Role Of Self Regulation

Role of Self-Regulation in the Indian Insurance Industry Ashok Thampy and S. Sitharamu Indian Institute of Management Bangalore

Areas of insurance regulation • Organization and licensing of insurance companies to operate in India. • Insurance policy regulation • Market practices • Solvency regulation • Mergers, rehabilitation and liquidation of insurance companies.

Organisation and licensing • The IRDA has to approve the ownership structure and be satisfied about the viability of the projections before license to operate an insurance co. is granted.

Insurance policy-form and pricing • Policy- file and use • Pricing - in some sectors of the general insurance market, tariffs are controlled by the Tariff Advisory Council.

Market Practices • Licensing of agents and brokers – IRDA would like the licensing of brokers by the Insurance Council (a SRO)

• Unfair trade practices – rebating – twisting – misappropriation of funds

• Unfair advertising practices

Solvency regulation • The responibility of the IRDA • Appointed actuary

Benefits and cost of self regulation • Regulation is important and required. However, over regulation can hamper the growth and development of the industry. • In some areas such as market practices, SROs are expected to be very useful to complement the role of the IRDA. – Lower cost – better information

Cost of regulation • SRO may not be as strict as the external regulator • Supervision oversight of SRO by IRDA. • In some countries, courts impose punitive charges for malpractices which could reduce incentives to do so. Absent in India.

SRO in India • Insurance council – Section 64 of the Insurance Act • Insurance Council – licensing of agents ( life insurance) – code of conduct and development of sound practices in rendering efficient service to customers. – Bring to the notice of IRDA the case of insurer not acting in the interest of policy holders. – advice the IRDA on admissible expense ratios.

• Chairman of the Insurance councils - life and general are members of the IRDA

Cost of regulatory failure Insurer insolvency

Cost of regulation by IRDA Cost of regulation by SRO Wrong selling Process of individual policy

Summary • Regulation should be so designed that it should achieve the objective of protecting consumer interests in the most efficient manner. • In the case of market practices, SROs can play an important role due to lower cost of information acquisition on market practices. SROs can complement the role of IRDA. • IRDA has envisioned an important role for SROs in India particularly with respect to market practices.

Source: Dr. Grossarth Maticek, conducted this experiment in Heidelberg, Germany. Sample size:6,000.