Explained | What is the IRDAI directive on Reliance Health? How will it impact policyholders?

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26 Aug, 2025 12:21

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The insurance regulator asked one-year-old standalone health insurer Reliance Health to stop selling new policies from November 15. The company has been asked to transfer its business to sister company Reliance General Insurance. But how will this diktat impact policyholders? Here is a lowdown on the situation:

The IRDAI directive
The Insurance Regulatory and Development Authority of India (IRDAI) has from November 15 asked Reliance Health to stop underwriting any new business. This means that the insurer cannot sell any new product after that date. Subsequently, all its existing businesses to Reliance General Insurance and the latter will have to maintain a separate account for this purpose.

All customers will also have to be informed about the transfer of policies. Due to this, all claims arising in the future will have to be dealt with by Reliance General.

Why was this decision taken?
Every insurance company has to maintain a minimum capital at all times. This is referred to as the solvency margin and is set at 150 percent, which is roughly the amount of assets versus liabilities.

Reliance Health had reported a solvency margin of 106 percent for the June quarter of FY20. After this, IRDAI had sent a letter in August asking the insurer to restore its solvency to 150 percent by September 30.

Subsequently, Reliance Health indicated in a letter to IRDAI on September 10 that it had solvency of 77 percent as on August 31 and the company intends to bring new/additional promoters/investors. It added it had signed a term sheet with a potential new promoter.

Since there was no concrete plan to restore the solvency and a further deterioration in the minimum capital, IRDAI took this decision to stop the health insurer from selling new policies.

The regulator said there was a sharp reduction in Reliance Health’s net worth, investments and cash/bank balances between June and August due to the operating expense outgo.

What happens to the policyholders?
All existing policies of Reliance Health will be transferred to Reliance General Insurance. Any claims arising from policyholders will have to be promptly settled by Reliance General.

However, IRDAI has said Reliance General will neither be allowed to issue policies on behalf of Reliance Health nor renew any policy from the latter’s portfolio. Policyholders will be provided with an opportunity to port their policies to Reliance General and other insurers.

Only similar policies can be ported and it can be done only during renewal, as per IRDAI rules. However, all benefits offered by the old policy will stay intact.

What is Reliance Health saying?
In an IRDAI hearing on October 30, Reliance Capital CFO Amit Bapna said a discussion on bringing in a new promoter had been dropped. Bapna added that Reliance Capital (the parent) was keen on merging Reliance Health with Reliance General, which was a bigger company with more than 80,000 policyholders.

He clarified that the solvency of the combined entity would be well above the stipulated 150 percent. A Reliance Capital spokesperson said this decision has been taken in the best interest of policyholders and the company is fully committed to servicing its customers.

Is this happening for the first time?This is the second time that an insurer has been asked to stop selling new policies. In July 2018, IRDAI had asked Sahara Life Insurance to transfer its business to ICICI Prudential Life Insurance citing corporate governance issues. However, Sahara Life had moved Securities Appellate Tribunal (SAT) appealing against this decision.

Subsequently, the SAT had quashed the IRDAI decision on this matter in January last year and had asked the regulator to look into the decision afresh. No final decision has been taken on Sahara Life’s insurance business and it continues to sell policies.