India’s Largest Reinsurer GIC Re May Get First Preference In Business, Decision Likely Tomorrow
Indian broking community rejected the order of preference among reinsurers as a ‘protectionist’ measure.
India’s largest reinsurer, GIC Re may retain its first preference in several areas of business if draft regulations proposed by an expert committee get accepted by the insurance regulator, an IRDAI official told BloombergQuint requesting anonymity.
The second preference is likely to be given to foreign reinsurance branches in India, while the third preference, in case both Indian reinsurers and the FRBs refuse, could go to cross-border reinsurers, the official said.
The board of the Insurance Regulatory Authority of India will meet tomorrow to consider the suggestions made by its Reinsurance Expert Committee. The regulator had put up the draft norms on its website, inviting public comments, on Jan. 5.
The draft regulations apply to all lines of insurance business and require domestic insurers to formulate a segment-wise risk retention policy. For life insurance, a minimum of 50 percent of the sum-at-risk should be retained at the portfolio level. The risk retention level for each insurer will also be subject to IRDAI’s approval, 45 days before the commencement of every financial year.
The Insurance Brokers’ Association of India in a letter to outgoing IRDAI Chairman TS Viyajan on Feb. 1 had called for “immediate cancellation and repeal of the order of preference regulation which is regressive, anti-policyholder and anti-competitive”. BloombergQuint has accessed a copy of the letter which lists the following concerns with the draft regulations:
- Reinsurance costs would go up due to limited competition.
- Unfair regulatory treatment for cross-border reinsurers will deter them from participating in the Indian market, as they will not be allowed to participate even if they offer the best terms, unless Indian reinsurers and FRBs refuse.
- CBRs which are group companies of FRBs cannot be approached for treaty business and other specialised lines of business like trade credit, cargo, energy and aviation, except for large property and liability risks.
- Need for global reinsurance for the government’s crop insurance scheme as the risk being carried is huge and there could be a shortage in reinsurance capacity if all of it is retained locally.
- Product innovation will be affected as the risk will be will be shared by a few preferred reinsurers.
- Reinsurance brokers play a proactive role in the Indian insurance market. That’s likely to be significantly marginalised.
“This is more likely to hurt clients rather than brokers,” Rohit Jain, head of insurance broking firm Willis Towers Watson in India told BloombergQuint. If the proposed preference norms are accepted, “clients will not be able to enjoy the same freedom in pricing from the international markets as they have earlier,” he said.
Besides, it could result in higher prices for policyholders, according to Rajesh Yagnik, practice head – reinsurance and aviation at JLT Independent Brokers.
When you restrict competition in such an artificial manner, where the risk must first be absorbed by the local reinsurers before global players can participate, it will not just concentrate the risk within the country but also increase the prices for policyholders.Rajesh Yagnik, Practice Head – Reinsurance & Aviation, JLT Independent Brokers
The IRDAI official quoted above opined that the preference regulations could, in fact, bring down prices by minimising role of brokers. Earlier, the monopoly of allocating risk with global reinsurers rested with brokers and they gave business to whoever paid them a higher brokerage. Insurers will now directly approach the foreign reinsurance branches in India, which will bring down prices, he said.
The order of preference allows Indian companies to get business in segments where they have expertise in while giving them room to develop their capacities in newer risks, said Shashwat Sharma, Partner & Head-Insurance at KPMG India.