#SalesTalk: The (Re)Insurance Case of Insurance Regulators

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#SalesTalk: The (Re)Insurance Case of Insurance Regulators

Future of Insurance in India

Insurance Regulatory and Development Authority of India (IRDAI)  has been facing a lot of heat from European reinsurers. The European counterparts are of the view that Indian regulator is protecting the domestic industry and holding back rivals from penetrating the world’s fastest-growing reinsurance market. But this isn’t only the case for Indian regulators. Globally, insurance market regulators are adopting a protectionist attitude. At the ET Sales Strategy Summit, 2018, Mr. Joseph Augustine, CEO of  XL Catlin’s India Division, shared his views on how the market is shaping up with the new shift.

“Insurance is a product that no one buys happily,” says Mr. Joseph Augustine. Rightly said, most people buy insurances out of the fear of something going wrong, or simply because it is mandated by the Government or regulatory bodies to possess insurances under few categories. When an individual buys an insurance from an insurance company, the insurer makes a promise to indemnify the one insured. At the juncture of these two, it becomes the primary role for an insurance regulatory body to ensure that the promise is kept between the two parties, and this has been consciously adopted globally by all regulators. “Insurance regulators need to be more stringent, else, things wouldn’t happen the way it should,” adds Mr. Augustine.

“The ongoing global economic crisis also is taking its toll in the insurance and reinsurance industry. And this is also one of the reasons why regulators are taking a stringent approach.”

India opened its doors to the global market in the early 1990s. But almost three decades later, we are going back to the old system where now each and every country is for itself. The new US trade 

Reinsurance business concept

policies, Brexit in Europe, are all but an indication that everybody wants to be within their country, develop their country and work within their country. This is analogous to what most insurance regulators are doing worldwide. Fundamentally, what insurance regulators are aiming at is that money should be retained within the country, while at the same time, they want the risk to be diversified globally.

Now to think about it, is it possible that you want the premium to remain within India, but the risk should be diversified globally?

It is possible, and IRDAI has proven exactly that. With a push from the Government, many foreign insurers and reinsurers have entered the Indian market and set up branches. This was done on the condition that to do business in India, at least 50% of the premium that the companies write, should be retained within the country. The companies have also given a commitment to IRDAI that the global head office will take all the liabilities of the Indian branches, whether it is for the Indian premium or premiums paid outside India. Such a model paves way for diversification. While a majority of the premium is retained in India, the global head offices take the diversified risk of the Indian businesses. “That way if you see, the protectionist attitude is a global phenomenon and it is also adopted by many countries”, comments Joseph. He adds, ”the world’s largest reinsurers are coming from the country which says that you cannot drive business from our country unless you are following the solvency margin II.” If an Indian insurance company is not under the solvency margin II regime, they cannot write business with that country unless they have an office in that region. This mechanism is followed even by developed countries. “We are happy that India being an emerging market is also a key part of the whole system, and is trying to retain premium as much as possible in the country, while also ensuring that diversification is taken care through branches.”

The Indian economy and markets have been progressively opening up to foreign trade, commerce and investments and ‘the direction is unmistakable’. Given governmental and regulatory objectives in a given context, the country has adopted certain measures to achieve its macroeconomic and strategic objectives such as preventing outflow of premium through optimum retention of domestic business, encouraging the inflow of capital through allowing foreign branches and creating a conducive environment for creating a financial hub. “The protectionist attitude, as one may say, is helping secure a strong foothold that is ready to withstand crises that may come along the way”, concludes Mr. Augustine.

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