Who regulates the regulator?

Summary

India needs strong insurance regulation, but interventions must be judged by their impact on coverage, claims and consumer outcomes. Irdai should correct market failures without prescribing commercial choices.

India needs strong insurance regulation. Solvency, governance, consumer protection and disclosure require a firm regulatory hand, and Irdai has helped build a stronger, more policyholder-oriented market. But effective regulation also requires restraint, measurement and accountability for outcomes.

An important distinction deserves attention: the difference between regulating a market and designing it. A regulator must intervene against mis-selling, weak governance and threats to policyholders. But should it also decide what products should look like, how they should be distributed or how sophisticated market participants should transact? The closer regulation moves towards product design, pricing, distribution and commercial economics, the greater the risk of distorting market outcomes.

Markets have a feedback loop; regulation often does not. If an insurer launches a product customers do not want, it loses money. If an intermediary overcharges, customers may move elsewhere.

Once a regulatory solution is prescribed, however, the industry must implement it. Technology is built, products are modified and processes are changed. If an intervention creates unintended consequences, there is no equivalent mechanism to ensure its withdrawal. The regulated are accountable for their decisions; regulation should be equally accountable for its outcomes.

That suggests a simple test: what problem was the intervention intended to solve, what outcome was expected, and did it materialise? Compliance alone is not success. Adoption, customer behaviour, coverage and consumer outcomes matter.

Measure the impact