Government Proposes Major Amendment to Insurance Act to Expand Agent Ties
The Government of India has unveiled a proposal to amend the Insurance Act, introducing a significant change that could allow insurance agents to partner with multiple insurers across life, general, and health insurance categories. Currently, agents are limited to working with just one insurer per category, a restriction that the government aims to eliminate to foster competition and enhance consumer choice.
The Proposed Changes
The amendment seeks to create an open architecture where agents can represent multiple insurers simultaneously. This reform would empower agents to offer a broader range of products, enabling consumers to compare policies and select the best option tailored to their needs.
Some of the key highlights of the proposal include:
- Agents could tie up with multiple insurers across all segments (life, general, and health insurance).
- The Insurance Regulatory and Development Authority of India (IRDAI) will be tasked with drafting and implementing a regulatory framework to manage these expanded affiliations.
- Measures to mitigate potential conflicts of interest will be central to the new regulations.
- Stakeholder feedback has been invited, with a submission deadline of December 10, 2024.
Impact on LIC and the Insurance Market
The proposed changes could have a profound impact on the Life Insurance Corporation of India (LIC), the nation’s largest public sector life insurer. LIC’s business model is heavily dependent on its vast network of agents, which totaled 14.4 lakh as of the first half of the 2024-2025 fiscal year. The insurer derives more than 95% of its business from agents, making it particularly vulnerable to the shift.
Industry analysts suggest that an open architecture system could dilute LIC’s dominance by enabling agents to promote competing products. “This move could democratize the insurance marketplace, allowing smaller and private players to compete on a level playing field,” said a senior market strategist.
However, LIC’s established brand loyalty and extensive reach may still offer it a competitive edge, even in a multi-affiliation environment.
Ensuring Consumer Protection
While the reform aims to benefit consumers, experts warn that allowing agents to represent multiple insurers could lead to conflicts of interest. IRDAI’s role in creating robust guidelines will be crucial to prevent agents from prioritizing products that offer higher commissions over those that best serve customer needs.
Brijesh Shah, an insurance consultant said, “The success of this initiative hinges on the regulatory framework. Transparency, accountability, and fair practices must be at the core of the new system.”
A New Era for Insurance Distribution
If implemented, the amendment could reshape the insurance distribution landscape, offering consumers a wider array of choices while intensifying competition among insurers. Agents, too, are likely to benefit from increased flexibility and income opportunities, as they will no longer be tied to a single insurer in each category.
The government’s move signals its intent to modernize the insurance sector and promote a more consumer-centric approach. All eyes are now on the stakeholder feedback and IRDAI’s subsequent action to bring this transformative change to life.