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IRDA committee suggests minimum capital

The Insurance Regulatory & Development Authority (IRDA) committee on standalone health insurance companies has suggested a minimum capital of Rs 25 crore for a standalone health insurance company.

Evaluation of the financial soundness and market reputation of the promoters would be equally important factors for consideration of license. The reform should aim at the formation of new standalone health insurance companies, which would be to substantially increase the market size as well as penetration in next 3-5 years.

They should aim at encouraging the formation of about 15 to 16 new standalone health insurance companies in addition to the present four general insurance companies, suggested the report. These companies should be covered under a separate statute or law to be modeled on similar statutes being used in countries where health insurance has come to play a major role in the healthcare financing. The objective of the formation of standalone health insurance companies is to encourage the growth of market share of health insurance in health financing on a sustainable basis. | Read more Finance news.

In addition to the minimum capital requirement, the committee recommends adoption of Risk Based Capital (RBC) model for the health insurance companies. The RBC model calculates a target capital based on factors that reflect the level of financial risk for an organization. RBC model is used by regulators to set minimum capital requirements and to determine when to take regulatory action.

The level of minimum capital would not only render a standalone health insurer viable, but would also provide sufficient to deter non-serious players seeking to enter the sector. The RBC model calculates a target capital based on factors that reflect the level of financial risk for an organization.

IRDA should link the capital requirements for the standalone health insurance companies to the risks carried by them in their portfolios. Such a risk-based approach could be standardized at the initial stages as percentage of the size of the portfolio. Different percentage could be evolved for different product categories. Eventually, with adequate experience and knowledge, the regulator could move from the standardized approach in risk-based capital to advanced measurement methods, once adequate data on claims, acquisition, administration cost is available.

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