An expert panel as appointed by the IRDA has recommended moving to the Risk Based Capital (RBC) Method to fix the solvency ratio of insurers as the present system “is not sufficiently transparent or risk-focussed to adequately reflect the true financial conditions of the insurance companies.”
“The drawback of the current solvency method is that the level of confidence provided by the capital held by the companies is not known. So the capital held may be too high or too low given the risk profile of the companies,” said the panel in its report.
As the implementation may not be easy, the panel has suggested “Twin Peak” approach whereby the current reporting structure would continue with the new system operating in parallel. The insurance companies had sought this arrangement for at least two years.
The timeframe provided for full implementation of RBC at “a minimum of three years”.
The immediate step for the regulator will be to set up a project steering committee to hire consultants.
On IRDAI’s views on the panel’s recommendations, a senior official said: “The authority will take a decision after reviewing the opinion of all stakeholders.”
