Insurance Regulatory and Development Authority of India (IRDAI) is planning to remedy the problems that insurers are facing with solvency rules, by moving from the present solvency capital regime to a Risk-Based Capital (RBC) regime. To accelerate the process it has even set up a 10-member steering committee to ensure that the shift is completed by March 2021.
The committee has recommended that the industry move to the RBC method, as it feels that the present system does not adequately assess the risks that are inherent in the insurance business. The current solvency capital method is calculated based on the reserves of an insurer and the sum at risk.
The committee, before giving its recommendation to IRDAI, had conducted a survey of insurance companies and majority of respondents had come out in favour of the RBC regime, which is also the norm in the global insurance industry. The new regime is expected to increase transparency, thereby revealing the financial strength of the insurers, thus paving the way for early and effective intervention by the regulatory body if the need arises.
For implementation of the RBC regime, an expert panel had earlier suggested a “Twin Peak” approach. It means that the current structure should continue with the new system, with both of them working alongside each other for 2 years at minimum. The panel also put the timeframe for the implementation of RBC at 3 years.
Source: The Hindu
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