IRDA sees 2009 as year of consolidation for insurance indust

The insurance regulator has said it sees consolidation in the insurance industry in 2009. The regulator is also concerned over the finances of non-life companies and is talking to ICAI to assess the audit framework for all insurers in the wake of the Satyam scandal. Speaking to ET, IRDA chairman J Hari Narayan said the phase of consolidation is set to begin and the regulator will soon come out with guidelines for mergers and acquisitions in the insurance industry. Industry watchers feel the consolidation could be triggered by global M&A, involving partners of Indian players, or by resistance by Indian promoters to put in more capital, either because of a fall in valuations, or because of their own capital constraints. The regulator is keeping a watchful eye on insurance ventures with troubled international giants are partners. “We review these companies every quarter to ensure their financial soundness. As of now, there is no cause for worry,” assured Mr Hari Narayan. Expressing concern over the finances of the non-life industry, Mr Hari Narayan said: “We are concerned about the financial position of the non-life insurance companies in the country. The policy holders should be covered with sound insurance by financially strong companies. We are having an internal discussion and will come out with some strategies to deal with this situation soon.” Although the insurance industry has done a good job in increasing insurance penetration and growing the business, many companies are yet to make profits. In the life industry, even eight years after opening up, only one company has made profit. Most non-life companies continue to make an underwriting loss, which means that their claims payout is in excess of premium collection. In the light of the recent Satyam scam, where auditors failed to detect irregularities, IRDA is working with the Institute of Chartered Accountants of India (ICAI) to assess the existing framework and spruce up the same, if required. “We have opened a discussion with ICAI to assess the strengths and weaknesses of the current systems. We will be coming out with something in the next few months. The role of auditors is defined by the law and hence, we can’t redefine their role in the insurance sector.” The IRDA chief, however, added that the regulator wants to ensure that auditors do a responsible job and give an accurate picture of the insurance companies’ financial position. At present, two auditors conduct a joint audit of insurance companies as a part of the checks and balance structure. In addition, every insurance company has an appointed actuary, who has access to all information and related documents of the company, and has to verify that assets are enough to meet liabilities. The actuary’s task entails attending board meetings and keeping a track of the company’s solvency position. – www.economictimes.indiatimes.com