The Insurance Brokers' Association of India, responding to proposed reinsurance regulations, has called for the "immediate cancellation and repeal of the order of preference regulation which is regressive, anti-policyholder and anti-competitive" .
The association wrote to the outgoing IRDAI Chairman TS Viyajan on 1 February, listing its concerns with the draft regulations. The IRDAI is set to issue the finalised reinsurance regulations by the end of this month while Mr Vijayan is due to retire on 21 February.
BloombergQuint, citing an IRDAI official, reported that India’s largest reinsurer, GIC Re, may retain its first preference in several areas of business if draft regulations proposed by an expert committee last November are accepted by the insurance regulator. The second preference is likely to be given to foreign reinsurance branches (FRBs) in India, while the third preference, in case both Indian reinsurers and the FRBs refuse, could go to cross-border reinsurers (CBRs), the official said.
BloombergQuint, which has accessed a copy of the letter by the brokers' association, said that the concerns that were listed by the association included:
- Reinsurance costs would go up due to limited competition.
- Unfair regulatory treatment for CBRs will deter them from participating in the Indian market, as they will not be allowed to participate even if they offer the best terms, unless Indian reinsurers and FRBs refuse.
- CBRs which are group companies of FRBs cannot be approached for treaty business and other specialised lines of business like trade credit, cargo, energy and aviation, except for large property and liability risks.
- The need for global reinsurance for the government’s crop insurance scheme as the risk carried is huge and there could be a shortage in reinsurance capacity if all of it is retained locally.
- Product innovation will be affected as the risk will be will be shared by a few preferred reinsurers.
- Reinsurance brokers play a proactive role in the Indian insurance market. That’s likely to be significantly marginalised.
“This is more likely to hurt clients rather than brokers,” Mr Rohit Jain, head of insurance broking firm Willis Towers Watson in India told BloombergQuint. If the proposed preference rules are accepted, “clients will not be able to enjoy the same freedom in pricing from the international markets as they have earlier,” he said.
In addition, the rules could result in higher prices for policyholders, according to Mr Rajesh Yagnik, practice head – reinsurance and aviation at JLT Independent Brokers.
The IRDAI official said however that the preference regulations could, in fact, lower prices by reducing the role of brokers. Earlier, the monopoly of allocating risk with global reinsurers rested with brokers and they gave business to whoever paid them a higher brokerage. Insurers will now directly approach the foreign reinsurance branches in India, he said.