Financial Daily from THE HINDU group of publications
Friday, Nov 29, 2002
Money & Banking
`Insurance cos not fully armed to gauge corporate liabilities'
Ms Marielle Theron, Head of Business Development (Asia), Swiss Reinsurance Company, and Mr P.C. Ghosh, Chairman, General Insurance Corporation, sharing greetings at the Insurance Summit in Hyderabad on Thursday. Mr Srirang V. Samant, Director, HDFC Chubb General Insurance Company Ltd, looks on.
HYDERABAD, Nov. 28
THE speakers at the second day of the Insurance Summit, organised by the Confederation of Indian Industry (CII) here on Thursday, expressed serious doubts over the current competency levels of the Indian insurance industry to offer cover to the corporate liabilities of Directors & Officials (D&O) of industrial houses, especially after the episodes of Enron, Xerox and WorldCom.
Upbeat over the phenomenal business volumes to be generated from the D&O segment of insurance in the country, the CII Chief Economist, Mr Omkar Goswami, however, said the Indian insurance companies were not adequately equipped with the skills to gauge the size and nature of the corporate liabilities market in the country.
Stating that the insurance companies were not aware of the intricacies of corporate functioning and the way liabilities vary across the corporates, Mr Goswami stressed on the need to build a huge knowledge base and research and development for effectively addressing the D&O market.
In view this, he advised the insurance companies to forge alliances with analysts and trade bodies that had already built such knowledge base on the India Inc.
Viewing that the companies that were rated by the Standard & Poor and Crisil for the compliance levels of corporate governance were likely to have the advantage of getting D&O covers at lower premiums, Mr Goswami advised the insurance players not resort to unhealthy practices of price wars that would lead to the collapse of the entire industry. He also cautioned the corporates that they would not get top quality directors and officials unless adequately provided with D&O cover.
According to the Tata AIG General Insurance Vice-President, Ms Uttara Vaid, the current fiscal would establish record number of loss costs to the D&O industry in the post-Enron episode, where most of the Fortune 500 companies were falling from grace. In the last three years, there were 13 settlements which were in excess of $100-million each and the number and size of such settlements was expected to grow substantially in the near future.
Stating that the major corporate liabilities in the US corporate sector lead to the regulatory reactions such as increased regulations, downgrading of credit ratings, record number of financial reporting investigations and ultimately, the Sarbenes Oxley Act, Ms Vaid said the insurance industry reacted to this with clamp on soft market terms.
The Chubb Asia Pacific Vice-President, Mr Stephen J Blasina, was of the view that the Asian insurance markets were currently in a state of real flux. The factors that contributed to this situation include concentrated corporate ownership, cross-shareholding plus limited takeover markets, related party transactions, public versus private company conflicts, State ownerships and hasty privatisations, underdeveloped legal system and significant variation in the region, and unbalanced regulatory system with many rules that were poorly drafted lacking content.
However, he said there was renewed interest in the D&O cover owing to the push for improved corporate governance on a global scale.
According to him, promotion of transparency and effective corporate governance would make the job easier for the D&O liability provider in offering cover to directors and officers for alleged mismanagement and wrongful acts.
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