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Ms Shikha Shrama, Managing Director and CEO, ICICI Prudential Life Insurance, Mr S.B. Mathur (right), Chairman, Life Insurance Corporation, and Mr Yvo Metzelaar, President, ING Vysya Life Insurance, are in a discussion at the insurance summit in Hyderabad on Monday. -- A. Roy Chowdhury

Hyderabad , Dec. 8

OBSERVING that the market was full of imperfections, the Insurance Regulatory and Development Authority (IRDA) Chairman, Mr C.S. Rao, has opposed the complete deregulation of the insurance industry and favoured striking a balance between market discipline and the traditional regulatory supervision.

Addressing the representatives of the Indian insurance industry here on Monday at the Eighth `Insurance Summit' organised by the Confederation of Indian Industry (CII), Mr Rao said market forces in a less regulated environment would provide the necessary discipline and shape the development of the industry. The role of the regulator would then be to ensure that an overconcentration of risk or abuse of power did not occur and that the welfare of the policyholders and consumers remained protected.

Ideally, market forces in this context would determine market conduct, while the regulator was expected to ensure the sanctity of transactions and adoption of best practices.

However, viewing that the market was full of imperfections, Mr Rao said, "Problems arising from market imperfection will have adverse implications on the overall stability of the economy and this is too big a risk for countries such as India which is slowly opening up its markets."

Stating that at this nascent stage it was necessary to exercise caution, the IRDA Chairman said, "Our approach so far has, therefore, been to strike a balance between market discipline and traditional regulatory supervision. Self-regulation, market discipline and code of conduct will act as a complement to, rather than a substitute for, the traditional activities of the regulator."

Admitting that a strict criterion for award of licences was put in place to ensure that only sound parties were inducted into the fold, he, however, said the regulator recognised that careful selection alone did not guarantee successful operation.

"For the companies to succeed we have to create an enabling environment which has been provided through a series of regulations which are drawn from internationally accepted practices."

According to Mr Rao, the private players who entered the Indian insurance sector following the opening up of the market had met their capital requirements so far and quickly started exploiting it.

"However, as we move forward, there will be pressure on capital and solvency requirements as insurance is capital-intensive with hardly any margin for profits in the initial years."

On the alternate distribution channels, the IRDA Chairman said the regulator welcomed different channels of distribution in a country such as India with a widely spread and diversified market.

He, however, cautioned that those responsible for selling insurance products must conduct themselves in a highly professional manner.

"The responsibility for this will squarely lie with the companies. The Life council has recently prescribed rules for the selling of insurance policies. The life and general councils should continuously monitor the ethical standards and market conduct and make appropriate actions that would ensure the healthy growth of the industry," Mr C.S. Rao advised the players.

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