As part of the efforts to mitigate systemic risks, insurance regulator Irdai has started the process of identifying large insurers that are systemically important. Enhanced regulatory framework will be put in place for such systemically important insurers. In the backdrop of the failure of IL&FS, this step is viewed by the industry as critical for mitigation of risks.
Irdai has set up a committee to study the methodology of identification and recommend enhanced supervision measures. The committee will submit its report in six months.
According to the regulator, some insurers, due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness, become systemically important. Any disorderly failure of these insurers 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. Therefore, the continued activity of systemically important insurers (SII) is critical.
These insurers are perceived as ‘too big to fail’ and this perception creates expectation of government support at the time of distress.
“In India the insurance sector has grown exponentially in the last 15 years and a few of the insurers have a sizeable market share and are interconnected with other financial institutions as well. The authority feel that there is a need to identify who are systemically important and put in place a system of enhanced regulatory framework for such insurers,” said the regulator.
Moreover, the International Association of Insurance Supervisors, a global organisation of insurance regulators, also wants its members to have a regulatory framework to deal with domestic systemically important insurers. Irdai is a member of the IAIS.
“In the context of IL&FS fiasco, it has become all the more important to identify such insurers and have a framework to deal with them,” said an industry expert.
According to the regulator, some insurers, due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness, become systemically important. Any disorderly failure of these insurers 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. Therefore, the continued activity of systemically important insurers (SII) is critical.
These insurers are perceived as ‘too big to fail’ and this perception creates expectation of government support at the time of distress.
“In India the insurance sector has grown exponentially in the last 15 years and a few of the insurers have a sizeable market share and are interconnected with other financial institutions as well. The authority feel that there is a need to identify who are systemically important and put in place a system of enhanced regulatory framework for such insurers,” said the regulator.
Moreover, the International Association of Insurance Supervisors, a global organisation of insurance regulators, also wants its members to have a regulatory framework to deal with domestic systemically important insurers. Irdai is a member of the IAIS.
“In the context of IL&FS fiasco, it has become all the more important to identify such insurers and have a framework to deal with them,” said an industry expert.
