The Day After: Industry shrugs off despair over the shock withdrawal of the IRA Bill
The immediate impact of the withdrawal of the Insurance Regulatory Authority Bill will be on the corporate sector, which was eagerly awaiting a reduction in insurance premium rates. This is because the IRA was set to take over the Tariff Advisory Committee and take up the task of rationalising tariff structure.
The withdrawal of the bill has also stymied finance minister P Chidambarams efforts to encourage General Insurance Corporation and Unit Trust of India to launch pension funds and throw open the health insurance sector for private participation.
Had the bill been passed, Life Insurance Corporation and GIC would have got much leeway in investing their surpluses. Although their investment format is determined by the government, the IRA was expected to guide the investment decisions of the two insurance giants.
A move was afoot in the finance ministry to shift the tariff advisory committee (TAC) to the IRA after the passage of the bill. The TAC, which determines and regulates tariff rates, currently functions under the GIC. The IRA had already drawn up plans to rationalise the tariff structure of industrial risk policies, which will now have to wait until the bill is reintroduced and passed.
The corporate sector has been demanding reduction and rationalisation of the premium rates. But the TAC has not been able to review the rates because the high premia charged from corporates on certain policies are used to cross-subsidise policies for the weaker sections.
The TAC has not been able to work out realistic premium rates because it comes under the influence of the finance ministry, which controls the GIC. The bill, if passed, would have made the IRA an independent statutory body and it would have been easier for it to revise premium rates.
The political influence over the TAC was evident in the fact that it took more than two years to increase motor insurance premium rates. GICs underwriting losses are attributed to the artificially low rates charged on this count.
When the rates were finally revised rates a few months ago, the government was forced to withdraw the hike following an agitation launched by truck owners. The government clearly buckled under political pressure. But had the insurance watchdog been handling the issue, this would not have been the case.
The IRA was also preparing itself to review the rules of the insurance game as a whole and make provisions for enhancing skills in the insurance sector.
The government was working on restoring full powers of the controller of insurance under the Insurance Act once the bill was passed, finance ministry sources said. Although the IRA chairman has been made the controller, he enjoys only residual powers as most of the powers have been taken away and vested in the government in the past.
The legislation would have also empowered the insurance watchdog to call for explanations from the public sector insurance companies on a variety of issues, a role currently played by the insurance division of the finance ministry.
