Heavy discounts in insurance segments such as group health would soon come under the scanner of the Insurance Regulatory and Development Authority of India (IRDAI).
The regulator has come up with a new set of norms for maintaining the solvency ratio of insurance companies, based on each line of business. For segments like health, motor and liability, the insurer would be required to maintain a higher solvency ratio since not only the premiums, the incurred claims are also high. With the regulator asking insurers to maintain higher solvency for these segments, insurance companies would be required to reinvent their business strategies.
According to IRDAI, Available Solvency Margin (ASM) is calculated as, the excess of value of assets over the value of liabilities. Solvency ratio means the ratio of the amount of ASM to the amount of required solvency margin. The higher the solvency ratio, the more financially sound a company is considered to be. The required solvency ratio, according to IRDAI norms, currently is 150 per cent, which is the minimum amount to be maintained at all times.
“Bigger insurers have made pricing so tough that it is difficult for others to offer such rates. Now with the regulator’s command, these practices would have to discontinue since additional solvency has to be maintained if claims are high,” said the head of underwriting at a mid-sized private general insurer.