The IMF has said the Irdai maintains consistency in regulation, which was a problem in the past.
Further, the IMF has highlighted key developments in the sector like the open and consultative policy process, transparency in recommending policies, and publishing drafts of proposed changes to products and their premiums, in addition to significantly increased powers to impose financial penalties.
And finally, the Insurance Act, amended in 2015, transferred powers from the government to the regulator, giving the Irdai more freedom to regulate the sector.
However, the IMF has said there are areas that need to be addressed. The Irdai needs to modernise its solvency framework, with a strategy and timetable for implementation. Although most of the 2011 Financial Sector Assessment Program (FSAP) has been addressed, a risk-based capital framework, which is in the works, would be beneficial, the report states.
The IMF has recommended that since the Irdai’s framework needs to be applicable to solo and group insurance companies, the solvency framework to be developed should be in line with the new International Association of Insurance Supervisors’ (IAIS’) Insurance Capital Standards (ICS). This would also enable comparability with internationally active insurance companies.
The Irdai should introduce its approach by January 2021 to coincide with the introdauction of the International Financial Reporting Standards; if introduced earlier, the Irdai will be in a position to draw on the valuation framework being developed by the IAIS for its ICS.
The plans to implement a risk-based framework for supervision are underway, and the report notes that the Irdai’s inspection activities are conducted professionally in a time-bound and consultative manner. But the problem is that such inspections or supervision is focused mainly on compliance and not enforcement, the report has said.
The regulator should encourage an off-site and on-site strategy to supervise key risks. So as to complement the development of conglomerate supervision, the risk-based risk assessment methodology and supervisory toolkit could be shared with other regulators like the Reserve Bank of
India or the Securities and Exchange Board of India.
Another change recommended is on the organisational structure of the Irdai, which the IMF says is highly functional but lacks coordination between its different departments. Its current resources are inadequate as the demand for staff with expertise and skills keeps increasing.
Investment regulations by the Irdai need a re-think, says the report, as insurance firms are conditioned to invest a minimum amount in the infrastructure and housing sector. The IMF has said that the Irdai’s investment regulations need to encourage high investment quality standards.
Further changes recommended by the IMF are the following: Reducing dependence on approving new products and creating a ‘new’ product governance framework, reviewing the work and position of actuaries as there is a risk of over-dependence on the appointed actuary, developing a peer review process, improving cross-border bi-lateral agreements with foreign regulators, and reviewing its approach to branches of foreign reinsurance companies.
Lastly, the government and the Irdai should implement measures to level the playing field for insurers so that the perception that there are undue (strategic) advantages in favour of public sector insurers goes.