Indian insurers are likely to face stricter scrutiny over the assessment of their liabilities, as part of the insurance regulator's efforts to improve transparency in the industry.
The IRDAI has proposed a set of regulations on actuaries, as it wants the involvement of independent actuaries in the process, reported BloombergQuint.
“There is no statutory review of the insurance liability figures by an independent assessor to avoid any error, fraud, material misstatement in the reported liability figure, when such liability constitutes significant part of the balance sheet of the insurer. There appears to be a gap in the existing norms,” said a note released by the regulator earlier this week.
The regulator’s move to push companies to follow stricter assessment of liability and risks follows the strong growth of insurance as Indians move from physical assets to financial savings, especially after demonetisation last year.
There have been instances where insurers under-reported reserves against their liabilities, said Mr Nidhesh Jain, insurance analyst at asset management company Investec. The new regulation will ensure more transparency in reserving and increasing investors’ confidence in the numbers reported by insurance companies, he said.
Under the existing practice, the liability figures arrived at by actuaries are directly adopted by an external auditor with a qualification in the audit report that puts the onus on the creator of the data.
Once finalised, the norms will be applicable to life, non-life, health insurance companies in the country as well as reinsurer GIC Re. Hiring an external actuary will then become mandatory from March next year.
As per the draft guidelines, the external actuary cannot be over 75 years of age and should not be associated with any insurer in India. The regulator has also drafted a structure for presentation of the external actuary’s report to the board of an insurance company before the adoption of annual accounts. The report and the financial statements must be submitted within 15 days after shareholders’ approval.