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IMF Country Report No. 18/86



April 2018

This paper on India was prepared by a staff team of the International Monetary Fund. It is based on the information available at the time it was completed on March 30, 2018.

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March 9, 2018



Prepared by

Monetary and Capital Markets Department

This Technical Note was prepared in the context of a joint IMF-World Bank Financial Sector Assessment Program (FSAP) mission in India during June 2017 led by Marina Moretti, IMF; and Aurora Ferrari, World Bank; and overseen by the Monetary and Capital Markets Department, IMF, and the Finance and Markets Global Practice, World Bank. The note contains technical analysis and detailed information underpinning the FSAP assessment’s findings and recommendations. Further information on the FSAP program can be found at


  • Glossary




  • A. Developments in the Insurance Market

  • B. Developments in Insurance Regulation


  • A. Developing a More Risk-Based Approach

  • B. Other Recommendations


  • 1. Main Recommendations

  • 2. Numbers of Insurance Companies

  • 3. Insurance Penetration in Selected Countries, 2015


  • I. Response to the Recommendations of the 2011 FSAP



European Union


Financial Sector Assessment Program


Financial Stability and Development Council


Financial Sector Legislative Reforms Committee


General Insurance Corporation


Internationally Active Insurance Group


International Association of Insurance Supervisors


Insurance Core Principles


International Financial Reporting Standards

Ind As

Indian Accounting Standards


Indian Rupees


Insurance Regulatory and Development Authority of India


Inter-Regulatory Forum


Key Management Persons


Life Insurance Corporation of India


Minimum Capital Requirement


Multilateral Memorandum of Understanding on Cooperation and Information Exchange


Memorandum of Understanding


Motor Third-Party Liability


Own Risk and Solvency Assessment


Pension Fund Regulatory and Development Authority


Reserve Bank of India


Resolution Corporation


Securities and Exchange Board of India


Systemically Important Insurer


Unit-Linked Insurance Policies

Executive Summary

This technical note provides an assessment of the recent development of regulation and supervision of the Indian insurance sector. It is part of the 2017 Financial Sector Assessment Program (FSAP) for India. The note focuses on several key developments in the regulation and supervision of the insurance sector since the last FSAP (2011), and evaluates the extent to which the recommendations of the 2011 India FSAP have been addressed. The note does not present a full assessment of observance of the International Association of Insurance Supervisors (IAIS) Insurance Core Principles (ICPs).

The sector has continued to grow in scale and diversity, surmounting the adverse impact of the global financial crisis, although penetration remains relatively low. Public sector insurers continue to command a majority of the market and life insurance predominates, with about 75 percent of total premiums. Non-life insurance is dominated by motor insurance. Penetration rates are unchanged from 2011 and generally lower than in comparator countries, especially in non-life. While traditional sale channels continue to predominate, there is increasing diversity in distribution. Risks in life insurance are relatively well spread and in non-life are mainly short-term. The sector is profitable and solvency exceeds minimum requirements, but with exceptions.

Key challenges include increasing penetration and addressing poor underwriting discipline in non-life insurance. Insurance has been associated with savings and investments and less with protection (most domestic property remains uninsured). There is increasing focus on simple products that can be sold at low cost. In many lines, insurers are relying on investment income to offset poor underwriting results. Fixed premiums for motor third-party liability insurance continue to affect performance, although there have been moves to address the unlimited liability of insurers in case of claims. Public and private insurers are now subject to the same regulation, although there remain some structural advantages for the public-sector life insurer and reinsurer.

The insurance regulator has been implementing major changes to its regulations. Revisions to the key insurance law have transferred powers from government to the Insurance Regulatory and Development Authority (IRDAI), including wider powers to issue regulations. Foreign insurers have been allowed to increase their interest in Indian insurers to 49 percent, while foreign reinsurers may now operate as branches. Higher financial penalties are now available to IRDAI. After extensive consultation, IRDAI has issued many new regulations, strengthening policyholder protection, including through extensive product regulations and controls on commissions and other expenses.

IRDAI has not yet comprehensively updated its solvency requirements. A more formal approach to solvency control levels and new forms of eligible capital have been introduced. Implementation of International Financial Reporting Standards (IFRS) from financial year 2020–21 will require a move toward economic valuation for financial statements. IRDAI is now working with the industry on plans for economic valuation for solvency purposes and risk-based capital. India is an outlier—both in Asia and internationally—in not having moved in this direction as yet. Investment regulations remain conservative, but there are also unusual minimum requirements on investment in infrastructure and the housing sector. The insurance resolution framework appears comprehensive, though untested.

Most of the 2011 FSAP recommendations on insurance regulation have been addressed. Issues with IRDAI’s independence and overly informal approach in some areas, including solvency control levels and the arrangements for cooperation with other regulatory bodies, have been resolved. Stronger non-life reserving requirements and a new insurance fraud framework have been introduced. Insurance regulation is now more closely integrated into wider financial sector supervision, both domestically (including supervision of financial conglomerates) and internationally.

A key recommendation is that IRDAI formulate a strategy, plan, and timetable as soon as possible for modernization of the solvency framework. IRDAI should have regard to the expected new IFRS 17 on insurance liabilities (as an input into solvency valuation requirements) and to the well-advanced new International Association of Insurance Supervisors (IAIS) Insurance Capital Standards, adapted and recalibrated as necessary for application to the Indian market. Or IRDAI could draw on established approaches in other Asian countries (i.e., Singapore). Given the nature of the market and complexity of an internal model option, IRDAI should implement only a standardized approach to risk-based capital, covering all risks, and require insurers to develop an Own Risk and Solvency Assessment. Time should be taken to calibrate the approach appropriately.

IRDAI should also move to a more risk-based framework for supervision. Onsite inspections in particular are compliance-based, and there is scope for more evaluation of the risks inherent in an insurer’s strategy, business model, and operations, and the adequacy of governance and controls in relation to those risks. A more risk-based supervisory approach would complement risk-based capital and encourage better risk management. IRDAI could develop a risk-based supervisory cycle, using impact and risk assessment to determine supervisory focus. Some commonality of approach with other Indian supervisors could support the further development of conglomerate supervision.

IRDAI should review its resources and organization to meet the demands of a more risk-based approach. Current resources are inadequate to support IRDAI’s target onsite work program. Moving to a more risk-based approach could release some resources as well as impose new demands on skills and expertise. IRDAI should review its current reliance on staff on deputation from public sector insurers as well as its current organizational structure.

A number of other changes are recommended. The government and IRDAI should review the infrastructure and housing sector minimum investment requirements applying to insurers to ensure that they do not conflict with IRDAI’s regulatory objectives. IRDAI and the government of India should continue with their current reforms of the motor insurance market. IRDAI and, as necessary, the government of India, should consider further measures to level the playing field for insurers in the limited areas where there are, or may be perceived to be, advantages for public sector insurers. IRDAI should review aspects of its cross-border supervision, including its approach to the Indian insurers with significant foreign operations.

Table 1.

India: Main Recommendations

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India: Financial Sector Assessment Program: Insurance Sector Regulation and Supervision-Technical Note
Author: International Monetary Fund. Monetary and Capital Markets Department