Risk-based capital framework will lead to efficient capital utilisation for insurers: IRDAI chief

Insurance companies should embrace innovation, IRDAI chief Debasish Panda said

The Insurance Regulatory and Development Authority of India’s (IRDAI) plan to transition to risk-based capital (RBC) framework in India will be beneficial for Indian insurance companies, IRDAI chairman Debasish Panda has said.

The proposed framework will be a shift from the current factor-based solvency capital regime will in the insurance industry. “RBC will lead to significant improvement in capital utilisation efficiency,” he said at the Global Conference of Actuaries in Mumbai on February 13.

Last year, the IRDAI had hired Toronto Centre, a global agency, to devise a risk-based supervision framework. “Traditionally, we have been looking at liquidity risk, capital risk…today, governance risk, management risk, operational risk and more importantly, geopolitical and climate change risks – everything has to be factored in. So, a macroeconomic outlook will have to be adopted to make sure that insurance companies are healthy and safe. We are working with a global agency called the Toronto Centre for a 360-degree risk-based supervision framework,” Panda had said in June 2023.

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The regulator wants the industry to migrate to the RBC regime over the next 2-3 years. Likewise, efforts are on to get insurers to adopt International Financial Reporting Standards (IFRS), he said.

He also emphasised the need for insurance companies to optimise the use of machine learning, AI and big data to devise innovative products and solutions for customers.

India has over 850 million internet users and 750 million smartphone users, which has led to substantial digital footprints of potential customers. “Today’s customers do not shy away from sharing personal information in exchange for personalised experiences,” he said. Thus, any insurance company that sticks to traditional approaches will find it difficult to survive against the ones that can predict customer needs using market intelligence and offer the right product using the right channel to the right customers, he said.

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“The focus is on providing insurance solutions to all segments of society. Our goal is to empower customers with choices not only in terms of products but also in terms of how they access products and solutions,” he added.

Even in the past, Panda has stressed on the importance of catering to newer customer segments such as gig workers, Gen Z, millennials and so on. He had urged insurance companies to look at designing specialised products for these categories.

To keep pace with innovations in the insurtech space, the regulator has created a dedicated team for the purpose and also holds regular meeting with the stakeholders in this segment, he said.