Assess resilience of reinsurers for risk concentration: RBI

1443473479-765There is a need to assess the resilience of reinsurance companies, with increasing concentration of contingent liabilities in some, says the Financial Stability Report.

If major ‘risk events’ happen simultaneously, these companies might come under heavy stress.

Which could create big problems, including a risk of insolvency, for primary insurance companies, it said.

Reinsurance is where primary insurance companies themselves buy insurance for the risks they cannot retain entirely with themselves, from one or more insurance companies (reinsurers).

There is only one reinsurer in the country, the General Insurance Corporation of India (GIC Re), owned by the government.

GIC Re reported a solvency ratio of 3.04 at end-March 2015 (2.73 a year before this). However, foreign reinsurance entities also do business here, though they have no branch presence. The report’s reference is to these, too.

Many foreign reinsurers have applied to the sector regulator for a branch presence in the country.

The new insurance laws have allowed this but there is a new norm (to be reviewed after 12 months) that first preference for treaties will be given to GIC Re.

Reserve Bank of India (RBI) publishes the FSR report on behalf of Financial Stability and Development Council.

Apart from this, the FSR report also suggested offering green insurance as a cover to help in internalisation of environmental costs by the companies.

It said that green insurance helps in mitigating and managing environmental and ecological risks.

Such insurance policies cover potential liabilities arising from the pollution of water, land or air or collateral damages to the ecology and environment by policyholders.

These policies will not only help in providing indemnities for ecological and environmental losses but will also help in the restoration of ecological damages.

This is more than the case when the compensation for third party large losses (more than Rs 25,000) is currently not covered by extant insurance products under the Public Liability Insurance Act 1991, said the FSR report.

Check misselling by banks, if any: FSR

Any possibility of misselling, especially by banks, should be looked into, said the Financial Stability Report (FSR) published by Reserve Bank of India.

The report said that this needs to be checked in in the light of reported attractive performance-linked incentives for bank staff and management.

Distribution of insurance products by banks is popular is world over. In India, bancassurance model is followed where a bank can now tie-up with three life, three non-life and three standalone health insurance companies.

While earlier banks who were promoters of insurance companies were reluctant to open up to other insurers, now many banks have entered into agreements with other insurance companies as well to sell their products.

Mis-selling in common parlance refers to unfair or fraudulent practices adopted at the time of soliciting and selling insurance and generally includes selling policies which have not been sought by the customer or which are different from what the customer wanted or was promised or where the product offered for sale is not suitable to the needs of the customer.

The FSR report said that insurance selling by banks can provide very useful fee based income and can positively impact profitability.

It added that while this may be seen as complementary to the core banking business leveraging the banks’ relationship with customers by offering a wide spectrum of financial services under one roof, any misselling possibilities should be looked into.

Curated from Assess resilience of reinsurers for risk concentration: RBI

You may also like...