Enhanced regulatory framework will be put in place for these companies
The insurance regulator has set up a committee to bring out a list of systematically important insurers (SIIs). The committee will be chaired by Pravin Kutumbe, member (finance and investment), Insurance Regulatory and Development Authority of India (IRDAI).
IRDAI said such insurers will be identified and a system of enhanced regulatory framework will be put in place for these companies.
The committee will look into the methodology for identification of SII and also recommend what will be the enhanced regulatory framework for such insurers.
IRDAI said SIIs are perceived as insurers that are "too big to fail". This, it said, creates an expectation of government support for these insurers at the time of distress.
"Due to this perception, these insurers enjoy certain advantages in the market. However, the perceived expectations of government support amplifies risk-taking, reduces market discipline, creates competitive distortion and increases the probability of distress in future," said IRDAI.
The regulator added that SIIs should be subjected to additional regulatory measures to deal with the systemic risks and moral hazard issues posed by these insurers.
The committee has to identity insurers within six months. It is likely that state-owned Life Insurance Corporation of India (LIC) will be on the list.Among the other financial regulators, the Reserve Bank of India (RBI) has identified State Bank of India, ICICI Bank and HDFC Bank as systematically important banks.