I consider it a privilege to address the conference organized by the Federation of Afro-Asian Insurers and Reinsurers. I am grateful to the organizers for giving me the opportunity to interact with the leading insurers and reinsruers of Asia and Africa.   I am extremely happy that the leading reinsurers across the globe are also present here in this conference. Let me, on behalf of the Insurance Regulatory and Development Authority of India join the hosts, the General Insurance Corporation of India in extending a warm welcome to all of you and wish you a very productive exchange of views and a pleasant stay.

It is not surprising that this conference is so well represented by the countries in the region. The insurers of the region address issues of poor insurance penetration, low insurance density with hardly any insurance protection against natural calamities like droughts, floods, hurricanes and earthquakes. The insurance market is developing in the region only now and it has to be nurtured carefully. Conferences of this nature help exchange experiences and facilitate a better understanding of the problems and suggest possible solutions.

It is heartening to note that the year 2004 witnessed a continuing growth in the insurance premium in the emerging markets of Asia and Africa. South and East Asia, the largest cluster of emerging markets achieved a sound 9% real growth rate. The life business witnessed at 7.4% regional growth rate after achieving a robust 10.5% real growth rate in 2003. In the medium term, life premiums in the emerging markets, as a whole, are expected to keep on growing at around 8% per year. So far as non-life business is concerned, it recorded a 7.7% real average growth in 2004.

Insurance penetration in these markets has hovered around 3.9%, life premium being accountable for 2.4% and non-life for the remaining 1.5%.

 

The insurance scene in India is changing rapidly. Those of you who have been watching the Indian economic scene would have noticed the rapid changes taking place in the financial sector. It is worth recalling that life insurance industry was nationalized in 1956 followed by nationalization of general insurance industry in 1970s.

The government’s resolve to encourage private sector participation in insurance is fully reflected in the IRDA Act which provided for the creation of a regulatory authority independent of the government. This independence of the regulator from Government control is meant to send a clear signal to private sector entities that they are assured of free and fair treatment and that they can operate on a level playing field. The Authority’s role is that of a neutral umpire regulating both the public and private sector insurers in a transparent manner through a uniform set of regulations. The Authority is vested with the powers to grant licences to insurers and intermediaries and overseeing their activities for safeguarding the interests of the policyholders. The IRDA has, since its creation, tried to carefully guide the reopening of the insurance sector to market competition. It has always believed in openness and transparency and has followed the practice of prior consultations with various stakeholders before notifying the regulations. The regulations have been drawn up keeping in view the Insurance core principles, guidance papers and standards set out by the IAIS. This has resulted in broad acceptance of the regulations by the various constituents of the market both within and outside the country. The intention is to regulate the market on globally accepted standards.

In the area of supervision of insurers, we realize that supervisory philosophies vary from country to country. We have adopted a prescriptive model rather than an indicative model primarily for two reasons. Insurance activity is regulated based on an Act passed way back in 1938 and some of the rigidities arise out of the provisions contained in the Act. When the sector was opened up in 2000, adequate time was not available to overhaul the provisions of this Act to bring them on line with the developments that have taken place over the years. The second and perhaps, a more compelling reason is the none too happy experience of failure of companies that resulted in the demand for nationalisation of insurance activity in the early 1950s.

We are aware that, however well intentioned, too much of regulation has the potential to compromise competition and to condone and even endorse unwanted entry barriers, restrictive practices and other anti-competitive measures. To achieve an optimum market structure some trade off between security and competition is essential.

As the years go by and the Authority and insurers acquire a deeper understanding of the market and the manner in which it operates it should be possible to allocate greater responsibility to the insurers in the area of market conduct and protect consumers’ interests by concentrating on solvency of the insurer.

I have placed before you how the reforms process in the insurance sector has transformed the Indian insurance scene. I have no doubt in these three days we will have the opportunity to learn from the experiences of other nations. I do hope that this interaction would result in a more determined effort at bringing the benefits of insurance to a large section of population in these two continents that have not so far benefited from the protection that insurance confers on them.