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Domestic Systematically Important Insurers

 

D-SIIs: Relevance

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

 

Context

  • 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.

 

What is D-SII?

  • 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: Too Big to Fail

  • 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.

 

Domestic Systematically Important Insurers_40.1

 

D-SIIs responsibilities

  • 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.

 

D-SIIs parameters

  • 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.

 

About IRDAI

  • 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.

 

Domestic Systematically Important Insurers_50.1

 

IRDAI composition

  • 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.

 

IRDAI missions

  • 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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