Risk-based solvency rules in the insurance sector are likely to be implemented in India in the fiscal year starting 1 April 2021, representing a postponement of two years from the originally scheduled start date of 1 April 2019.
Sources told Moneycontrol that the industry is looking at insurers' organisational structure as well as their risk management framework to decide the path to new capital norms.
“The industry needs more time to move into a risk-based regime. Not only will this mean significant tweaks in the accounting system, the business strategies will also need to be altered,” the CEO of a mid-size private life insurer told Moneycontrol.
Currently, insurers’ assets are required to be 1.5 times, or 150% of their liabilities. Once the risk-based capital (RBC) framework comes into place, insurance companies will have to hold capital in proportion to the business they write. The riskier the business, higher would be the capital requirement. Insurance companies not wanting to maintain large cash reserves will have to rejig their portfolio towards less risky business.
In the financial sector assessment programme of 2017, the International Monetary Fund and World Bank recommended that IRDAI moved towards an RBC supervisory regime.