IRDA against Basel-II norms for insurance industry. Is IRDA's stand right???

Following is the artilce in today's newspapers.

IRDA against Basel-II norms for insurance industry

The Insurance Regulatory and Development Authority (IRDA) indicated that it was against implementing a mark-to-market regime for the valuation of investments of insurance companies.

Speaking to The Hindu on the sidelines of a conference of insurance brokers in Bangalore here on Monday, J Hari Narayan, Chairman, IRDA, said “the current climate of volatility in the markets is not conducive to implementing the Basle-II norms governing investment valuations.” “We have a problem with the Basle-II norms,” he said. The regulator’s “nervousness” stems from the fact that 60 per cent of the policies were unit-linked, which were affected by the vagaries of the stock markets, he said.

Mr. Narayan said life insurance companies would be expected to migrate to the market consistent embedded value (MCEV), a method which estimates the future profits of a company on the basis of its past premium income.

“A guidance note for insurers will be issued soon,” he said. Asked whether policyholders’ funds would be included for valuation of insurance companies planning initial public offerings (IPO), Mr. Narayan said, “We are consulting actuaries on this.”

Mr. Narayan said agents’ commission should “be embedded in the premium paid by customers.”

Earlier, delivering the keynote address at the annual summit of the Insurance Brokers Association of India (IBAI), Mr. Narayan said “The phase of break-neck speed of growth of the insurance sector is over.”

Observing that there “are concerns over whether the pace of growth of the stock markets is sustainable,” he said, “The Indian insurance industry can at best register a compounded annual growth rate of ten per cent in the next 5-6 years. He pointed out that insurance coverage, on a per capita basis, was relatively low when compared with countries like Malaysia. “About 30-40 per cent of the Indian population ought to be the prime target for future growth of the industry,” he observed.

Referring to the complaint by the IBAI President Bharat Boda that there has been “undue delay” by the IRDA in renewing licences of brokers, Mr. Narayan said the regulator found “a pattern of inadequacies” in the renewal applications still pending with it. “The IBAI ought to pay more attention to these inadequacies,” he said.

Dismissing the demand by brokers that the “wordings” in policy documents should be left to clients, the companies and policyholder, Mr. Narayan said, “Brokers cannot pick and choose elements that are convenient for them.” “The regulation on wording is aimed at maintaining consistency in interpretation,” he said.