IRDAI to Implement Risk-Based Capital Framework for Insurers by 2025

IRDAI to Implement Risk-Based Capital Framework for Insurers by 2025

The Insurance Regulatory and Development Authority of India (IRDAI) is set to introduce a risk-based capital (RBC) framework for insurers by 2025, marking a significant shift from the current factor-based solvency regime. IRDAI Chairman Debasish Panda announced that the proposed framework will align with international standards, enabling insurers to manage their capital more efficiently.

Speaking at the FE Insurance Summit 2024, Panda emphasized that the RBC framework is midway through development and expected to roll out within the next two years. The transition is part of broader efforts to ensure the financial stability of the insurance sector, which manages assets worth Rs 70 lakh crore.

Panda also noted that IRDAI is working closely with insurers to implement the International Financial Reporting Standards (IFRS) by 2025, with full operational readiness expected by 2027. He further explained that IRDAI is shifting towards a risk-based supervisory framework (RBSF) to better assess risks like macro-economic, operational, and liquidity factors, which will provide early warning signals at the enterprise level. This combination of RBC, IFRS, and RBSF will strengthen the regulator's ability to maintain stability in the insurance market.

Additionally, Panda shared updates on the highly anticipated Bima Trinity initiative, which includes Bima Sugam (an e-marketplace for insurance), Bima Vistaar (a comprehensive insurance product), and Bima Vaahak (a women-centric distribution channel). The first phase of Bima Trinity’s implementation is in its advanced stage, with a leadership team for Bima Sugam being put in place, and guidelines for Bima Vaahak and the final structure for Bima Vistaar already completed.

Highlighting IRDAI’s efforts to improve the ease of doing business, Panda revealed that the regulator has streamlined its principle-based framework, reducing regulations from 78 to just 20, while repealing over 375 circulars. He noted that new insurance applications can now receive a no-objection certificate within 24-48 hours through an online portal, with support provided until operations begin. Additionally, the prior approval requirement for expense management and capital raising has been removed, leaving these decisions to the boards of the insurance companies.