The Long Road to Risk-Based Capital in India’s Insurance Sector: A Historical and Strategic Overview

Abstract

Sonjai Kumar

Risk-Based Capital (RBC) has become the cornerstone of solvency supervision in insurance worldwide. Its purpose is to align regulatory capital requirements with the actual risk profile of insurers, thereby strengthening policyholder protection and financial stability. India’s transition toward RBC has been a long-running reform project, spanning nearly two decades. Despite multiple committees, consultations, and pilot studies, the framework remains a work-in- progress as of 2025. This article provides a comprehensive historical overview of the RBC journey in India—tracing its conceptual roots, policy milestones, challenges, and current implementation roadmap under the Insurance Regulatory and Development Authority of India (IRDAI). The discussion situates India’s efforts within global RBC developments (Solvency II in Europe, the US RBC model, and emerging frameworks in Asia) and highlights the structural, operational, and cultural factors that have delayed full adoption. It concludes by outlining the likely contours of India’s forthcoming regime and its implications for solvency, governance, and market discipline.

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