Role of Self-Regulation in the

Indian Insurance Industry

Ashok Thampy and S. Sitharamu
Indian Institute of Management Bangalore
 Areas of insurance regulation
• Organization and licensing of insurance
companies to operate in India.
• Insurance policy regulation
• Market practices
• Solvency regulation
• Mergers, rehabilitation and liquidation of
insurance companies.
 Organisation and licensing
• The IRDA has to approve the ownership
structure and be satisfied about the viability
of the projections before license to operate
an insurance co. is granted.
 Insurance policy-form and
pricing
• Policy- file and use
• Pricing - in some sectors of the general
insurance market, tariffs are controlled by
the Tariff Advisory Council.
 Market Practices
• Licensing of agents and brokers
– IRDA would like the licensing of brokers by
the Insurance Council (a SRO)
• Unfair trade practices
– rebating
– twisting
– misappropriation of funds
• Unfair advertising practices
 Solvency regulation
• The responibility of the IRDA
• Appointed actuary
 Benefits and cost of self
regulation
• Regulation is important and required.
However, over regulation can hamper the
growth and development of the industry.
• In some areas such as market practices,
SROs are expected to be very useful to
complement the role of the IRDA.
– Lower cost
– better information
 Cost of regulation
• SRO may not be as strict as the external
regulator

• Supervision oversight of SRO by IRDA.

• In some countries, courts impose punitive

charges for malpractices which could
reduce incentives to do so. Absent in India.
 SRO in India
• Insurance council
– Section 64 of the Insurance Act
• Insurance Council
– licensing of agents ( life insurance)
– code of conduct and development of sound practices in
rendering efficient service to customers.
– Bring to the notice of IRDA the case of insurer not acting
in the interest of policy holders.
– advice the IRDA on admissible expense ratios.

• Chairman of the Insurance councils - life

and general are members of the IRDA
Cost of regulatory failure
Insurer
insolvency

Cost of regulation by IRDA

Cost of regulation by SRO

Wrong selling
Process of individual policy
 Summary
• Regulation should be so designed that it
should achieve the objective of protecting
consumer interests in the most efficient
manner.
• In the case of market practices, SROs can
play an important role due to lower cost of
information acquisition on market practices.
SROs can complement the role of IRDA.
• IRDA has envisioned an important role for
SROs in India particularly with respect to
market practices.
Source: Dr. Grossarth Maticek, conducted this experiment in
Heidelberg, Germany. Sample size:6,000.