Domestic Systematically Important Insurers

Table of Contents

D-SIIs: Relevance

GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

IRDAI (Insurance Regulatory and Development Authority of India) has recently said that LIC, GIC Re and New India has been retained as Domestic Systemically Important Insurers (D-SIIs) for 2021-22.

Domestic Systemically Important Insurers (D-SIIs) refer to insurers of such size, market importance and domestic and global inter connectedness whose distress or failure would cause a significant dislocation in the domestic financial system.
Therefore, the continued functioning of D-SIIs is critical for the uninterrupted availability of insurance services to the national economy.

D-SIIs are perceived as insurers that are ‘too big or too important to fail’ (TBTF).
This perception and the perceived expectation of government support may amplify risk taking, reduce market discipline, create competitive distortions, and increase the possibility of distress in future.
These considerations require that D-SIIs should be subjected to additional regulatory measures to deal with the systemic risks and moral hazard issues.
D-SIIs will also be subjected to enhanced regulatory supervision.

Given the nature of their operations and the systemic importance of the D-SIIs, these insurers have been asked to carry out the following:
- Raise the level of corporate governance;
- identify all relevant risk and promote a sound risk management culture.

The Insurance Regulatory and Development Authority of India (IRDAI) has developed a methodology for identification and supervision of D-SIIs. The parameters include:
- the size of operations in terms of total revenue
- global activities across more than one jurisdiction;
- lack of substitutability of their products and/or operations; and
- interconnectedness through counterparty exposure and macro-economic exposure.

Insurance Regulatory and Development Authority of India (IRDAI), is a statutory body formed under an Act of Parliament, i.e., Insurance Regulatory and Development Authority Act, 1999 (IRDAI Act 1999) for overall supervision and development of the Insurance sector in India.
It has been set up under Ministry of Finance.

The Authority is a ten-member team consisting of
- a chairman;
- five whole-time members;
- four part-time members,
Where all the members are appointed by the Government of India.

To protect the interest of and secure fair treatment to policyholders;
To bring about speedy and orderly growth of the Insurance industry, for the benefit of the common man, and to provide long term funds for accelerating growth of the economy;
To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates;
To ensure speedy settlement of genuine claims, to prevent Insurance frauds and other malpractices and put in place effective grievance redressal machinery;
To promote fairness, transparency and orderly conduct in financial markets dealing with Insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players;
To take action where such standards are inadequate or ineffectively enforced;
To bring about optimum amount of self-regulation in day-to-day working of the industry consistent with the requirements of prudential regulation.

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