The Insurance Regulatory and Development Authority of India (IRDAI) has issued an important order for the insurance sector on 10 November 2026. Under this, the process of implementing 'Risk-Based Capital' (RBC) system has been expedited. For this, two separate working groups have been formed for life and non-life insurance companies. This step has been taken to ensure that companies do not rely only on their paper profits or total assets. But also keep adequate capital according to the actual risks of your business.
Till now, different parameters have been used in the financial reporting (Ind AS) of insurance companies and in estimating the capital required according to their risk. Because of this, it often became a challenge to reconcile the financial data of the same company and its regulatory solvency. IRDAI now wants the Ind AS balance sheets of companies to be made the initial basis for calculating RBC. Regulatory adjustments should be made as per the need so that the distance between the two can be reduced.
Also read: Mother Dairy increased milk prices by Rs 2 to 4, how much will you get now?
Difference between Old and New Testament
What was the old testament? The Old Testament worked exactly like that, making shoes one size fits all. Earlier IRDAI had made a fixed formula. Every insurance company had to keep a certain amount of money in the safe according to the size of its business so that there would be no problem in paying customer claims in future. One weakness of this rule was that it did not take into account what kind of risks the company had taken. No matter how safe or risky a company was selling a policy, both had to set aside money using almost the same formula. Due to this, the money of companies doing safe work remained stuck unnecessarily. Also, companies taking more risks sometimes had the fear of running out of money.
What is the new rule? The new rule of IRDAI will work on the principle of 'like the work, like the security'. Money will be managed according to risk. Now the functioning of every company and its risks will be closely examined. Understand with an easy example, suppose there are two companies, Company A and Company B. Company A sells only low-risk policies and keeps the money in a safe place. Under the new rule, it will have to keep less capital aside. With this, she will be able to use the remaining money to expand her business. Company B sells more policies where there is a risk of large claims (such as insurance for areas prone to floods or earthquakes). Under the new rule, it will have to keep more money safe in its coffers, so that people do not lose money in case of trouble.
What will be the impact on common people?
Earlier the money was kept safe by fixed formula but now the money will be kept safe by measuring the risk of the company. With this, people's money will remain more secure and the functioning of insurance companies will also improve. IRDAI has made it clear that Ind AS will certainly be a starting point but will not be sufficient. The Working Group will need to determine additional adjustments on a number of technical aspects. Such as estimation of potential loss, value of money over time and future profits etc.
Also read: When Canva fired its employees, it started a lottery, what is the rule in India?
It is important to note that these new rules will not immediately reduce the premium of a policy nor will the claim process change overnight. Nevertheless, its indirect benefits for the common people are very important. As such, this will ensure that companies do not take risks beyond their capacity. Apart from this, if a company is keeping less capital than the risk, then the regulator will be able to control it in time.