Risk firms may have to make disclosures regularly

The Insurance Regulatory and Development Authority (Irda) is working on putting in place a framework whereby insurance companies will be required to make increased disclosures on a regular basis to policyholders.

Irda is currently in discussions with self-regulatory bodies General Insurance Council (GIC) and the Life Insurance Council to determine the parameters of the increased disclosures, said Irda chairman, C S Rao, at an insurance conference organised by investment banks ICICI Securities and Fox-Pitt, Kelton, a subsidiary of Swiss Reinsurance.

Irda plans to ensure that information like policy lapsation rate and the expense ratio are provided on monthly or quarterly basis to stakeholders.

Expense ratio is a formula used by insurance companies to relate income to administrative expenses like commissions, taxes, acquisition advertising and administration expenses.

Irda chairman said the frequency at which this information should be disclosed is also being worked upon.

"Ensuring that the regulator has regular access to reliable information about insurance companies is a crucial issue since a lack of this mechanism may delay the discovery of financial problems in time to prevent insolvency.

The accounting system should establish rules that are to be applied uniformly to all insurance companies and are compatible with internationally accepted accounting standards. The Irda is working closely with Institute of Chartered Accountants of India in achieving this objective," he said.

"Accounting systems are central to the provision of the information needed by investors, consumers, managers, regulators and the other interested parties so that they can make reasonable assessments of the effectiveness of the enterprise's operations and assess its future prospects, Rao added."

Speaking about the recommendation regarding raising the FDI ceiling to 49 per cent for the insurance industry, Rao said "the finance ministry is likely to make the amendments in the monsoon session."

On the role to be assigned to the Tariff Advisory Committee (TAC) after all the risks are detariffed, Rao said he feels TAC should be made a statistical body so that the insurance industry has access to information.