The 3 public sector insurers will be subjected to enhanced regulatory supervision: IRDAI
The Life Insurance Corporation of India (LIC), General Insurance Corporation of India and The New India Assurance Co have been identified as Domestic Systemically Important Insurers (D-SIIs) for 2020-21 by insurance regulator IRDAI.Given the nature of operations and their systemic importance, the three public sector insurers have been asked to raise the level of corporate governance as well as identify all relevant risk and promote a sound risk management culture.The D-SIIs will also be subjected to enhanced regulatory supervision, the Insurance Regulatory and Development Authority of India (IRDAI) said.According to the regulator, D-SIIs refer to insurers of such size, market importance and domestic and global inter connectedness whose distress or failure would cause a significant dislocation in the domestic financial system. Thus, the continued functioning of D-SIIs is critical for the uninterrupted availability of insurance services to the national economy.D-SIIs are perceived as insurers that are ‘too big or too important to fail’. This perception and the perceived expectation of government support may amplify risk taking, reduce market discipline, create competitive distortions, and increase the possibility of distress in future. These considerations require that D-SIIs should be subjected to additional regulatory measures to deal with the systemic risks and moral hazard issues, IRDAI said.The regulator said it has developed a methodology for identification and supervision of D-SIIs. The parameters include the size of operations in terms of total revenue, including premium underwritten and the value of assets under management; and global activities across more than one jurisdiction. The Authority said it would identify D-SIIs on an annual basis and disclose the names of such insurers for public information.In January 2019, while announcing the formation of a committee on D-SIIs, the regulator had said the insurance sector had grown exponentially in the last 15 years and a few of the insurers have a sizeable market share and interconnected with other financial institutions as well. The failure of D-SIIs has the potential to cause significant disruption to the essential services they provide to the policyholders and, in turn, to the overall economic activity of the country, it had said.The constitution of the committee came in the backdrop of the International Association of Insurance Supervisors (IAIS) asking all member countries to have a regulatory framework to deal with Domestic-SIIs.