They have to make provisions for it as those exposures cannot be written off, IRDAI chairman Shubash Chandra Khuntia said on the sidelines of the release of the handbook on general insurance claim insights for policyholders by the Insurance brokers association.
Some IL&FS group entities defaulted on its debt repayments, which caused a liquidity freeze in the NBFC sector in September 2018. The company is sitting on a debt of over Rs 90,000 crore.
The state owned insurance behemoth, Life Insurance Corporation, is the largest shareholder in the cash strapped IL&FS group. It holds a 25.34 per cent stake in the group.
The erstwhile senior executives of the company have been dragged to the NCLT by the ministry of corporate affairs over the allegations of mismanagement of the company resulting in the piling up of the debt.
Among the private insurers, IDBI Federal Life Insurance has an exposure of about Rs 20-25 crore to the IL&FS group. Aditya Birla Sun Life on the other hand has no exposure. The exact exposure of the insurance companies to the beleaguered IL&FS group is not known so far.
Khuntia also expressed the concern over of the regulator over commissions the insurance companies pay to the motor insurance service provider (MISP) as they are higher than what has been stipulated by the insurance regulator.
“Whenever it is coming to our notice, we are taking action. We have also done some focused inspection of some MISPs, we are watching the market very carefully for some violations,” Khuntia said.
The regulator had expressed concerns last year that the Original Equipment Manufacturers (OEM’s) are exercising undue influence both on the insurance intermediary and the automobile dealers who have become MISP without having accountability.
Also, they had capped the payments made by insurers to agents and dealers of cars and two-wheelers and brought them under its regulatory framework as MISP.
After GST on third party insurance was reduced to 12 per cent from 18 per cent, the chairman said that the regulator is in consultation with the GST council on reducing the tax rate on property insurance in vulnerable areas.
Khuntia also touched upon the mis-selling aspect of the insurance business and asked the industry players to devote more time for underwriting their products and selling it in a fair manner. He also asked the insurers to speed up the claim settlement process.
As the non-life space is highly under-penetrated in India, the chairman expressed hope in the fact that cyber security insurance will be a big opportunity for general insurers to capitalise on in the future.