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Insurance companies are now expected to have a quicker and easier means of settlement of inter-company balances, with the ‘Insurance Clearing House’ being set up. Insurance Regulatory and Development Authority (Irda) has proposed this would act as a clearing house for these transactions.
In a draft proposal released recently, Irda said that the inter-company balances in reinsurance and coinsurance business are at a very high level and have been on a constant rise. To enable timely and effective reconciliation of these balances and also to achieve transparency, the clearing house would be established.
Insurance Clearing House (ICH) is an institution that is granted certificate of registration as per the provisions of these guidelines to act as a clearing house for reconciliation and settlement of inter-company balances. Electronic Transaction Administration and Settlement System (ETASS) will be an electronic platform deployed by the ICH for clearing house operations.
K K Mishra, CEO, Tata AIG General Insurance said, “This is a positive step for the industry. At the end of the day, reinsurance and coinsurance are the normal business of General Insurance companies and form bloodlines. The industry is ready for it and will enable us to have a consolidated group to undertake the transactions, in a scientific manner.”
ETASS will have the objective of providing an electronic platform on which reinsurance and coinsurance business in India is conducted by all parties to these transactions including insurers, reinsurers, and brokers among others. The ICH will have a chief executive officer and compliance officer to enforce its business objectives.
Insurance experts said that once the clearing house is set up, it will enable them to settle balances without any conflicts. “Some settlements involve a lot of complexity, since different companies operate on different platforms. With the ICH being set up, this will be the singular platform for the transactions,” said a senior private life insurance executive.
Coinsurance contracts too, will come under this ambit. The chief executive of a general insurance firm explained that this will help them in settling customer dues in a quicker manner, since payment related issues between companies will be settled quicker. Unlike countries abroad, experts said that in co-insurance agreements in India, clients do not have to deal with multiple insurers. They only make payments and collect claims from the Lead Insurer.
Sanjay Datta, head of underwriting and claims, ICICI Lombard General Insurance said, "Though clients only deal with the Lead Insurer, there could be some inter-company accounting issues with respect to claims and the premium coverages. With ICH being set up, all transactions will become automated."
After this draft is finalised, all the Insurers and Reinsurers intending to do Reinsurance/Coinsurance business would be required to be members of the ICH.
Money markets already have a clearing house for their transactions. The Clearing Corporation of India Ltd. (CCIL) was set up in April, 2001 for providing exclusive clearing and settlement for transactions in Money, GSecs and Foreign Exchange
