IRDAI approves changes in capital, ownership, solvency of insurance companies

The Insurance Regulatory and Development Authority of India (IRDAI) approved multiple proposals at its Friday meeting, allowing private equity funds to invest directly in insurance companies, banks to partner with nine insurance companies, insurance companies to raise alternative investments such as subordinated debt and preferred stock without prior regulatory approval.

IRDAI also gave final approval to Go-digit General Insurance Company for listing and also approved IndiaFirst Life Insurance Company in principle. It also approved Exide Life’s merger with HDFC Life.

The aim of these changes was to strengthen policyholders, insurance companies and distributors to enable “insurance for all by 2047,” the regulator said.

IRDAI allowed private companies to invest directly in insurance companies, making investment through a special purpose vehicle (SPV) optional. Investors can now take a 25% stake in insurance companies without being designated as a promoter. Providers of listed entities have been authorized to dilute their interest in insurance companies to 26%, subject to satisfactory solvency during the previous 5 years.

Also in a major consumer sector, banks and other corporate agents can join nine insurers instead of three previously, while insurance brokers can join six insurers instead of two previously in each line of life, general and health.

The regulatory changes were made following comments from stakeholders and views from the insurance advisory committee, IRDAI said.

Solvency standards for both non-life and life insurance companies have eased as general insurers are asked to maintain a harvest insurance solvency ratio of 0.50% from 0.70% and the timeline to account for state and central premiums government has been increased from 180 days to 365 days freeing up Rs 1460 crore in capital for general insurers.

The solvency ratio for unit-linked life insurance policies has been reduced from 0.80% to 0.60% and for Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) from 0.10% to 0.05%. This will reduce capital requirements for life insurance companies by about Rs 2000 crore.

Insurance companies awaiting these reform measures from the regulator applauded the move.

“These are groundbreaking reforms that make doing business easier, free up distribution models, encourage customer-centric innovations and make the industry attractive for investment. The regulator has addressed some of the industry’s long-standing problems in one fell swoop.” said Bhargav Dasgupta, CEO of ICICI Lombard General Insurance Co.

Companies can now raise capital through subordinated debt or preferred stock, without prior IRDAI approval. The threshold limits for raising such capital have also been increased to 50% of the paid-up capital and premium.

The regulator has also given actuaries new provisions for identifying, monitoring, reporting and recommending actions for risks that affect the solvency position of the companies.

“We believe that registration of Indian insurance companies and other forms of capital proposals should lead to better access to capital for the industry, which will boost insurance penetration. We welcome changes to the regulatory sandbox framework in the form of an extension from the 6-month trial period to a maximum of 36 months, and believe this will encourage the industry to foster innovation, develop experience and launch newer products for the customers on a continuous basis,” said Ritesh Kumar, CEO HDFC Ergo General Insurance.

The regulatory sandbox provides a testing environment for companies in innovative products, technologies, in a controlled regulatory environment. The trial period has been extended from 6 months to a maximum of 36 months.

In its board meeting, the regulator also gave final approval to Go Digit General Insurance Co and approval in principle to IndiaFirst Life Insurance Co for stock exchange listing.

The acquisition of Exide Life Insurance by HDFC Life was also approved and the registration of Kshema General Insurance Co was also given the green light. Nineteen other applications are in various stages in the pipeline, one of which is expected to be approved at the next meeting, IRDAI said.

Other reforms on the anvil included the replacement of the various segmental limits on management’s spending with one global limit for general and health insurance. For life insurance, it is proposed to improve segmental cost limits for certain segments, with general regulatory monitoring at company level.

It has been proposed to link commissions to management’s overall cost limit. “This allows insurers to come up with commission structures that incentivize the intermediaries in line with their recruiting efforts and also make insurance more affordable,” said IRDAI.

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