Capital requirement for health insurance ventures to be slashed by 33%

The Insurance Regulatory and Development Authority of India (Irda) is on the mind of reducing the capital requirement for setting up a standalone health insurance company by as much as 33% given that claims liabilities in the sector are lower than those for automobiles or factories.

It is going to use the risk-based capital method for assessing solvency requirements for stand-alone health insurance, which would be 100% of liabilities, excluding assets – much lower than the 150% that’s the norm. Like capital adequacy for banks, insurance companies are mandated to keep aside capital as solvency margins.

“The regulator is of the view that health insurance companies can operate at a much lower capital of 100%,” said an Irda official, who didn’t want to be named. “There would be a different set of numbers for management expense and commission rates for health insurance now that it is a separate category.” This follows the passage of the Insurance Bill, which has enabled the regulator to frame different rules for health insurance companies.