- The Insurance Regulator and Development Authority of India (IRDAI) has named three public sector insurance companies as ‘too big or too important to fail’ (TBTF) institutions or Domestic Systemically Important Insurers (D-SIIs).
- These are Life Insurance Corporation (LIC), General Insurance Corporation (GIC Re) and New India Assurance.
About: LIC, GIC Re and New India
- Life Insurance Corporation of Indiais an Indian state-owned insurance group and investment corporation owned by the Government of India.
- LIC is the largest life insurance company in India.
- GIC Re is the largest reinsurance company or insurer’s insurer.
- New India which is the largest general insurance company in the country.
- Government has plans to list the shares of LIC (India’s largest financial entity with assets of Rs 32 lakh crore) on the stock exchanges through an initial public offering (IPO) next year.
- GIC Re and New India are already listed on the exchanges.
In Focus: Domestic Systemically Important Insurers (D-SIIs)
Parameters for indentifying D-SIIs:
- IRDAI constituted a committee last year to identify the domestic systemically important insurers.
- The constitution of the committee came in the backdrop of the International Association of Insurance Supervisors (IAIS) asking all member countries to have a regulatory framework to deal with Domestic-SIIs.
- IRDAI developed a methodology for identification and supervision of D-SIIs based on the parameters-
- The size of operations in terms of total revenue, including premium underwritten and the value of assets under management
- Global activities across more than one jurisdiction
- Lack of substitutability of their products and/or operations
- Interconnectedness through counterparty exposure and macro-economic exposure
- The Authority would identify D-SIIs on an annual basis and disclose the names of these insurers for public information.
Domestic Systemically Important Insurers (D-SIIs):
- It refers to insurers of such size, market importance and domestic and global inter connectedness whose distress or failure would cause a significant dislocation in the domestic financial system.
- The failure of D-SIIs has the potential to cause significant disruption to the essential services they provide to the policyholders and, in turn, to the overall economic activity of the country.
- Therefore, the continued functioning of D-SIIs is critical for the uninterrupted availability of insurance services to the national economy.
- D-SIIs are perceived as insurers that are ‘too big or too important to fail.
- This perception and the perceived expectation of government support may amplify risk taking, reduce market discipline, create competitive distortions, and increase the possibility of distress in future.
- These considerations require that D-SIIs should be subjected to additional regulatory measures to deal with the systemic risks and moral hazard issues.
Enhanced Monitoring Mechanism by IRDAI:
- As per IRDAI, Domestic Systemically Important Insurers will require enhanced regulatory supervision and a higher level of corporate governance.
- The three public sector insurers have been asked to raise the level of corporate governance as well as identify all relevant risk and promote a sound risk management culture.
- The Insurance Regulatory and Development Authority of India(IRDAI) is an autonomous, statutory body tasked with regulating and promoting the insurance and re-insurance industries in India.
- It was constituted by the Insurance Regulatory and Development Authority Act, 1999 (an Act of Parliament passed by the Government of India).
- Its major objectives include-
- To protect the interest of and secure fair treatment to policyholders;
- To bring about speedy and orderly growth of the insurance industry for benefit of users and to provide long term funds for accelerating growth of economy.
Domestic Systemically Important Banks
- The Reserve Bank of India (RBI) had last year named State Bank of India (SBI), ICICI Bank and HDFC Bank as Domestic Systemically Important Banks (D-SIBs), which in other words mean banks that are too big to fail.
- As per the RBI norms, these banks will have to set aside more capital for their continued operation.