The news of the appointment of Subhash Chandra Khuntia as the insurance regulator on 1 May 2018 came as a surprise to most financial sector watchers. Of the eight people shortlisted for the final round of screening, Khuntia was the only bureaucrat, the rest were insurance industry insiders, including the serving Life Insurance Corp. of India chairman V.K. Sharma, New India Assurance chairman and managing director (CMD) G. Srinivasan, member Life at Insurance Regulatory and Development Authority of India (Irdai) Nilesh Sathe, and K. Sanath Kumar, CMD, National Insurance. The choice of a person with limited domain knowledge over others who have spent their entire careers working in this very technical industry was the surprise. Remember that it took an earlier outsider, J. Hari Narayan, the first three years of his five-year term to understand the sector. In fact, by the time he demitted office, he understood the sector so well that it went against the then government’s own agenda to allow him to continue. So what has gone into the decision to appoint an outsider as the head of a regulatory body that watches over Rs28 trillion of household savings and over Rs2.2 trillion of general insurance money?
Every government has its reasons for appointing a certain person as a regulator. The financial sector regulators watch over crucial areas of banking, stock markets, pensions, insurance, bankruptcy and to a certain extent even the competition commission falls into this category. If a previous government used regulatory appointments as payoffs for favours done earlier or to ensure the favourable treatment of firms and people in favour of the regime, this government, it seems, has a template profile in mind when it appoints the financial sector regulators. It is a template that is very different from earlier regimes where the regulatory chair was sometimes given as a reward. For example, one such regulator of an earlier regime discovered, to his horror, that the sector he regulated had very little space for rent seeking. He was later caught fudging travel bills to make up for the lost opportunity!
With the appointment of Khuntia, old finmin insiders say that a pattern has fully emerged on what this government wants in its financial sector regulators. A template regulator for this government is an honest career bureaucrat who goes by the rule book rather than have any great vision for the sector he oversees. He (there are no women regulators, nor have been in the past) is not known for his domain expertise, but is a ramrod straight family man. He has a low profile, does not seek the limelight and may not be very articulate. He is not a rock star with his 30 seconds of fame every night on prime time TV. He stays with the words of the Act that define his role rather than experiment with charting out a new course. He runs a tight ship and is careful to stay away from regulatory capture. In fact, the appointment of the new Irdai chief has kept in mind the intel that there was regulatory capture of the insurance regulatory body and the decision to get an outsider probably is aimed at breaking this capture.
The chiefs of the Securities and Exchange Board of India, the Competition Commission, and now the insurance regulator, all tick the bureaucrat box. The Insolvency and Bankruptcy Board of India chief M.S. Sahoo ticks half the bureaucrat box—he had an early career in the Indian Economic Service but then branched out to working across the financial sector in regulatory and policy roles. The one outlier in this is Reserve Bank of India chief Urjit Patel who is not a career bureaucrat. In this case it looks as if the government went with continuity and domain expertise over wanting a bureaucrat in the seat. All of them, say finmin insiders, tick the boxes of personal honesty and playing by the rule book. All of them tick the box of being low profile people with limited desire to be on TV tonight.
As far as Irdai is concerned, we should expect a well-run regulatory body with rule-based decisions. But don’t expect big blue sky ideas to manifest. Maybe that’s not a bad thing. The Acts are all written down, the roads are already built, any blue sky thoughts are now in the remit of finmin rather than sector regulators.
Monika Halan is Consulting Editor at Mint and writes on household finance, policy and regulation