Insurance stocks climb on government’s common licence proposal for all insurance businesses

• Stocks of major insurance companies are rallying after the finance ministry proposed amendments that would allow insurers to obtain a common licence for all insurance businesses.
• The ministry has also proposed allowing insurance companies to distribute other financial products like mutual funds.
• Analysts suggest that the amendment will be a major booster for the industry as currently an insurance company needs separate licences to sell general, life and health insurance products.
  

Shares of major insurance companies have been rallying in the last one month, after the finance ministry proposed amendments to the existing Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999, that would allow insurers to sell life, general and health insurance products through a single licence, apart from also distributing other financial products like mutual funds.

The Nirmala Sitharaman-led Ministry of Finance announced its proposed amendments on November 29 and invited comments from stakeholders.

“The proposal includes various measures such as opening up registration to various classes, sub-classes and types of insurers with appropriate minimum capital requirements as specified by IRDAI, allowing services to insurers that are incidental or related to insurance business as well as distribution of other financial products as specified by IRDAI, enabling newer channels of distribution, providing for efficient use of capital and resources, etc,” the ministry said.

Allowing insurance companies to obtain one common licence to sell multiple insurance products will be a major booster as currently they have to obtain separate licences for general, life and health insurance products, market experts told Business Insider India.

“Insurance stocks have rallied since investors got excited after the government proposed a common licence to sell all insurance products. There are also expectations that some public sector general insurance companies that are not doing well or are not getting proper valuations might be merged with LIC,” Deepak Jasani, head of retail research at HDFC Securities told Business Insider India.

Following this, shares of several insurance companies rallied on hopes of ease in doing business.
Source: NSE, change as on 2:25 p.m, December 21, 2022

“The proposed changes to the Insurance Amendment Act are aligned with the regulator’s vision of ‘Insurance For All’. These changes will facilitate longer term growth of the industry and bring India closer to the global practices,” said Sumit Rai, MD & CEO at Edelweiss Tokio Life Insurance.

He added that this will also allow insurance companies to tap into their distribution infrastructure across different segments of financial products instead of starting from scratch for each product.

In November, the Insurance Regulatory and Development Authority of India (IRDAI) had announced its vision “Insurance for All by 2047”, where every citizen has an appropriate life, health and property insurance cover and every enterprise is supported by appropriate insurance solutions.

In this regard and with a view to improve insurance penetration in the country, the regulator enhanced the limits on corporate agents, allowing them to associate themselves with nine companies each across the life, health and general insurance segments, up from the previous limit of three.

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