annual report 2009-10 - IRDA

ANNUAL REPORT 2009-10The emphasis is not only on disclosure but also ‘transparency‘, which envisages that the recipient ofinformation is able to use it and has a fair degree of understanding of the information provided. Publicdisclosures need to meet the following ends:a) Relevant to decisions taken by market participants;b) Timely so as to be available and up-to-date at the time those decisions are made;c) Accessible without undue expense or delay by the market participants;d) Comprehensive and meaningful so as to enable market participants to form a well rounded viewof the insurer;e) Reliable as a basis upon which to make decisions;f) Comparable between different insurers and other companies; andg) Consistent over time so as to enable relevant trends to be discerned.To achieve these ends, disclosures made must necessarily cover, at the minimum, the financial position;financial performance for a specified period; risk exposures and how they are managed; the basis,methods and assumptions upon which information is prepared including the accounting policies; andbasic business, management and corporate governance information.Means of supervision: Transparency in operations, availability of information in the hands of the decisionmakersand disclosures to the Authority, are all various aspects of ensuring effective supervision withinthe insurance companies, and for the sector as a whole either through self regulation or through themechanics of supervisory oversight. Broadly, this oversight may be achieved in different measuresthrough any one or all of the following means:1. Internal mechanisms in the insurance companies including supervision and active review by theBoard; through sufficiently detailed reporting to the Board and active review by the Board; internaland external audit; properly structured delegation of authority; and well defined and adequatelines of reporting back to the Board.2. Industry self regulation measures, especially in matters of market conduct.3. Supervisory oversight through reports on market conduct; and financial strength includinginvestment returns, accounts returns and other statutory returns.4. Supervisory oversight through on-site inspections.Towards achieving its goal of effective supervision, the Authority has recently undertaken the BusinessAnalytics Project, which is aimed at meeting the data needs and information for analysing insurancecompanies and for regulatory decision making. The Solution Development Architecture has alreadybeen finalised, and the next step of Implementation of ERP System – Stage- I - Short-listing of IT firmsfor the Technical Bidding (Phase-II) has been initiated by the Authority. The BAP is a comprehensiveexercise at covering all aspects of the information needs of the regulator, be it financial and actuarialaspects, investments, the claims and grievance redressal mechanisms, global insurance industry wideinformation required for policy decision making. The operationalisation of the BAP would build up a hugegap in ensuring transparency of operations of the insurance entities and facilitate in supervision byexception.Risk management and disclosures: Risk – the chance of something happening that will have an impacton objectives. It is measured in terms of likelihood and consequence. It is the circumstance, action,situation or event with the ability or potential to impact the key dependencies that support the coreprocesses of the organisation. Broadly, risks are segregated into financial and non-financial risks. Thevery crux of enterprise wide risk management rests on availability of information through adequatedisclosures and transparency. It is also a fact that in putting in place systems to meet the stipulations ondisclosures, entities also move a step closer to the analysis of the same information in-house andsimultaneously ‘peer pressures’ and comparisons ensure that the benefits of market pressures andcompetitive environment exert influence to improve operational performance on various counts. It is afact that better managed enterprises take the initiative of providing disclosures on a voluntary basis and51