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As on: Nov 12, 2019 06:42 PM
IRDAI asks insurance companies to make provisions for IL&FS exposure
31-Jan-19   14:01 Hrs IST

Insurance Regulatory and Development Authority (IRDAI) has asked the insurance companies to make provision for their exposure to the beleaguered IL&FS group.

Insurance companies will have to make provisions for their exposure to the crippled infra lender IL&FS, industry regulator IRDAI said Thursday.

The IL&FS group with a debt of over Rs 94,000 crore, has been defaulting on its financial obligations since August and has also borrowed from insurance companies, even though the exact exposure of the industry is not immediately known.

Exposure to IL&FS cannot be written off; they will have to make provisions, IRDAI chief Subhash Chandra Khuntia said on the sidelines of the release of the handbook on general insurance claim insights for policyholders by the Insurance brokers association.

The regulator had, back in September 2018, asked the insurance companies to declare their exposure, both equity and debt exposure, to the IL&FS group.

Moreover, the IRDAI Chairman had earlier cautioned the insurance companies on the risks associated in investing in low-rated debt instruments.

Some IL&FS group entities defaulted on its debt repayments, which caused a liquidity freeze in the NBFC sector in September 2018. The company is sitting on a debt of over Rs 90,000 crore.

The state owned insurance behemoth, Life Insurance Corporation, is the largest shareholder in the cash strapped IL&FS group. It holds a 25.34 per cent stake in the group.

The erstwhile senior executives of the company have been dragged to the NCLT by the ministry of corporate affairs over the allegations of mismanagement of the company resulting in the piling up of the debt.

Among the private insurers, IDBI Federal Life Insurance has an exposure of about Rs 20-25 crore to the IL&FS group. Aditya Birla Sun Life on the other hand has no exposure. The exact exposure of the insurance companies to the beleaguered IL&FS group is not known so far.

Khuntia also went public with the watchdogs concerns on the motor insurance service providers, wherein the quantum of commissions given by insurers is higher than the one set by the regulator.

Whenever it is coming to our notice, we are taking action. We have also done some focused inspection of some of the service providers, we are watching the market very carefully for some violations, he said.

Replying to a question, Khuntia said the regulator is speaking with the GST Council to lower tax on property insurance in vulnerable areas.

In the speech, he asked the insurance industry intermediaries to ensure that their conduct is ethical and pitched for self-regulation in this aspect.

He said mis-selling continues to be rampant in the industry and also called for a shift in practices to ensure that claims get settled quickly and more time is taken for underwriting and selling.

Khuntia said cyber security insurance will be a big opportunity going forward and asked the industry to hone their skills on underwriting and claim settlement, saying this is a niche area which needs specialisation.

He said the position of a broker is very crucial as he/she has to take care of both the needs of the customers as well as that of the company.

It only gets complicated because the broker is paid by the insurance company, he said, underlining that a customers position should also be considered important.