With a host of global reinsurers set to start operations in India, the Insurance Brokers Association of India (IBAI), the lobbying arm of insurance brokers, has come out against the reinsurance regulations of the Insurance Regulatory and Development Authority (IRDA) and called a meeting with CEOs and CMDs of all general insurers on Thursday.
“IBAI would like to appeal to all the insurers that they strongly represent for an immediate cancellation and repeal of this regressive, anti-policyholder and anti-competitive regulation. IBAI is of the strong view that for a more balanced and policyholder-centric interpretation in line with principal objectives of the regulation, the reinsurance order of preference regulations should be at least deferred for six months till the implications of the same are debated from a policyholder perspective,” it said in a letter to the CEOs of insurers, a copy of which was reviewed by The Indian Express.
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“The members of the Association have deliberated on the matter and would like to call for an urgent meeting of all insurers and reinsurance brokers to discuss the impact of the subject matter and our approach to deal with the challenges,” IBAI said.
The Reinsurance Regulations on Order of Preference in regulation 28(9) of IRDA essentially moves the market from free competition to prescriptive right of first refusal (ROFR) to a handful of players with four different categories exercising this preferential order. “This is outright anti-competitive. Reinsurance costs would go up due to limited competition. This would directly affect the margins and capital availability of the insurance companies to grow. Insurance companies are already operating in a highly competitive direct market, however there will be very limited competition or choice on the reinsurance side,” it said.
IBAI said this would impact the entire insurance market and potentially threaten the stability of the financial system when the sector gets tested in times of natural disasters. “The proposed reinsurance regulations attack, at a fundamental level, the competitiveness and stability of the insurance and financial system. IBAI would seek that the paramount interest of any regulation, which is policyholder interest, should not get compromised,” it said.
However, global reinsurers said that not all brokers are demanding the changes but some have placed their agenda above the country’s interest. “The government and IRDA prepared the new regulations to develop a global reinsurance hub in India and Indian reinsurance premium in terms of forex which was earlier going outside the country can remain within the country. IBAI’s stand as described is completely misleading,” said a prominent global reinsurer which is setting up operations in the country.
KK Srinivasan, former member, IRDA, said: “Reports of brokers trying to find fault with the reinsurance laws and regulations are somewhat strange and gives rise to a suspicion of vested interests. The reinsurance laws and regulations, amongst other things, aim to ensure that reinsurers operate in the country as risk underwriters and not as mere ‘fronting’ companies. Even in this era of globalisation, most countries, including advanced follow a policy of nurturing domestic companies.”
IRDA’s regulations which were prepared last year had categorised the reinsurers into four slabs and has specified how an Indian customer has to deal with them in order of preference. Going by the order of preference, a customer has to first give preference to the state-owned GIC Re and then to the global reinsurers, including Lloyd’s, which are setting up operations in the country. The general insurers and cross boarder reinsurers are placed in the third and fourth category. However, some brokers want cross boarder reinsurers to be treated on par with GIC Re and other global reinsurers to deal with India business.
“Our analysis establishes that the proportional treaty reinsurance programmes are significantly supported by various cross border reinsurers (CBR). Such a rule would certainly create chaos and move these markets away from India thereby threatening the completion of full reinsurance placement. This is a serious risk to the entire insurance market as this will significantly affect their capacity to write large risks in India and defeat the basic objective of reinsurance programme to create adequate capacity,” IBAI said. Individual and corporate policyholders’ cost, coverage, service will get severely compromised and innovation in wordings, products severely constrained, IBAI said.