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com/blog/insurance-industry-12-trends-for-2019
https://www.pwc.com/us/en/industries/insurance/library/top-issues.html
https://www.researchgate.net/publication/258255633_Risk_Management_in_General_Insurance_B
usiness_in_India
http://www.bimabazaar.com/understanding-of-risk-management-processes-applicable-to-indian-
life-insurance-sector
UNDERSTANDING OF RISK
MANAGEMENT PROCESSES
APPLICABLE TO INDIAN LIFE
INSURANCE SECTOR
1. Introduction:
First of all we need to look at the how Risk Management Module presently involved in
the processes presently functioning &/or adapted by Indian Life Insurance companies at
the back drop of the following aspects:
i. Indian Life Insurance Penetration & Density:
ii. Indian Life Insurance companies;
iii. Indian Insurance Premium mix Sector wise / Company wise;
iv. Concept, Definition, Theory and Penetration of Traditional & Enterprise Risk
Management;
v. Risk Management Framework as implemented by the Regulator, IRDA.
vi. Comparison with Global/International Market Regulations;
vii. Steps to be ensured improving steps desired;
viii. Future to the fore.
To create the level playing field IRDA had prescribed uniform accounting system and
regulation of investment & various other related financial aspects, as being equally
applicable on all life insurance companies – be private or public (i.e. Govt. run). Of course,
various other important factors of Financial Risk Management processes being adopted
in Indian life insurance market in this current era, are also being implement in proper
means & methods – like adherence to Accounting Standards, adopting the techniques of
Financial analysis, proper application of financial Management concept, implications of
Anti money laundering Act, compliance of IFRS – all these are also of prominent
significance on the operating result of a life insurance – even after resorting to prudent
underwriting norms & its proper application.
The importance of Corporate Governance has received emphasis in recent times since
poor governance and weak internal controls have been associated with major corporate
failures. It has also been appreciated that the financial sector needs to have a more
intensive governance structure in view of its role in the economic development and since
the safety and financial strength of the institutions are critical for the overall strength of
the financial sector on which the economic growth is built upon.
As regards the insurance sector, the regulatory responsibility to protect the interests of
the policyholders demands that the insurers have in place, good governance practices for
maintenance of solvency, sound long term investment policy and assumption of
underwriting risks on a prudential basis. The emergence of insurance companies as a part
of financial conglomerates has added a further dimension to sound Corporate
Governance in the insurance sector with emphasis on overall risk management across the
structure and to prevent any contagion.
2 The Insurance Regulatory and Development Authority (IRDA) has outlined in general
terms, governance responsibilities of the Board in the management of the insurance
functions under various Regulations notified by it covering different operational areas. It
has now been decided to put them together and to issue the following comprehensive
guidelines for adoption by Indian insurance companies.
These guidelines are in addition to provisions of the Companies Act, 1956, Insurance Act,
1938 and requirement of any other laws or regulations framed there under. Where any
provisions of these guidelines appear to be in conflict with the provisions contained in
any law or regulations, the legal provisions will prevail. However, where requirements of
these guidelines are more rigorous than the provisions of any law, these guidelines shall
be followed.
3. The objective of the guidelines is to ensure that the structure, responsibilities and
functions of Board of Directors and the senior management of the company fully
recognize the expectations of all stakeholders as well as those of the regulator. The
structure should take steps required to adopt sound and prudent principles and practices
for the governance of the company and should have the ability to quickly address issues
of non-compliance or weak oversight and controls.
These guidelines therefore amplify on certain issues which are covered in the Insurance
Act, 1938 and the regulations framed there under and include measures which are
additionally considered essential by IRDA for adoption by insurance companies.
4. The guidelines accordingly address the various requirements broadly covering the
following major structural elements of Corporate Governance in insurance companies:-
1) Governance structure.
2) Board of Directors.
3) Control functions.
4) Senior management:
a. CEO & other senior functionaries.
b. Role of Appointed Actuaries.
c. External audit – Appointment of Statutory Auditors.
5) Disclosures.
6) Outsourcing.
7) Relationship with stakeholders.
8) Interaction with the Supervisor.
9) Whistle blowing policy.
B. By the instruction to the ceos of all insurance and reinsurance companies irda vide
circular ref. No. : Irda/sdd/ Misc/Cir/009/01/2013, dated 22-01-2013 introduced
insurance fraud monitoring framework introduced as risk management measures :
Under the Regulatory Framework put in place for insurance companies, the Authority has
stipulated a number of measures to be taken by insurance companies to address the
various risks faced by them. Some of these include:
The Guidelines mandate insurance companies to put in place, as part of their corporate
governance structure:
(i) Fraud detection and mitigation measures; and
(ii) Submit periodic reports to the Authority in the formats prescribed herein.
All insurers are required to ensure that the risk management function is organized in such
a way that the insurer is able to monitor all the risks across all lines of business on a
continuing basis and to initiate measures to address them suitably.
As fraud can be perpetrated through collusion involving more than one party, insurers
should adopt a holistic approach to adequately identify, measure, control and monitor
fraud risk and accordingly, lay down appropriate risk management policies and
procedures across the organization.
The Board shall review the Anti Fraud Policy on atleast an annual basis and at such other
intervals as it may be considered necessary.
v. Due Diligence:
Lay down procedures to carry out the due diligence on the personnel (management and
staff)/ insurance agent/ Corporate Agent/ intermediary/ TPAs before appointment/
agreements with them.
As per the provisions of Section 211(3B) of the Act, where in the preparation of Profit &
Loss Account and Balance Sheet any deviation has been made from the accounting
standards; such deviation has to be disclosed in the Profit & Loss Account and Balance
Sheet. In addition, this sub-Clause requires the deviations to be also reported in
Corporate Governance Report in more representative of the true and fair view of
underlying business transaction.
The composition and category of the Board of Directors of the Company. For example-
promoter, executive, non-executive, independent non-executive, nominee director, etc. and which
institution represented as lender or as equity investor.
Attendance of each director at the Board meetings and the last Annual General Meeting
and information relating to the number of Boards or Board Committees in which he/she is a
member or Chairperson.
Number of Board meetings held, dates on which held.
B.3. Information about Audit Committee:
Information with brief description of terms of reference given to the Audit Committee.
Composition, name of members and Chairperson of the Audit Committee.
Details of the meetings of Audit Committee held and attendance of the members during
the year.
B.4. Remuneration Committee:
Location and time, where last three Annual General Meeting held.
Whether any special resolutions passed in the previous 3 Annual General Meeting.
Whether any special resolutions passed last year through postal ballot – details of voting
pattern.
Whether any special resolution is proposed to be conducted through postal ballot.
Procedure for postal ballot.
B.7. Various Disclosures:
Disclosures on materially significant related party transactions that may have potential
conflict with the interests of company at large
Details of non-compliance by the company, penalties, strictures imposed on the company
by Stock Exchange or SEBI or any statutory authority, on any matter related to capital markets,
during the last three years.
Whistle Blower policy and affirmation that no personnel has been denied access to the
Audit Committee.
Details of compliance with mandatory requirements and adoption of non-mandatory
requirements of this clause.
B.8. Information about General Shareholders:
The policies are reviewed regularly keeping in tandem with the developments taking
place from time to time and the volatile corporate scenario.
The main risk manger in this case is the underwriter who’s function is to look at the
applications received for grant of insurance cover; as such these applications are
assessed, checked, thoroughly scrutinized and finally their risk is classified after arriving
at a befitting and adequate premium, matching to the risk those policies bring into the
portfolio of the life insurer.
References:
Different contemporary discussions & information as collected & collated from various
text materials – as available in hard & soft form.
INDIAN LIFE INSURANCE INDUSTRY: PROMOTING
INNOVATION & CREATIVITY FOR GROWTH & DEVELOPMENT
REPORT OF THE COMMITTEE RECOMMENDATION FOR
CURBING MIS-SELLING AND RATIONALISING DISTRIBUTION
INCENTIVES IN FINANCIAL/LIFE INSURANCE PRODUCTS
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