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Mumbai, Jul 23: Pin pointing various deficiencies in the current regulatory structures laid to promote micro insurance products across the globe, principal administrator of International Association of Insurance Supervisors, Arup Chatterjee said that excessive regulatory micromanagement of micro-insurance reforms leads to a counter-productive interaction between the regulator and the regulated.
Addressing the second Asian conference on micro-insurance in Mumbai on Wednesday, he said, “Some areas of the financial sector have multiple regulators, while others that could pose systemic risks have none. Both situations, of unclear responsibility, and of no responsibility, are dangerous.”
He said there is a tendency amongst regulators to focus on their narrow area to the exclusion of other sectors, leading to balkanisation even between areas of the financial sector that naturally belongs together. Financial institutions are not able to realise economies of scope in these areas, leading to inefficiency and slower growth. Moreover, by ignoring the links between areas, regulators miss sources of systemic risks.
“Regulatory incentive structures lead to excessive caution, which can be augmented by the paucity of skills among the regulators’ operational staff relative those of the regulated. Such caution could actually exacerbate risks,” said Chatterjee.
He emphasised the importance to recognise the fact that at this point of time, the lack of micro-insurance regulation is not necessarily, the most significant constraint to the development and expansion of microinsurance. In most countries, regulation special may not be necessary at the moment and waiting and learning from the industry and from other jurisdictions might be a better approach for the government or the supervisor than quickly regulating without a clear understanding of micro-insurance within the country and of good-practice approaches, which are slowly emerging at the global level.
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