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India’s IRDAI to delay reinsurance order of preference regulations

20th February 2018 - Author: Steve Evans

The Insurance Regulatory and Development Authority of India (IRDAI) has reportedly delayed the setting of new regulations, part of which would have confirmed that its nascent domestic market has preference in reinsurance placements.

India map and flagAccording to Christopher Croft, Chief Executive of the London & International Insurance Brokers’ Association (LIIBA), lobbying to prevent the setting of a rule giving domestic Indian reinsurers preference when it comes to reinsurance placements has been successful.

The order of preference was first put in place in 2016, but new proposed regulations raise the profiel of this issue again.

Croft said that lobbying for free trade by the World Federation of Insurance Intermediaries, of which LIIBA is a member, preceded the decision by IRDAI to delay the proposed regulation, which had been expected to be enacted later this month.

The proposed regulations from IRDAI would have seen Indian reinsurers continuing to get first order of preference for placements of reinsurance business, but the legislation would have been waived for a number of major re/insurance lines.

The draft proposals stated that first preference would have been given to Indian reinsurers that had been transacting business for at least three continuous years (so GIC Re) and then to other Indian reinsurers. Next in line for Indian reinsurance placements would have been branches of foreign reinsurers and then Cross Border Reinsurers (CBRs).

With exceptions for certain lines of business, waiving preference of order regulation for: aviation, life insurance, marine hull, large infrastructure projects, petrochemical and refinery plants, large power plants, oil and energy, cyber risk and climate change risk.

But now the regulations have been delayed, according to Croft, suggesting that a rethinking of the proposed order of preference for reinsurance placements in India could be on the cards.

This is positive for reinsurers looking to underwrite Indian risks, but also for India itself as such protectionism harms the ability of reinsurance markets to disperse and diversify risks, potentially resulting in concentrations of risk within one country.

Having global reinsurers operating in the country is in India’s favour, as it will help to bolster its economy and develop new insurance lines for its people. Controlling and aggregating risks within its own reinsurers could result in dangerous risk concentrations and removes one of the main selling points of a functioning reinsurance market, that risk is distributed and diversified among many underwriting parties.

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