The Hindu : Naidu calls for improved risk management in insurance sector

Online edition of India's National Newspaper
Thursday, Nov 28, 2002

Southern States

Southern States - Andhra Pradesh

Naidu calls for improved risk management in insurance sector

By Our Special Correspondent

HYDERABAD Nov. 27. Citing the case of Basel capital regime which links the amount big banks have to keep in reserves to the risk on loans, the Chief Minister, N.Chandrababu Naidu, emphasised the need for an "insurance Basel'' so as to better manage risks in the insurance sector and prevent collapse of insurance companies.

He was addressing participants of the two-day 7th Insurance Summit 2002 organised by the Confederation of Indian Industry (CII) here on Wednesday.

Mr. Naidu said terrorism had suddenly increased the risk in insurance business. More so in the post-September 11 period when the World Trade Centre episode caused insurance losses of US$ 19 billion (Rs.1,00,000 crores). Reflecting the risk, American President George Bush signed the Terrorism Insurance Bill providing $100 billion as US backing to insurance companies for offering terrorism coverage in their policies.

Referring to insurance company failures, he cited the example of Jamaica where a weak banking sector was exposed to a crisis in the insurance industry in 1996. Korea witnessed an interest war requiring Government intervention to prevent a run on Government guaranteed insurance liabilities in 2001. Last year, in Australia, HIH-a major insurer of builders liability collapsed disrupting the construction sector.

The past two years have been very difficult for the insurance industry with many insurers facing substantial claim payments, dwindling stock valuations and shrinking profit margins. Moreover, economic conditions are not likely to improve in 2003, and insurers will be driven to increase efficiency and productivity, reduce losses and contain costs, he felt.

Considering this as an opportunity for IT-enabled services, he invited insurance companies to set up back office operations in Hyderabad. Listing out various developmental activities being undertaken here, Mr. Naidu said the objective was to make Hyderabad a financial hub, with knowledge-based activity. Osmania University had also set up an international institute for insurance and finance in collaboration with Georgia State University - the first of its kind in the country.

N. Rangachary, Chairman, Insurance Regulatory and Development Authority (IRDA), asked insurance companies to come out with innovative products to meet consumers needs, and also to carry out a sustained campaign to educate consumers.

In accordance with the theme of the summit - "Developing the market: From 1.5 per cent to 5 per cent penetration in 3 years,'' Mr. Rangachary felt it was possible for life insurance premium collection to go up to 5 per cent of Gross Domestic Product.

The Pension Scheme reforms were still pending with the Group of Ministers (Government of India) which was yet to finalise its meeting. He hoped a decision would be taken soon. He also offered IRDA's support to anyone coming out with rural insurance with focus on farmers and crop.

Omkar Goswami, Chief Economist, CII, said CII would take up a campaign along with insurance companies and various State Governments over a 90-120 day period to educate consumers. B.V.R.Mohan Reddy, Chairman, CII State Unit, and Tarun Das, Director General, CII, spoke.

Printer friendly page
Send this article to Friends by E-Mail

Southern States

Stories in this Section

Mystery shrouds death of 6 students

Naidu calls for improved risk management in insurance sector

Rape case: court reprimands officials

CM asks more banks to take up e-seva services

`Praja Chaitanya Jatha' a success, says CPI leader

STD booth operator shot dead by naxals

Tension over TV news report on godman

Absenteeism among doctors plagues PHCs