First phase pilot of Risk Based Supervision from next month: Irdai

To promote a 'Principle based Regulatory regime' and foster ease of doing business, insurance sector regulator Irdai will roll out the first phase of pilot for 'Risk Based Supervision' (RBS) from next month.

RBS is a shift towards adopting global best practices for supervision which focuses on proportionality, materiality and relies on holistic analysis of the activities of regulated entities from risk perspective, Insurance Regulatory and Development Authority of India (IRDAI) said in a statement on Tuesday.

It will foster ease of doing business and encourage proactive risk identification and management, it said.

Irdai has been working towards developing and implementing 'Risk Based Supervision' (RBS) framework for the insurance sector in India.

For this purpose, it said, the regulator has collaborated with Toronto Centre (TC), which is a not-for profit organisation, working with the mission of promoting strong supervision in order to enhance financial stability, crisis preparedness, and consumer protection.

In order to ensure robust development and smooth implementation of RBS, Irdai has been engaging with various stakeholders over the past few months.

"After recent deliberations with Toronto Centre, the first phase of pilots for RBS are scheduled to commence from July, 2023," it said.

To begin with, Irdai had earlier said it will primarily focus on compliance based approach for supervision as over the past two decades, the number of insurance entities to be supervised have increased manifold.

To supervise on compliance approach would need the same yardstick to be applied to all regulated entities regardless of its size, business model and nature of significant activities.

Instead, under RBS, each regulated entity will be assessed based on its 'risk profile' and the overall risk it carries.

Entailing the benefits of moving towards RBS framework, Irdai had said it will lead to a structured approach to help assess various risks, both internal to the entity and external environment.

RBS is forward looking and outcome based with due focus on the responsibility of the board and senior management of the entities to ensure financial soundness, it had said.

Besides, it will help in identification of various risks relating to market conduct and prudential aspects at an early stage so that timely regulatory intervention is possible depending upon the overall risk profile of the entity.

In the recent Financial Sector Assessment Program report of 2017, the IMF and World Bank recommended Irdai to move towards a risk based supervisory approach.