Rationale behind composite licensing remains unclear, says Shubhra Goel

Shubhra Goel, MD, Alvarez and Marsal

The core purpose of composite licensing remains ambiguous, especially given that current frameworks already permit collaboration and limited cross-segment participation, said Shubhra Goel, Managing Director at Alvarez & Marsal Business Transformation Services.

Commenting on the Life Insurance Corporation’s (LIC) reported move to acquire a stake in ManipalCigna, a step toward entering the health insurance space even before composite licensing has been formally introduced, Goel said the broader rationale or the extent to which such a move would be "game changing" is still unclear.

As of now, neither LIC nor Cigna has made an official announcement confirming the development.

Goel also observed that life insurance companies are likely to continue scaling back their exposure to Unit Linked Insurance Products (ULIPs) in FY26, particularly in the face of market volatility, as they focus on maintaining a measured balance between growth and profitability.

Edited Excerpts:

There has been a clear restraint when it comes to ULIP (Unit Linked Insurance Plans) exposure. Many company officials have guided that they are actively looking to reduce their exposure to ULIPs, especially after this quarter. Do you see this trend extending into FY26? 

Indian saving habits are transforming, particularly among younger demographics, shifting from saving to wealth creation. This influences insurance companies' product offerings. Companies are now balancing growth and profitability, reflected in their product portfolios. The cautious approach to ULIPs is likely to continue into FY26. Additionally, distribution channels are evolving. Previously, large banks pushed high-ticket ULIPs through their networks, especially within their group companies, but this trend has ended.

There is a view that the insurance sector is being over-regulated, more than they can even keep pace with. Would you agree?

Insurance companies find the regulatory environment burdensome due to extensive compliance requirements. However, the regulator’s role balances market regulation, development, and policyholder protection. Compliance aims to institutionalize transparent, predictable market behaviours to encourage foreign participation and support market growth. The challenge lies not in regulatory change itself but in insurers’ inability to predict or align strategies with it, causing confusion and inefficiencies. A clearer regulatory direction would help insurers plan long-term. IRDAI is progressing by fostering industry dialogue and shifting from a rule-based to a principle-based framework, offering insurers more flexibility. A formal, structured approach would enhance collaboration.

A few insurers are of the view that the increase to 74 percent did not have that stark an impact. Why raise it to 100 percent if it hasn’t led to any significant change, especially when we are seeing a trend of foreign players exiting the market?

First, while the FDI limit was raised from 49 percent to 74 percent, I think one major hurdle was still around valuations. Foreign players were required to pay a “fair price” under FEMA norms when increasing their stake, and in many cases, the foreign players believed that valuations didn’t justify the investment because the bottom line wasn’t attractive enough yet. So while the market had potential, it lacked sufficient profitability to support such high valuations. Secondly, some foreign players felt that they would be better off operating independently, without being constrained by partnership structures which come with their own challenges. And by the time the FDI increase happened, many of the obvious or desirable Indian partners had already tied up in earlier phases. So the cost of entry had become very high. Thirdly, it’s not just about needing foreign capital. What the regulator seems to be aiming for now is more about bringing in global innovation, expertise, and diversified models. It’s less about only capital infusion and more about increasing market depth. For example, if a foreign player has developed a unique insurance product abroad and knows how to underwrite that risk effectively, they might want to bring that into India. The regulator has also been signaling openness to monoline and region-specific operations, allowing a player to focus on one line of business or one geography, which could enable niche expertise to thrive. I believe it’s this combination of changes, that would lead to a more meaningful impact in the long run, rather than just the single change of higher FDI limits .

LIC’s reported move to venture into health insurance in partnership with Cigna has come at a time when composite licensing is still not a reality. In that context, what kind of real change will composite licensing bring?

I know that some life insurers are very keen to enter the health insurance space. And of course, not every company will go out and acquire a stake in a standalone health insurer like LIC has (reportedly) done. But it’s worth noting that the restriction on life insurers doing indemnity products is actually relatively new. Before 2016, I think, life insurers were allowed to sell indemnity-based health products. Some had already started working toward that. But there were clear challenges. Doing indemnity health insurance well requires a robust hospital network, sound product development and risk underwriting, ability to explain complex indemnity products, fraud management, which life insurers weren’t always set up for. Despite those hurdles, a few players had made some headway. Then the rule change came. So, the push for composite licensing feels a bit disconnected to me. One rationale could be that some global insurers operate under a single license globally and a composite license option would facilitate their entry. We are yet to see how game changing this would be, especially considering the existing structures already allow for collaboration or limited participation.

Is this confusion also shared among policymakers? Because we've been covering composite licensing for years, and even now, there doesn't seem to be a definitive take on what it will solve.

Yes, many industry folks are also discussing about the core intent behind composite licensing. It might be that what policymakers are aiming for is a more integrated ecosystem where insurance companies are focused on risk coverage rather than functioning like investment houses. That might be the thinking, that if companies can run more efficiently and synergistically across verticals, it benefits the policyholder. The regulator's job is to ensure solvency, transparency, and fair play, not necessarily to optimize business models. That said, perhaps listing and public accountability is one lever they believe will enforce operational rigor indirectly. I think the broader push, whether through FDI, listing mandates, or composite licensing, is toward nudging the market to mature structurally. Also, like I mentioned, globally some insurance companies do operate with a composite license. Having this option facilitates their entry into India. The composite license also allows the newer entrants more options to think through their business models. This again may go back to the regulator bringing about a combination of changes leading to a meaningful impact that I mentioned earlier. So I understand that having a composite license opens another option, however the jury is still out on its ability to majorly transform the landscape.