Page 46 - India Insurance Report 2023- BIMTECH

34 India Insurance Report - Series II

further defines an “Insurer” that means: “An Indian Insurance Company” which means an “insurer” whose
sole purpose is to carry on ‘life insurance’ or ‘general insurance’ or ‘reinsurance’ or ‘health insurance
business, and a foreign company engaged in reinsurance business through a branch established in India.

Following the Act changes, there are different licensing requirements for ‘insurers’, ‘Indian reinsurers’
and ‘foreign reinsurance branches’ – in terms of capital requirements. The regulatory license determines
the nature of business an entity can undertake – whether insurance or reinsurance. Therefore, a regulatorily
licensed ‘Indian Insurance company’ for insurance business (life/general/health), as opposed to a regulatorily
licensed “Indian Insurance Company” (reinsurance) allowed to do ‘inward reinsurance business’ is
apparently following a different trajectory vis a vis primary insurance law. What is increasingly clear is
that GIC Re is the preferred entity, and the new competitors are struggling for a level playing field.

The Regulations do not distinguish between an insurer and a reinsurer, and therefore a significant
portion of the Regulations that apply to insurers also apply to reinsurers. This creates an unnecessary
Regulatory and Compliance burden, which currently deters a lot of the international insurers and
reinsurers from setting up in India.

2.1.2. Obligatory Cession

The government, in consultation with IRDAI, continues to allow mandatory cessions to the GIC
Re of all cessions from the direct non-life insurers, which is an anachronism from a principle-led framework
perspective.

2.1.3. Order of Preference / Right of First Refusal Regime

The regime involves the protection of GIC Re, besides inhibiting the introduction of cutting-edge
reinsurance products and healthy practices. The foreign reinsurers will not share their ‘IPR’ with GIC
Re, thus compromising the development of a dynamic reinsurance market in India. It does not help
create level-playing field. The regime has seen many versions starting from the IRDAI Exposure draft of
7 April 2015. There is a ‘value at risk’ for the Indian insurers/ Indian clients as the regime is long
winding, as time is of the essence for placing large value risks in the reinsurance markets. The ‘ultimate
Indian customer’ will be deprived of cutting-edge products and competitive pricing. Thus, this regulatory
provision has the impact of denying the Indian policyholder the legitimate protection of its interests,
something the Insurance legislation/regulations swear to protect. In addition, such an order of preference
at various levels of the local market could result in a risk of excessive aggregate exposure for Indian
catastrophes retained within India, far from what is optimal from a geographical risk diversification
perspective, which is the remit of a good reinsurance protection - to export risks out of India on best
commercial terms.

Policymakers also need to consider whether the desired outcome of the Order of Preference
Regulations was achieved since its implementation in 2016. Aside from the initial batch of foreign
reinsurance branches, there has not been any interest or applications from foreign reinsurers to set up in
India. Therefore, is the Order of Preference Regulations still relevant?