Source: TOI
Context:
Insurance companies in India are set to change how they price policies and manage risk as the Insurance Regulatory and Development Authority of India (IRDAI) introduces two major reforms from April 2026.
What Are the Two Big Changes?
1. Risk-Based Capital (RBC) Norms
What are RBC Norms?
Risk-Based Capital (RBC) norms require insurers to maintain capital proportional to the actual risks they assume, instead of a flat, one-size-fits-all solvency requirement.
In India, RBC norms are being introduced by Insurance Regulatory and Development Authority of India (IRDAI).
Why Were RBC Norms Needed?
Under the earlier framework:
- All insurers had to maintain a uniform solvency ratio (150%)
- Capital requirements did not fully reflect risk profiles
- Low-risk and high-risk insurers were treated similarly
RBC corrects this distortion by linking capital → risk exposure.
- Insurers will now need to keep capital based on the risk they take, not a fixed solvency rule.
- Higher risk = more capital required
- Lower risk = less capital needed
2. Ind AS 117 (India’s version of IFRS 17)
What is Ind AS 117?
Ind AS 117 is India’s accounting standard for insurance contracts, aligned with IFRS 17, issued by the International Accounting Standards Board (IASB).
It replaces the existing Ind AS 104, bringing uniformity, transparency, and comparability in insurance accounting.
Why Was Ind AS 117 Introduced?
Earlier accounting allowed insurers to:
- Recognise entire premium upfront
- Follow diverse accounting practices
- Mask true profitability and risk exposure
Ind AS 117 corrects this by aligning revenue recognition with insurance service delivery.
