Parliamentary Panel Urges IRDAI to Fast-Track Risk-Based Capital Norms, Calls for GST Rationalization on Insurance

The Parliamentary Committee on Public Undertakings (CoPU) has recommended a series of structural reforms for India’s insurance sector, calling on the regulator to expedite the transition to a Risk-Based Capital (RBC) framework and urging the Union Government to rationalise the current 18% Goods and Services Tax (GST) on insurance premiums.

The recommendations are detailed in the CoPU report tabled in Parliament, highlighting key measures needed to achieve the target of “Insurance for All by 2047.”

Key Recommendations & Policy Priorities

1. Rationalisation of 18% GST Rate

• The committee noted that the 18% GST levied on insurance products hurts affordability and directly hampers deeper penetration across lower- and middle-income segments.

• Priority Sectors: It urged the government to examine GST relief specifically for health, term life, agricultural insurance, and reinsurance products, balancing fiscal revenue needs with social safety net coverage.

2. Risk-Based Capital (RBC) Framework

• CoPU directed the Insurance Regulatory and Development Authority of India (IRDAI) to fast-track the implementation of RBC.

• Shifting from the current solvency regime to a risk-based framework is aimed at aligning capital requirements with actual risk profiles, improving institutional resilience, and protecting policyholder funds.

3. Reversing Public Sector Market Share Decline

• Citing the steady market share erosion of Central Public Sector Undertakings (CPSUs) in the non-life space, the panel asked each public sector insurer to formulate a distinct market positioning strategy.

• For three financially strained public general insurers, CoPU recommended Board-approved solvency restoration plans monitored via quarterly milestones. Capital infusion by the government should serve as a last resort after internal operational restructurings are fully exhausted.

Strategic Targets & Digital Initiatives