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'IRDAI was set up 20 yrs ago; it's time to review it'

There should be a review committee to go into all regulatory aspects to see whether the original goal of forming IRDAI has been fulfilled and if not, the action to be taken, says N Rangachary



Chennai: More than two decades have passed since the setting up of the Insurance Regulatory and Development Authority of India (IRDAI). It is time for a committee to review it, said its first Chairman N Rangachary.

Echoing his views were several industry experts who were past members of IRDAI and the head honchos of life and non-life insurance majors. Insurance industry officials concur with this view given IRDAI's human resources issues and the problems faced by the regulated entities for the past several years.

"It is time to do a review of IRDAI. It is more than two decades since IRDAI came into existence. As a matter of fact, every regulatory organisation should be reviewed at regular intervals," Rangachary said.

It was Rangachary who had paved the regulatory path for the sector as the first head of IRDAI. "There should be a review committee to go into all regulatory aspects. It is time to see whether the original goal of forming the regulatory body has been fulfilled and if not, the action to be taken," Rangachary suggested.

Echoing similar views was R Ramakrishnan, Member of the Malhotra Committee on Insurance Reforms. "It is high time the IRDAI is completely reviewed. This should have been done at the end of the first five years. Better late than never," Ramakrishan said.

Queried as to what is to be reviewed, experts said the entire organisation, its structure, and regulations governing the sector. "The review should be on IRDAI's human resource policies and the regulatory aspects including the procedures and the organisational set up. The IRDAI should be made transparent," S.B. Mathur, former Chairman, Life Insurance Corporation of India, said.

Mathur was also a part-time Member of IRDAI between 2007-2012. During the initial years, IRDAI was on virgin territory and there was a lot of experimentation, trial and error. Over the years IRDAI has done reasonably well, Mathur said.

"The IRDAI Chairman would hold a monthly meeting with the CEOs of insurance companies during the first four years of its existence," Mathur said. "On the twin aim of IRDAI Act 'to protect policyholders interests and promote orderly growth of the industry' IRDAI seems to have done a reasonably good job in the 20 years of its existence," KK Srinivasan, former Member, IRDAI, said. According to him, a Government review of IRDAI be taken up after reviewing the older financial services regulators like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

"But the internal organisation of IRDAI needs to be professionalised and strengthened. There is an undeniable perception that compared to its rather small size, there is excessive trade unionism within the Body," Srinivasan said.

"This is perhaps attributable to a large extent to the inevitable and somewhat not desirable back-door recruitment of employees in the initial years of its formation. However, this may get corrected in due course when retirements take place," he added. Be that as it may, industry experts said presently the decision making power is centralised with the IRDAI Chairman while the Members seem to have only a recommendatory role. "The IRDAI should be made a multi-member body with powers given to its Members. Times are changing fast along with technology. The regulations should also change in tune with them," K.N. Bhandari, former Chairman and Managing Director of United India Insurance Company Ltd, said. "The tenure of IRDAI's Chairman should be a minimum five years. It takes at least two years for a person to learn about the industry," Bhandari added.

One of the reasons for allowing the private players into the sector two decades back was to increase the insurance penetration. "Nothing much is happening to promote the penetration of insurance. Curiously it is the government schemes like health and life insurance that have increased the penetration while the insurers have not done much," Bhandari said.

Further transparency is also at a premium at IRDAI, when it comes to fixing of premium rates and others that affect the policyholders, he said. Industry officials also said it is time to ponder on the reasons for the absence of any new player setting up shop during the last couple of years. "It is time to relook the solvency norms. Like standalone health insurers there will be standalone vehicle insurance companies and the like. So, the solvency norms should be fixed in line with the kind of business that is being done," Bhandari said.

Similarly, the system of management expense ceiling should also be reviewed and see the possibility of having an overall ceiling on expenses, he added. According to Bhandari, the IRDAI is dealing with regulations which were largely framed two decades back and they have to be revised.

Experts are frowning at IRDAI's practice of issuing new regulations in the guise of Guidelines which needs to be halted. During its initial days, IRDAI made the regulations or the subordinate legislations after a process of public consultation with the clearance of the advisory committee. The draft regulation was placed before Parliament and implemented after 60 days. Industry experts were of the view that the regulator's action may be challenged in the court of law in the future as guidelines are not regulations in the strict sense.

Venkatachari Jagannathan
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