Insurance regulator IRDAI Tuesday said it is in the process of moving towards the risk-based capital (RBC) regime to improve protection for policyholders. 

It last year had set up a 10-member steering committee to help implement the new risk-based capital regime by March 2021. 


"We have started the process of moving to risk-based capital system. It will of course take a little time but it will be done eventually in a couple of years," Insurance Regulatory and Development Authority of India (IRDAI) chairman SC Khuntia said on the sidelines of the CII Insurance and Pension Summit Tuesday. 


The decision to move to the RBC structure from the current solvency principle regime was taken after recommendations of a panel which gave its report in July this year, IRDAI had said in a notification last year. 


A shift in regime was felt because the current solvency based rules do not help in assessing whether the capital held is adequate enough for the risks inherent in the insurance business, it had said. 


Khuntia said if risk-based capital system is there, then additional capital doesn't have to remain idle. 

"It will help those companies who manage their risk well," he said. 


Insurance industry has made a request to allow increase the limit to raise capital through tier-II bonds. Currently they are allowed to raise up to from 25 per cent of their net worth from tier-II bonds. 


"That request has been made today. This would be possible only when we move to risk-based capital regime," he said. The regulator is also starting to work on risk-based supervision for the insurance sector, according to Khuntia. 


"Those who are at greater risk will require more intensive work, while those who do not display these kind of risky behaviour need a light touch as far as supervision is concerned," he added. 

Khuntia further said that the insurance reguator was working on the issue of exclusions in the mental health insurance policies.


Sometime back that the regulator had asked all the insurers to come up with  mental health insurance products, in lines with other health insurance products with immediate effect.


However, there are certain exclusions in the existing health insurance policies which need to be removed so that it can cover all kind of mental diseases.


Khuntia said that  " We had set up a committee to look into the existing exclusions in health insurance policies.


Certain exclusions will be removed from the  basic health insurance policies so as to extend the coverage for mentally Ill persons too".


The committee has submitted it's report, Khuntia said, and IRDAI  is studying it before taking any decisions.


Irda is in favour of simplified products in the industry which a policyholder can easily understand so as to avoid misselling.Simple insurance product which every one can understand is the need of the insurance sector to avoid mis-seling, he said. Khuntia advised the insurers to invest in the corporate bonds that have good ratings.


“As per regulatory oversight, normally when a corporate is facing downgrade, then insurers should withdraw that investment and put it somewhere else.Low rated company may give better return but it's not safe to invest he said.


On LIC investments in IL&FS, he said that LIC will have to take a call . At the time of investment they should invest in good rated companies only.


On long term car insurance, he said that insurance companies will have to file products meant for the second year and for the subsequent years that will be part of long term own damage products and IRDAI will approve accordingly, he said.


“We have not decided whether a policy holder can buy the second year policies – own damage- from same company or from others too, he said.


On products linked to the variable telematics, he said that the regulator was working on it's guidelines and will finalise its stand by this month end.


The variable telematics products are good as they will motivate people for good behaviour while driving, he said.