Lic, Gic Should Mull Leaner, Smaller Arms: Rangachary

IRA chief hints at realignment in the insurance industry

Life Insurance Corporation (LIC) and General Insurance Corporation (GIC) should examine floating leaner, smaller subsidiaries in association with certain banks or financial institutions or new players in the insurance sector to tackle competition.

This was suggested by N Rangachary, chairman, insurance regulatory authority (IRA), in a paper presented at the international insurance seminar organised by Insurance Institute of India (III). Commenting on the present marketing structure of insurance companies, the paper observed that both the companies have not been able to make much headway in certain areas and if subsidiary companies are floated they will be successful in developing so far unexplored or underdeveloped areas.

 

The paper cited the LIC joint venture in pension fund and GIC's in health insurance as the right step in this direction and commented that GIC should consider floating a joint-venture company for developing personal lines insurance. The same strategy should be adopted for rural business also. Rangachary in his paper also stressed the need for effective regulation in a liberalised environment. Licensing and registration is the first stage where the regulatory authority can stipulate conditions as a precedent, to ensure a reasonable degree of standard among players, he argued.

The authority will ensure a level playing field to all participants and no advantage or handicap will disturb the general conditions, he added.

The supervisory goals of the regulatory system would be assuring capital adequacy on a continuous basis, solvency margins, valuation of assets and liabilities, control on investments and investment recognition for solvency margin, accounting standards, cost control, regulations for intermediaries, fairness in pricing, fair claim settlement, transparency of annual statements, protection of consumer interest.

However, eventually the market will have to increasingly rely on self-regulations.

In a competitive market, the tariff systems will be gradually watered down with considerable caution under the guidance and supervision of the regulatory authority.