Timeline for next insurance reforms: Combined insurance licensing, risk-based solvency and IFRS accounting

Since the appointment of Debasish Panda as IRDAI Chairman in March 2022, many structural reforms have been implemented for the Indian insurance sector. Some of the biggest reforms during Debasish Panda’s tenure as IRDAI Chairman include the shift from rules-based regulations to principle-based regulations, the shift from ‘file and use’ regime to ‘use and file’ regime, Expenses of Management (EoM) Regulations and the latest regulations. one is to provide higher surrender value to policyholders.

Equally major insurance reforms are waiting to emerge. These include Composite Insurance License, Risk Based Solvency and Audit and IFRS accounting method.

The Composite Insurance License will allow life insurers to produce other general insurance products such as health insurance and motor insurance and vice versa. Although the introduction of the composite insurance license depends only on parliamentary approval, when Panda was asked about his expectation, he said the sooner the approval of the Insurance Amendment Bill, which facilitates the Composite Insurance Licensing, comes, the better.

Talking about the Risk Based Capital regime, Panda said that the first Quantitative Impact Study (QIS) was conducted and the results were discussed with insurance and reinsurance companies. Panda added that the risks arising from the first QIS will be carefully examined and corrected, and then QIS 2 will be held in the next 3-4 months. In terms of implementation of Risk Based Solvency, IRDAI Chairman said parallel rollout of RBC could start by FY26 and full-scale rollout could start by FY27.

According to IRDAI Chairman, Risk Based Solvency/Capital is a way of more efficient use and allocation of capital and will benefit all stakeholders. Risk-based capital (RBC) is a method for determining the amount of capital an insurance company needs to support its individual divisional operations. Currently, insurers must provide at least 1.5x solvency at the overall business level; This means that an insurance company’s assets must be 1.5 times higher than its liabilities at any point.

IRDAI Chairman said that work on the evaluation study on IFRS International Financial Reporting Standards is ongoing. Panda said a parallel study on the implementation of IFRS will begin from FY26 and expects full-scale implementation could take place from FY27.

According to Panda, IRDAI is targeting FY26 timeline for implementation of Risk Based Audit framework. Within the scope of risk-based supervision, individual insurers will be evaluated, monitored and audited according to the individual risks they carry in their books, according to the current regime where all insurers are evaluated on the same metric despite the different risks they carry in their books.