The Insurance Regulatory and Development Authority is planning to come up with a corporate governance code in line with that of market regulator, the Securities and Exchange Board of India.
"When IRDA framed the guidelines, it was consistent with international standards. But corporate governance is an issue that has to be looked into," IRDA chairman C S Rao said on the sidelines of an international insurance summit in New Delhi.
He said the guidelines will make the board of directors accountable to the day-to-day functioning of insurers.
"It has to be harmonised with SEBI's corporate governance guidelines," he added.
Earlier, the two regulators have coordinated in framing investment norms for insurers especially in derivative products.
On the need for a super-regulator, Rao said: "It was up to government to decide. Today, we have the High-Level Committee on Capital Markets that has representation from all the regulators."
He said the regulators in emerging markets need to gradually harmonise their regulations to international standards as laid down by the International Association of Insurance Supervisors, as physical barriers were fast disappearing with the growth in trade and commerce.
Rao admitted that minimum capital requirement for Indian companies were deliberately kept high at Rs 100 crore (Rs 1 billion) to ensure that only serious and top quality companies enter the country.
IRDA to clamp down on agents offering rebates
The IRDA has also warned agents which are flouting rules by offering rebates to boost sale of insurance products and said there will be no further review on the new rates of agency commission and brokers remuneration that comes into effect from April 1.
"Rebating is totally against law. We will take action against agents who are offering rebates in cash or kind if we come across such incidence," IRDA chairman C S Rao said on the sidelines of an insurance summit here today.
He said IRDA can cancel the licence of the agent or ask the insurers to discontinue such agency.
There have been incidents of agents offering special rebates in the form of colour TVs and other freebies to allure consumers in some parts of the country.
"The remedy should come from policyholders," the IRDA said, adding that agents who are offering rebates may lack better quality service.
IRDA also thumbed down general insurance industry's demand for another review of the rates of agency commission and brokers remuneration.
"The guidelines have been already reviewed. I don't think there is any need for further review."
The IRDA had come up with a clear cut guideline of agency commission and brokers remuneration last week, which among other things allowed companies with a capital of Rs 0.1-3.0 crore (Rs 1 million-Rs 30 million) to bargain for a special discount of 5.0 per cent when they cover their risks directly with an general insurer.
IRDA for tax breaks on CAT fund
Voicing industry's concerns, the IRDA has favoured tax exemptions on funds kept aside by insurers for building a catastrophe reserves.
"The funds that are being kept aside for catastrophe reserves should get tax exemptions," IRDA chairman C S Rao said on the sidelines of a insurance summit in New Delhi.
At present, the general insurers have build a CAT fund of about Rs 350 crore to cover major risks related to natural calamities like earthquake, floods and cyclones that revisit the country every year.
Although the insurers are keeping idle a portion of their excess funds for this purpose, they are not getting tax breaks. This increased their cost of holding the funds.
The insurance regulator has also resented the Central Board of Direct Taxes decision to seek payment details of all policy's whose premium exceeds Rs 10,000.
Rao said the scrutiny was justified if it was on a random basis and for a specific purpose but it can not be carried out in general.
The tax authorities cited Section 133(6) in justifying their argument to seek such information from insurers but IRDA have communicated that it was not in conformity with the spirit of the rule.
"We have taken this issue with CBDT," Rao said, adding that the tax authorities have not come back to the regulator.
Insurers told to stick to rules: IPOs
The IRDA has no objection in PSU insurers participating in the recent public offers of divestment-bound companies but said they should stick to the prudential investment guidelines.
"Insurers are bound by the IRDA regulations. As long as they abide by it, we have no objection," IRDA chairman, C S Rao.
The statement from the regulator assumes importance in the wake of the heavy investments that LIC and GIC are making in the recent public offerings of ONGC, GAIL and other PSUs.
According to LIC Act, the life insurer can invest up to 20 per cent of paid-up capital of a company while IRDA rules restrict it to 5.0 per cent.
LIC has bid for 15 per cent of the public offers while GIC has bid for 10 per cent.
In ONGC alone, LIC have bid for shares worth about Rs 1,000 crore (Rs 10 billion). The figure would be over Rs 2,000 crore (Rs 20 billion) in all the companies taken together, LIC chairman S B Mathur said.
Institutional investors like LIC and GIC have been behind the resounding success of the public offers of companies like ONGC, GAIL, IPCL, IBP and CMC, from which governments expects to mop up over Rs 14,500 crore (Rs 145 billion) this fiscal.
Companies with a capital base of over Rs 3.0 crore would have the option of either availing the 5.0 per cent discount when they go for fire, petrochem, engineering and other tariff business directly with an insurer or seek the advise of brokers or agents.
In its circular to all general insurers, the IRDA also fixed the agency commission and brokers remuneration rates, which vary between 5-17.5 per cent depending on the type of risks covered and the size of the company.
The new rates will be applicable from April 1 for a period of one year.