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Captive insurance units will help corporates, says Assocham

The Associated Chambers of Commerce and Industry of India has suggested incorporation of ''captive'' insurance subsidiaries in the Insurance Regulatory Act to help corporates insure their own risk and allow direct access to the reinsurance market.

The Assocham has also recommended introduction of wider insurance covers and abolition of ''rigid'' tariffs to help market growth and global integration of India's insurance sector.

Assocham president K P Singh, while releasing the chamber paper on ''Globalisation, Integration of Indian Insurance and Risk Management" on May 19 in New Delhi, said, ''Internationally, during the last few years, an increasing number of companies are forming ''captive'' subsidiaries to encourage sound risk management practices in their concerns. There is a trend of insurance premium being diverted to alternative risk financing market through ''captives'' and other self-insurance facilities.''

Calling for major reforms in the functioning of the Tariff Advisory Committee, the Assocham chief said, whereas the insurance buyer is eager to get the benefits of the wider covers available elsewhere, the TAC has been very slow to react to this new demand. This unacceptable situation needs to be corrected.

Foreign and private insurers, as and when licensed to operate, will also find the ''rigid'' tariffs to be a stumbling block in competition in the way of market growth and free flow of ideas and innovation. Hence, global integration will require flexibility in the tariff premium rates, if not complete abolition, he said.

The first step is to have representatives of users in the TAC. Next TAC's role should be made ''advisory'' through legislation. Thirdly, TAC should develop premium/claims experience data and review rates of periodical intervals.

The Assocham chief suggested the introduction of wider insurance covers in India such as all risks policy: catastrophe insurance, policies with high deductibles, first loss cover, etc. These covers are available throughout the world including Bangladesh, Sri Lanka and Pakistan.

The rates of premium are also much lower in these countries. General Insurance Corporation and its four subsidiaries need to definitely make a beginning in introducing wider cover policies, as available in the neighbouring countries, Singh said.

With liberalisation of the insurance sector round the corner, it is necessary, Singh said, to free the sector from the Comptroller and Auditor General as the IRA will do the supervision. The CAG ''audit fear'' has completely eliminated all initiatives in the insurance sector due to fear of being put to difficulties at a later stage. Stray complaints, imputing motives, anonymous letters have ruined the peace of mind of many a thorough professional, Singh observed.

The result is that a vast organisation of highly efficient and professionally competent people find themselves tied to rigid rules in a business which, throughout the world, is run on purely commercial and market-oriented methods.

In the absence of good broking firms, there is no technically-oriented middleman between the insurance and the insured in India. There are several good consultants who are helpful from the ''tariff'' point of view.

But with the advent of liberalisation and availability of international wider-covers, it will become necessary to tap the global market without the expertise of international brokers. Brokers act as the ''eyes and ears'' of the insured and perform several functions.

Today, a large number of the insured in India have very little knowledge and grasp of the insurance policy provision, conditions and requirements, he said.

UNI

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