Irdai Begins Impact Study For Insurance Industry’s Transition To Ind-RBC Framework

The Insurance Regulatory and Development Authority of India (Irdai) has taken a big step towards its goal of inclusive insurance for all by 2047. 

It has commenced the first Quantitative Impact Study (QIS1), which aims to offer a comprehensive assessment of how insurers’ capital and overall financial strength could be affected in the insurance industry’s transition to the Indian Risk-Based Capital (Ind-RBC) Framework.

This framework is designed to act as a central mechanism, empowering insurers to uphold a suitable capital amount that corresponds to the inherent risks present in their insurance and reinsurance activities.

This journey, guided by planning and relevant strategies, will form the foundation for a strong and balanced relationship between risk and capital and set the stage for a reimagined insurance landscape.

Inclusive Insurance

Inclusive insurance refers to a special type of insurance that aims to extend financial protection to individuals and businesses who have typically been left out of insurance coverage due to reasons, such as limited income, social isolation, or remoteness of location.

The core objective of inclusive insurance is to ensure that insurance products are affordable, accessible and within the reach of people and businesses in the low- to middle-income bracket. 

These insurance offerings are commonly known as micro-insurance products. In the past, the responsibility for inclusive insurance largely rested with government initiatives. The initial strides in this direction were seen through programmes, such as the Employees’ State Insurance (ESI) schemes and various state-sponsored endeavours. 

The success of these was further amplified by initiatives like the Pradhan Mantri Jeevan Jyoti Bima (PMJJBY), Ayushman Bharat, and Universal Health Insurance Scheme (UHIS), which harnessed technology to seamlessly manage every aspect of these programs – from enrolling insured individuals and handling policies to efficiently processing claims.

Risk-Based Capital Framework

Irdai is now engaged in a proactive effort to create and put into action the Ind-RBC Framework within the Indian insurance industry as a core aspect of its developmental plan, according to a press statement. In doing so, Irdai is playing the role of a catalyst in encouraging insurers to make the most of their capital resources, while also ensuring effective management of risks.

Now, in a move towards shifting from the current factor-based model to risk-based capital (RBC), Irdai has launched the inaugural quantitative impact sudy (QIS1). This study carries importance as it offers a comprehensive assessment of how insurers’ capital and overall financial strength could be affected, according to the statement. 

To support this endeavour, a carefully crafted ‘Technical Guidance’ document has been made available, aimed at aiding the insurance sector in precisely measuring and evaluating risks within QIS1. Further streamlining the process, a circular has also been issued pertaining to this initiative.

In order to maintain a smooth and organised advancement, insurers have bear the responsibility of presenting the results of QIS1 within a specified period. 

Following the analysis of these QIS1 outcomes, Irdai plans to initiate a series of successive quantitative impact studies (QIS). This dynamic sequence holds the potential to culminate in refining and evolving the RBC Framework, potentially leading to its final implementation.