In the last two years insurance sector has itself registered average annual growth of 25%. The preliminary indications show that market for private sector is much more. Significant increase in number of insurance companies and expansion of insurance coverage are result of policy and regulatory environment that has been created for sustain growth of this sector. Sound macro economic and structural policies are also essential for stability and development of insurance industry. Without stability of economic system as a whole and infrastructure like banking, credit, tax system and capital market etc., the development of insurance industry can not be achieved. There must also be supporting political and social consensus to maintain insurance markets. An appreciation of democratic and social forces which have impact on the working environment, in addition to high level of skills is also required. We believe that in India we have these pre-requisites for growth of the sector. Insurance sector stability can only be achieved when prudential standards are met and when market operates competitively, professionally and transparently in an environment guided by sound principles and practices that generates the relevant information.

To understand higher risks situation it is necessary to understand business situation, assess competency of senior management and their appetite for risk. This approach involves heavy reliance on auditors and actuaries.

The new environment requires consideration of wider array and their incorporation in measurement and modeling procedures. Accounting systems are centred to provision of informations needed by consumers, investors, managers, regulators and other interested parties. So that effective and reasonable assessment of effectiveness of operations and future prospects. High qualitative accounting systems taking into account of particular nature of Insurance, provide authorities with practical means to perform proper audits while at the same time to act as source of information for management of companies. Insurance regulators can only play its intended role where effective information exists. The accounting system should provide established rules that can be applied uniformly to all companies and compatible to international accepted accounting standards. The IRDA has been working in close collaboration with Institute of Chartered Accountants of India in achieving this objective. The availability of reliable basic data is equally necessary for effective market discipline. We are working to help companies to get data to arrive at its proper pricing of products.

Prudential regulation is ineffective without adequate importance give to corporate governance and monitoring of corporate governance. Perhaps a majority of insurance companies failures around the world inspite of integrity and good accounting system have been due to lack of corporate governance. This is an area which requires special attention. Today Regulatory investment standards for insurance companies is addressed towards diversification, level of risks, limits and amounts that may be held in financial instruments, property and receivables, safe keeping of assets, valuation basis of assets, liabilities and liquidities. The market often suffers from limited investment opportunities, highly volatile capital markets and limited investment management. Information on financial markets is often not transparent. In addition, the stake holder discipline mechanism are poorly developed. Competition is limited, our circumstances do not include strong risk management as an institutional governing priority. The regulatory framework needs to pay special attention to insurance companies procedures for assessing and managing all types of risks. In view of this investment audit of insurance through professional auditing firms has become a regular feature of IRDA supervising system.

In a country with size of population of India, vast differences exist in income levels, premium plays a major role in coverage. Premium rates of insurance products should be adequate and not excessive. The lack of management experience and shortage of basic statistical data such as frequency and severity of losses, make it difficult to set appropriate rates. Information asymmetry between insurer and consumer is greater due to inefficient disclosure of information on products and companies. A large part of information needed to carry out such analysis and review from financial condition reports. Financial reporting is the basis of supervision process. Internal and external audit reports and actuaries financial condition reports are the most important sources in this area.

We are fortunate to have in this country highly skilled and matured auditing institutions that are source of strength for regulators in various financial fields. Regulation is however a means and not an end in itself. In many developed and emerging economies strong developing role is emerging for insurance regulators in response to society's socio-economic and political aspirations. To understand the development role of insurance regulator it is necessary for a broader perception of the insurance business itself.

Insurance premium cash flows generate funds for investment in the country and the economy. The development of the insurance would depend on the general level of economic development and the prospects for immediate future. Generally there is positive correlation between the economic development of the country and the amount people spent on insurance. The GDP is normally used as an indictor of economic growth and development. We must however recognise that the economic development cannot be measured in terms of increase in GDP and per capita income, without taking into account the well being of the society as a whole.

The economic development is a process to improve the quality of human life in society as a whole. Though the GDP provides a measure of development and will perhaps be used for quite sometime, we will have to adopt a multifacilitated concept of economic development to include other achievements as well. These include higher life expectancy, increased investment in education and improvement of human resources capability, reduction in mortality, access to clean drinking water and sanitation and wide spread access to good health facilities.

The tenth five year plan clearly sets out the government's development strategy to ensure that we are able to sustain the poverty reduction in the past ten years and to ensure the proper distribution of income. The plan has set a target of 8% annual growth. The plan therefore under scores the need for reduction in both income poverty and human poverty. One of the areas of concern in the tenth plan is the poor infrastructure specially roads, railways, power and these are seen as major obstacles to growth.

The plan therefore emphasises the need for improvement in existing infrastructure and completion of unfinished projects. This in itself requires massive resource mobilisation. Insurance can play an important role in generalising savings into national investment. Contractual savings institutions especially life insurance in view of their long term liabilities and stable cash flows are ideal sources of long term finance for government and business. Insurers invest the funds addressed to them by the customers to make long term loans and other investments.

Many of these investments are directed towards the infrastructure sector which are quite large especially in relation to available capital and long gestation periods. Such technical projects often enjoy economies of scale, promotes specialisation and stipulate innovations and therefore to be particularly important to economic development and faster economic growth. This is the development role, as we see, of the insurance sector.

Availability and affordability of the insurance services have emerged as a valid regulatory development concern of the market. IRDA has drawn up regulations for promoting insurance as a catalyst for social development. The governments of the developed markets by themselves and in association with the insurance regulators have intervened in many ways to find, facilitate and further social pervasiveness of the insurance business.

The regulatory system is overly conservative, designed to avoid failure at any cost, rule out expansion by domestic firms and give rise to excessive supervisory expense which in long run will have to be borne by the public. An overly permissive system will lead to increase in number of companies failures, the cost will show as a direct losses to the public by way of unsettled claims, alongwith a general loss of credibility and confidence in the financial infrastructure of the country as a whole, with potentially incalculable loss. The objective is to develop a set of rules that will strike an appropriate balance between public policy aims of ensuring strong financial institutions and public protection on the one hand and promoting competitiveness enterpreneurship sprit and efficiency on the other.

The IRDA from its very inception worked closely with professional bodies like ICAI in developing its financial reporting system to facilitate regulatory control over the insurance industry. In the model we have adopted where we got the primacy of place to the actuary and the auditor, we place considerable reliance on their reports projecting the health of the companies. We have received support and assistance from the professional bodies. We look forward to work with them on continuing basis as supervision and regulation evolve and refine with time. I would like to conclude by saying that it is important to design the supervisory systems that not only recognise the current realities, but have the potential to adopt quickly the changes that occurred in the financial scene. We believe that we have such a system in place.