stipulated under GR 36 A of the erstwhile India Motor Tariff, namely Death
and Permanent Disability (Total and Partial).
7. Since a general personal accident cover also includes cover against motor
accidents, if an owner-driver already has a 24-hour personal accident cover
against Death and Permanent Disability (Total and Partial) for CSI of at
least INR 15 lakh, there is no need for a separate CPA cover to be taken.
11 | PwC’s Insurance Insights
 Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018
Our point of view
By specifying the criteria for CPA insurance of owner-drivers, the IRDAI is
making prospective policyholders aware of the choices available to them while
taking a decision to purchase a CPA cover. This will reduce any possibility of
incorrect information being communicated by the insurer to the prospective
customer.
With reference to Circular Ref. IRDAI/NL/CIR/MOTP/158/09/2018 dated
20 September 2018 on the subject, IRDA received complaints from various
stakeholders regarding CPA insurance for owner-driver. It had been pointed
out that many owner-drivers already have existing general personal accident
covers, which ought to be recognised. Moreover, the fact that owner-drivers
may own more than one vehicle and if they have opted for CPA for one vehicle,
it’s not required for other vehicles. This CPA is compulsory for registered
owners if they hold a valid driving licence. Hence, CPA is not
Contact us
applicable if the vehicle is owned by an owner-driver and he/she does not hold
a valid driving licence or it is owned by a company or a partnership firm. After
detailed examination, IRDAI unbundled the CPA and permitted the issuance of
stand-alone CPA cover for owner-drivers.
Coverage under CPA had increased from INR 1 lakh to INR 15 lakh, which in
turn increased premiums. However, the pricing can be in accordance with the
general pricing philosophy of insurers, which will give increased comfort to the
customer for purchasing insurance at a reduced price. Unbundling the CPA
cover will reduce the cost of insurance.
12 | PwC’s Insurance Insights
Overview of reinsurance Preface Key guidelines issued by the Authority in December 2018 Contact us

Vivek Iyer Joydeep K Roy

Partner Partner
vivek.iyer@pwc.com joydeep.k.roy@pwc.com
Mobile: +91 9167745318 Mobile: +91 9821611173

Ramkumar Subramanian Varsha Mehrotra

Associate Director Consultant
ramkumar.subramanian@pwc.com varsha.mehrotra@pwc.com
Mobile: +91 9004644029 Mobile: +91 9769658574

Prateek Kannan
Consultant
prateek.kannan@pwc.com
Mobile: +91 9840753109

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