Chennai:

While some welcome the idea of a peer review, there are others who oppose it. And there are some who abhor the idea of having a foreign actuary in the peer review committee. (See ). Plus, there are concerns over the review modalities to be adopted by the proposed committee.

Explaining the reason for having such a committee, Actuarial Society of India (ASI) president Nalin R Kapadia says: "Overseas, a couple of big life insurers have failed suddenly. Such failures could have been detected in the early stages of the decay by the regulator if only the insurers actuarial filings were reviewed by experts." Canada, he says, has already started the system of peer review for actuaries.

Agreeing with the peer review concept, an actuary (who wish to remain anonymous) says the fruitfulness of the exercise will depend on the mandate to this group, the professional standing of peer review committee members and the further steps that will be taken after scrutinising the returns.

"The mandate for the proposed committee should be vivid and precise. It is not healthy if the mandate is to: (a) look into the assumptions and methods of valuing policy liabilities; (b) do sample calculations to check the value; (c) visit the company to see how data was extracted," says he. "Such actions have the potential to create conflicts between the appointed actuary, ASI and IRDA. It will also send a message of iron-grip of IRDA over all technical matters of companies."

On the other hand, if the peer review committee restricts itself to review the returns filed by the appointed actuary, then it should look deeply at the appropriateness of the returns in the context of companies selling various products. "At the moment the returns ask for certain details that do not make meaning for some of the lines of businesses. And I have a strong feeling that the peer review committee will actually end up doing a, b and c mentioned above," says he.

Allaying the fear of undue interference in the normal working of the companies by the proposed committee, Kapadia says the committees mandate will be to review just the statutory filings of appointed actuaries.

But actuaries do not subscribe to that theory. Says an actuary with a domestic life insurer: "My feeling is that anything that IRDA does along these lines should be with the concurrence of the appointed actuaries. Having put in place the system of appointed actuaries, it is not fair to create an impression as though their actions are being viewed with suspicion."

Senior actuaries like R Ramakrishnan who is the chairman of the Reserve Bank of Indias (RBI) advisory group on insurance, a member of the Malhotra Committee on insurance reforms and a former executive director of the Life Insurance Corporation of India (LIC) are against the idea of a separate peer review committee. They fear that the committee will end up ferreting commercially sensitive information from companies and more particularly about the industry leader and government-owned LIC.

Ramakrishnan says section 22 of the Insurance Act gives IRDA necessary powers to ask a life insurer to redo the valuation work. "IRDA can also ask the insurer to give the relevant data to an independent actuary to carry out the actuarial valuation. The cost of revaluation will be borne by the concerned insurer."

One of the views expressed by the actuaries is that instead of spending money on constituting new committees, IRDA can strengthen its actuarial department by hiring more hands. Further, all the companies are selling just the traditional products endowment, money-back and term assurance that does not call for any foreign experts for crosschecking purposes.

"The tricky area that a regulator should look for is the investments portfolio of the insurers. May be IRDA can hire a foreign accounting professional to check irregularities if any," says another actuary.

"If IRDA really wants transparency in the insurance sector then it should make it compulsory for the insurers to publish the working parameters and actuarial assumptions of the valuation report. The regulator should also make publication of first year, renewal premium income/expense and overall expense ratios by an insurer," recommends Ramakrishnan.

LIC, he says, gives out most of the numbers, and IRDA can make the new insurers follow the government company. "If this happens then the public, an actuary or a financial journalist will be able to know the exact financial position of the insurer."

Ramakrishnan says India can set an example to western companies in respect of transparency in the insurance sector. "Overseas, life insurers are averse to disclose their premium income from selling new policies (first-year premium income), while LIC happily discloses the same," says he.

As recommended by the RBIs advisory group on insurance, IRDA can consider making the actuarial basis of all insurance products a public document accessible to actuaries, journalists and industry analysts and also to the insuring public. But this means ruffling the feathers of many. Moreover, will IRDA take the trouble to go through the whole process of making the insurance industry transparent is a moot question that needs to be addressed.

Others feel that the very idea of having a foreign actuary in the review committee shows the lack of faith among Indian professionals and also among the actuaries employed with IRDA. "No other country or professional body will permit the presence of a foreigner in an official committee," says Ramakrishnan.

ASI president (Chennai chapter) and former LIC MD G Chidambar categorically rejects the idea of a foreign actuary becoming a part of a government committee. "There should be no foreign actuary. Even as early as 1936, the British had said that there is no need for an English actuary to be the government actuary in India." Curiously, at present there are several foreigners holding the coveted post of appointed actuaries in an Indian insurance company.

"Except the actuaries in LIC, no actuary in any part of the world might have got the experience of preparing a valuation report for over 10 crore policies," says Ramakrishnan while arguing for the expertise of Indian actuaries.

LIC, with a mere capital base of Rs 5 crore, has grown into a mammoth organisation and never was its actuarial valuation or expertise put on the dock. On the other hand, it is only in foreign countries (that too in the US) failure of insurance companies has become a common feature.

The need of the hour: India should adopt the good practices of LIC, instead of looking at the west where Enrons and Andersons have become a joke.