IMF Issues Technical Note on Insurance Sector Regulation in India
IMF issued a technical note that provides an assessment of the recent development of regulation and supervision of the insurance sector in India. It is part of the 2017 Financial Sector Assessment Program (FSAP) for India. The note focuses on several key developments in the regulation and supervision of the insurance sector since the last FSAP and evaluates the extent to which the recommendations of the 2011 India FSAP have been addressed. The note, however, does not present a full assessment of observance of IAIS Insurance Core Principles (ICPs).
The staff finds that most of the 2011 FSAP recommendations on insurance regulation have been addressed. Issues with the independence of Insurance Regulatory and Development Authority of India (IRDAI) and overly informal approach in some areas, including solvency control levels and the arrangements for cooperation with other regulatory bodies, have been resolved. Public and private insurers are now subject to the same regulation, although there remain some structural advantages for the public-sector life insurers and reinsurers. Revisions to the key insurance law have transferred powers from government to IRDAI, including wider powers to issue regulations. Key recommendations of the 2017 FSAP include the following:
- Formulate a strategy, plan, and timetable for modernization of the solvency framework
- Consider the expected new IFRS 17 on insurance liabilities (as an input into solvency valuation requirements) and the well-advanced new IAIS Insurance Capital Standards to be adapted and recalibrated as necessary for application to the Indian market, or IRDAI could draw on established approaches in other Asian countries (that is, Singapore)
- Implement only a standardized approach (as internal models are a complex option) to risk-based capital, covering all risks, and require insurers to develop an Own Risk and Solvency Assessment
- Move to a more risk-based framework for supervision, which would complement risk-based capital and encourage better risk management
- Consider further measures to level the playing field for insurers in the limited areas where there are, or may be perceived to be, advantages for public sector insurers
IRDAI is working with the industry on plans for economic valuation for solvency purposes and risk-based capital. India is an outlier—both in Asia and internationally—in not having moved in this direction so far. The insurance resolution framework appears comprehensive, though untested. IRDAI has decided, in the light of issuance of a final IFRS on insurance liabilities in May 2017 (IFRS 17, due to take effect in January 2021), to defer implementation of Ind AS to coincide with IFRS 17 implementation. Implementation of IFRS from financial year 2020–21 will require a move toward economic valuation for financial statements. IRDAI is monitoring the impact of Ind AS via private reporting. In discussion, insurers noted that the most significant impact of Ind AS would come through IFRS 17.
The overall insurance penetration in the country remains relatively low and public-sector insurers continue to command a majority of the market. Life insurance predominates, with about 75% of total premiums. Non-life insurance is dominated by motor insurance. Penetration rates remain unchanged from 2011 and are generally lower than in comparator countries, especially in non-life. While traditional sale channels continue to predominate, there is an increasing diversity in distribution. Risks in life insurance are relatively well-spread and in non-life are mainly short-term. The sector is profitable and solvency exceeds minimum requirements, but with exceptions.
Related Link: Technical Note on Insurance Sector
Keywords: Asia Pacific, India, Insurance, FSAP, Solvency II, IFRS 17, ICS, IRDAI, IMF
Featured Experts
Gavin Conn
Experienced life actuary; background in economic capital modeling; ALM specialist; IFRS 17 researcher
David Fihrer
Skilled life insurance actuary; subject matter expert on IFRS 17 and source of earnings
Nick Jessop
Scenario modeling expert; risk management specialist; quantitative financial modeler
Previous Article
ESMA Updates Q&As on Benchmarks Regulation and CSD RegulationRelated Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards