CHENNAI: The Insurance Regulatory and Development Authority (IRDA) is considering ways of incorporating in its regulations the corporate governance principles embodied in Clause 49 of the Listing Agreements of companies with stock exchanges, according to P. C. James, Executive Director of the authority.

Since no insurance company in the country has so far got listed (by issuing capital to the public) and since the companies have ten years' time (from the date of commencement of business) to divest the holding of promoters in excess of the prescribed limits, they are likely remain outside the ambit of Clause 49, Mr. James said.

No easy task

The IRDA had spelt out the importance of corporate governance in insurance companies in the "roadmap'' it had outlined for the industry as also in the "file and use'' for de-tariffed products (in the case of general insurance), but it had so far not decided upon the manner of incorporating the principles of Clause 49 in its own regulatory purview. "This is not an easy issue because corporate governance itself is a relatively new concept and, in addition, certain specific circumstances of the insurance industry have to be taken into account,'' he said.

Mr. James, who was addressing an awareness programme on "de-tariffing in insurance'' organised by the Madras Chamber of Commerce and Industry (MCCI) on Saturday, said the rationale behind removal of tariffs (on non-life products, excepting motor third party insurance) was that insurance companies had in recent times started making high profits (with tariffs stipulating the minimum premium) in lines like fire insurance even while their risks had come down as a result of improvement in availability of data and risk assessment and risk management skills. De-tariffing would operate within the "file and use guidelines", including the stipulation that the product should be "a genuine insurance product of an insurable risk with a real risk transfer [from the insured to the insurer]" Alternate transfer and financial guarantee in any form would not be allowed.

He advised customers of the industry not to go by the pricing of insurance products, which was likely to be driven down as a result of competitive pressure faced by insurance companies, but to look for transparency of coverage and availability of value to the customer.

Presentations made at the session by Giles Beale, Managing Director, Willis BA India Pvt Ltd, Mumbai, a risk management consultancy and insurance broker, and his colleagues, emphasised the importance of risk management by the insured companies to achieve sustainable, long-term discounts in premium instead of succumbing to the temptation of saving on costs and effort involved in risk management in the wake of the fall in rates that de-tariffing might lead to in the immediate future.

Risk management enabled companies to put themselves in control rather than the insurers or brokers. It allowed companies to plan a risk retention and transfer strategy in anticipation of future market liberalisation and the availability of first loss covers and deductible options from the year 2008.

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