IRDAI aims to move towards RBC model, IFRS by 2025, says chairman
Mumbai, Dec 14, 2023
The Chairman also said that Indian insurers are converging towards the IFRS Accounting system by implementing the IND-AS
The insurance companies are expected to transition to Risk Based Capital (RBC) and International Financial Reporting Standards (IFRS) by 2025.
Speaking at an event organised by the National Insurance Academy (NIA), Debasish Panda said, “Dedicated mission board teams are working at full throttle in this direction, and we are expecting that we should be able to transition to the RBC regime as well as converge to the IFRS by 2025.”
In August 2023, the Insurance Regulatory and Development Authority of India (IRDAI) announced the shift towards the RBC framework. As per the RBC framework, capital requirements are based on the specific risks that insurance companies face across investment, underwriting, operational, and market risk.
He also added that efforts are being directed towards adopting the RBC regime in order to bring efficient utilisation of the capital.
The Chairman also said that Indian insurers are converging towards the IFRS Accounting system by implementing the IND-AS.
IFRS are standards which state the classification of assets and liabilities of companies operating in the insurance sector. It provides consistent principles for insurance contracts.
Speaking on the potential of the insurance sector, Panda said that last year saw the entry of a few players into the market, and there are a few more in the pipeline, which hints at the potential of the sector.
“Last year saw the entry of a few new players. More than four new insurance companies have entered the market, marking a significant development after a hiatus of almost 12 years in the life sector and 5 years in the general insurance sector, and there are a few also in the pipeline. This resurgence not only underscores the sector's inherent potential but also reflects a renewed and heightened interest from the investors. Though the industry is growing at double-digit, there still lies a huge potential for expansion, as well as deepening of the insurance market in India,” he added.
Among the scope available for insurance proliferation, Panda said that there is a lot of potential in traditional risk areas like life, health, property, motor, and drug. Also, there is a gap to fill in the Micro, Small and Medium Enterprises (MSME) sector. There is a missing middle in the health segment which requires urgent attention. Additionally, we need to address emerging risks like climate change, pandemics, and cyber threats.
Technology can be leveraged to construct more efficient systems, deliver a superior customer experience, and create innovative products that cater to the evolving needs of the consumers. It's about creating an industry that is not just reactive but proactive, that does not just compensate for the losses but helps prevent them, and that not only insures but also assures.
There is also a rising need to navigate the sectoral complexities, along with addressing data security and privacy concerns, and managing the change that a digital transformation will entail.
Further, on account of insurance being a capital-intensive segment, the limits for raising other forms of capital have been enhanced for the sector, with the prior approval requirement now being dispensed with.
The insurance industry has maintained a Compound Annual Growth Rate (CAGR) of almost 11 per cent and achieved 14 per cent of growth in the financial year 2023 with a premium rising to $126 billion. The aggregate Assets Under Management (AUM) of the insurance industry stand at around $730 billion.
[The Business Standard]
