India appoints outsider to lead Irdai

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India has appointed an insurance outsider to oversee regulation of the industry. Subhash Chandra Khuntia, who becomes the fifth chairman of the Insurance Regulatory and Development Authority of India (Irdai), is a government bureaucrat and former chief secretary of Karnataka, the country’s seventh-biggest state and home to Bangalore.

The post had been vacant since February 20, when TS Vijayan stepped down after the completion of his five-year term. The former chairman of Life Insurance Corporation, Vijayan was the first industry veteran to run Irdai, so the appointment of Khuntia is a return to the regulator’s tradition of outside leadership, which is common to many industry regulators in India.

He will have a steep learning curve. The merger of National Insurance, United India and Oriental India and subsequent initial public offering is expected to take place during the coming year and will create a company with roughly one-third of the country’s non-life market.

In addition to the three-way merger, the finance ministry is said to be keen to push for further consolidation among state-owned insurance companies. One official was quoted in local media saying that “cash-rich insurers may be asked to buy out the smaller ones where there is operational synergy�.

More generally, the regulator is expected to drive much-needed industry modernisation.

“How to internalise digitisation in the insurance process for the benefit of the customer will be the thing,� Vijayan told reporters on the sidelines of a conference prior to his departure, emphasising that developments such as big data and analytics represent significant opportunities. “Pricing will be better and products will be better. So, adopting it is going to be increasingly important.�

Some of the digital challenges Khuntia may face were highlighted last week when it was reported that the country’s biometric identity programme, Aadhaar, which is linked to insurance policies, has been compromised by hackers who are selling software that allows anyone to add entries to the database or modify existing entries.

Khuntia won the race to become Irdai chairman from a field of eight candidates, with various industry and political figures said to be in contention, including New India Assurance chairman Gopalan Srinivasan and Life Insurance Corporation chairman Vijay Kumar Sharma.

However, given the agency’s history of leadership by outsiders Khuntia was an early favourite alongside former corporate affairs secretary Tapan Ray, having retired from his job as Karnataka chief secretary in November, after one year in the position. He had been a lifelong civil servant before that with the Indian Administrative Service (IAS).

The previous three chairmen — N Rangachary, CS Rao and Hari Narayan — were all former bureaucrats. Rao and Narayan were both from IAS and Rangachary was from the Indian Revenue Service.

This preference for bureaucrats is motivated by a fear that regulators from within the industry are more likely to be captive to vested interests. Of course, it is debatable whether the appointment of non-specialists is an effective solution to this — a lack of industry knowledge might arguably make them more dependent on vested interests for guidance.

Khuntia’s predecessor certainly managed to implement some important reforms in the face of opposition from vested interests. He oversaw the passage of a new insurance law that allowed foreign insurers to increase their ownership stakes from 26% to 49% and granted foreign reinsurers the option to open branches in the country.

Both measures could have gone further. Foreign insurers would have liked to see the removal of the requirement for local insurers to be “Indian owned and controlled�. And domestic reinsurers were given preferential status under the new regulations, which stipulate that domestic reinsurers are offered all cessions first, before they are offered to foreign reinsurers.

Khuntia has said that he will focus on educating the population about the benefits of insurance. “The emphasis has to be on developing the sector,� he was quoted as saying in the local press. “Insurance penetration is still very low in the country.�

Few would disagree with such an objective. The real question, however, is about how to achieve it.

This post was syndicated from InsuranceAsia News. Click here to read the full text on the original website.

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