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Irdai endorses panel's view to cut obligatory cession to zero from 4%

November 28, 2022

The committee that recommends the percentage of obligatory cession that general insurers have to cede to state-owned General Insurance Corporation (GIC Re) has suggested that the obligatory cession be brought down to zero from the existing 4 per cent. This is a view that has been endorsed by the Insurance Regulatory and Development Authority of India (Irdai), said its chairman Debasish Panda.

“There is a committee, which the government appoints every year to recommend this. The committee has given its recommendations and we have sent them to the government, endorsing their recommendations. The committee has said that the obligatory cession should be reduced to zero,” Panda said in an interview to CNBC TV18.

The obligatory cession was reduced from 5 per cent to 4 per cent in FY23. The regulator has been reducing the obligatory cession over time.

Earlier it was 20 per cent, which came down to 15 per cent, then to 5 per cent and now 4 per cent.

Slowly, the regulator is making sure that the compulsory cession goes down and more re-insurers get into the market to develop India as a reinsurance hub.

There has been a growing clamour among non-life insurers that the business they cede to GIC Re mandatorily should come down or be done away with completely. This is because the commission paid by the reinsurer does not reflect the industry cost structure.

Obligatory cession refers to the part of business that Indian general insurance companies must mandatorily cede to GIC Re. Ceding refers to the portion of risk that a primary insurer passes onto another insurer.

GIC Re officials have in the past said that even if the obligatory cession is reduced to zero, it would impact GIC Re’s dominance in India’s reinsurance market.

During the interview, Panda also hinted at the possibility of allowing life insurance companies to sell health indemnity products. This has been a long-standing demand of the life insurance sector, given that mortality and morbidity go hand in hand.

Panda also mentioned that as many as 19 applications for seeking a licence are in the pipeline at various stages.

The regulator, in its board meeting last week, approved the registration of Kshema General Insurance. Last week, it approved a bunch of regulations, aimed at simplifying the process of registering new insurance companies.

It is working with the agenda “Insurance for All” by 2047, wherein every citizen would have an appropriate life, health and property insurance cover. Also, every enterprise would be supported by appropriate insurance.

[The Business Standard]