Workshop

On
Financial Sector Assessment Programme

29th

Hyderabad
December, 2010
DVS Ramesh

Objectives

ICP 14 Preventive and Corrective

Measures
Regulators are adequately backed by
comprehensive legal structure with
powers to safeguard the public interest.
ICP 15 Enforcement or Sanctions
Regulators are legally empowered to
take action, where necessary, to ensure
compliance to the Act and Regulations.
2

Preventive and
Corrective Measures

Core Principle: Supervisory authority takes

preventive and corrective measures that are
timely, suitable and necessary to achieve
the objectives of insurance supervision.

Regulatory
intervention
to
protect
policyholders
Regulatory Response is based on problem
detected

Overall Enabling Tools: Insurance Act, 1938;

IRDA Act, 1999 adequately equipped IRDA.

Section 14 (2) An Omnibus Provision

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Essential Criteria
a.

b.

Availability of Adequate Instruments for timely preventive and

corrective measures

Specified returns within 6 months from the end of FY (Sec 15),

Qly Accounts & Investment Returns, Solvency Margin returns,
Monthly Business / Other Returns etc.
Progressive Escalation of action or remedial measures

Call for Information, Inspection, Examine Books / Accounts /

Officers on oath Investigation into the affairs of Insurer (Sec
33) and Search and seizure (Sec 34 H); Penalties (Sec 102) ,
Suspension / Cancellation of License (Sec 3 (4))

Formal Advise to Warning Letters / Letters of Caution

Proposed Insurance legislation makes individuals jointly and

severally liable to make good the loss for contravening
investment provisions

Enhances certain penalties to Rs 25 Crores

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Contd....
c.

d.

e.

Authority shall have capacity and standing to communicate

From formal communications to Directions u/s 34, 110 C;

Require insurers to develop an acceptable plan for correction of
problems, if necessary

Financial Plan (Sec 64VA (2A); Modification of rates, terms

and conditions of life policies (Sec 3B); requires insurer to
take action (Sec 33(6)); directions regarding reinsurance
treaties (Sec 34 F)
Measures to prevent breach of law and promptly and effectively
deals with non compliance with regulation

Call for further information (Sec 21); Order the revaluation

(Sec 22) Review of Returns, Examination of Grievances
Areas to Strengthen

Risk Based Supervision

Powers to prescribe higher initial capital requirements in

specific cases
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Enforcement and Sanctions

Core Principle: The Supervisory authority

enforces corrective action and where needed
imposes sanctions based on clear and
objective criteria that are publicly disclosed.
Decision making lines for remedial actions
to be structured
A range of actions available say from
withholding approval for expansion to
revoking the license
Overall Enabling Tools: Fines and Penalties &
Suspension and Cancellation of Licenses

Essential Criteria
a.

Issue formal directions and failure to

comply has serious consequences

b.

Advices / Formal communications

Directions u/s 27 D (3), 33 (6), 34, 14 (1)

Power to prevent issuing new policies

Sec 34 E (a) empowers IRDA to prohibit

Insurers / any Insurer entering a particular
transaction / Class of transactions
Reg 27 Cease to transact new business
7

Contd
Compulsory Transfer of obligations from
failing insurers

c.

Sec 37 A empowers to prepare a scheme of

amalgamation

Requiring Capital levels to increase, restrict

or suspend dividend or other payments to
shareholders, restrict share transfer

d.

Capital Levels not insurer specific, Prior approval

for share transfer beyond a percentage and
restriction on dividend (on Par Fund)
8

Contd
Effective means to address Management
Problems and powers to impose conservatorship

e.

Sec 34 A prior approval for appointment of CEOs/whole

time directors; Sec 34 B empowers to remove
managerial personnel; 34 C additional directors and 34
E (b) call for meeting of directors or depute its officers
to watch the proceedings; Approval for Appointed
Actuary
Sec 52 A Power to recommend appointment of
Administrator for Life Insurance Business
Sec 52 H Power of Central Government to acquire
undertakings of Insurers
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Contd
f.

g.

Periodical checks to determine the compliance

Regular Reviews, additional returns or a

follow up inspection (where necessary)
Fines against Individuals and Insurers

Fine on individuals for acting as insurance

intermediaries and for rebating

Rs 500, proposed to be escalated to Rs

10000 and to Rs 500000 respectively

Fine on Insurers for accepting business from

other than licensed intermediaries

Rs 5000, proposed to be increased to

Rs 1 Crores
10

Contd
Sanctions
for
withholding
the
information or misleading information

h.

Sec 104 Empowers to penalize for false

statements in the investment returns

Barring individuals from acting in

responsible positions

i.

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Part of overall due diligence Scope for

strengthening
the
procedures
by
disclosures
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Contd
j.

k.

l.

Process of Sanctions do not delay preventive and

corrective measures

Procedures in place to independently review these

respective lines
Powers to withdraw the license

Reg 23 Suspension of Certificate, Section 3 (4)

empowers
Powers to protect one or more insurers from financial
difficulties of other parts of the group

Insurance
business is relatively insulated and
Policyholders funds are maintained separately
Abilities to infuse additional capital / Solvency Margin
Review an ongoing process
12

Contd
m.

Authority enforces the sanctions

n.

Section 110 AA of the proposed Bill

classifies the penalty imposed is
recoverable as arrears of land revenue
Escalation Provisions ensure the
compliance to sanctions

Ensuring consistency in imposing

sanctions

Procedures are in place

13

Contd
Authority takes action against individuals /
entities operating insurance business
without a licence.

o.

Section 103 Rs 5 lakhs penalty or with

imprisonment up to 3 years
Issues Public Statements cautioning the public

In the Proposed Bill the penalty was

escalated
to
Rs
25
Crores
with
imprisonment up to 10 years
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14

Thank You

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