Regulatory authorities must collaborate on international standards to harmonise norms for industry players and to ensure best practices, according to IRDAI Chairman Debasish Panda.
“Not just domestic dialogue, regulatory authorities should collaborate on international standards and harmonise regulations wherever possible, given the inter-connectedness of the global financial system. This approach ensures consistency and also minimises regulatory arbitrage,” said Panda at Corporate Governance summit organised by Excellence Enablers on Thursday.
Further, there is also a need for continuous dialogue between regulators and industry stakeholders when engaging in feedback, in order to make necessary adjustments in real time.
“There is a need to shift from purely punitive approach to one that emphasises proactive supervision and risk management. Early detection and prevention of issues can be more effective and efficient than punitive measures.”
He added that the power of technology should be harnessed for monitoring, reporting and compliance, in addition to leveraging big data analytics and AI & ML for detecting and identifying irregularities and emerging risks.
“For example, I’m very certain that there could come a time when even the need for filing claims would be eliminated. Interconnectivity over blockchain would enable it to initiate instant payouts based on predefined triggers. Similarly, smart contracts may change the way banking is transacted. Algorithmic training in capital markets may also take the front seat,” he said.
Saying that the biggest challenge for any regulator is to draft regulations which can foresee, predict and provide guidance on future events, Panda highlighted that is only possible if regulators adapt to the changing scenarios, keep pace with economic conditions and industry innovations, and remodel frameworks to remain “effective without stifling growth and innovation”.
Adopting a “consultative, participative and supportive” approach is the way forward, he said adding that the complexity, technological evolution and rapid growth of the financial sector pose challenges to this.
“As we stand on the precipice of this financial and technological evolution, it’s essential for regulators to integrate these principles into the regulatory framework. This not only means accommodating new technology and business models, but also creating the system that fosters innovation while safeguarding the interest of consumers and broader financial stability,” he said.
For this, the role of industry entities is crucial to ensure effective regulations, as a successful governance framework can only be achieved when organisations “view it as a strategic investment and not just a mandate or checklist” and respect the framework for long term health and sustainability of the sector.
On their part, insurance companies should embrace diversity as it enriches decision making, uphold governance accountability through independent boards, align executive compensation with long term performance objectives, engage with diverse stakeholders and incorporate their inputs, empower policyholders to make informed decisions, and adopt ESG principles.
Quoting reports, Panda said that the Indian insurance sector is the tenth largest in the world and posed to become the sixth largest by 2032. The industry has an AUM of Rs 60 lakh crore and employs over 60 lakh people.