IRDAI's new insurer rules from April 1: What it means for policyholders

Move to Ind AS 117 framework will modernise how insurers report long-term profits and liabilities without altering existing policy terms, premiums or coverage for customers

The insurance regulator is transitioning companies to a new accounting framework to align financial reporting with global standards. The Insurance Regulatory and Development Authority of India (IRDAI) announced that insurers will adopt Indian Accounting Standards (Ind AS), including the sector-specific Ind AS 117, from April 1 to improve transparency and comparability.

 

It will change how insurers report their financial performance, rather than how insurance policies work. Experts say customers are unlikely to see any direct change in their coverage, premiums or claims process.

 

No impact on policyholders

 

“Policyholders may not see any major direct change as policy terms, premiums and claims processes will remain the same. However, financial reporting by insurers will become more transparent, globally comparable, and better aligned with the long-term nature of insurance business,” said Tijo Joseph, chief financial officer and chief compliance officer at Anand Rathi Insurance Brokers.

 

 

Greater transparency in insurers’ financial reporting could strengthen confidence among policyholders, investors and regulators, said Joseph.

 

Lokanath P Kar, founder of law firm ElpeeCo, said the adoption of Ind AS does not alter policyholder rights.

 

“Policyholders do not get impacted because of any change in the accounting system of any insurer. There will be no change in the rights and obligations of policyholders because of the adoption of Ind AS,” he said.

 

How insurers will recognise profits

 

A significant change under Ind AS 117 is how insurers recognise profits from policies.

 

Earlier, insurers largely reported revenue based on premiums earned, and accounting practices varied across companies. Under the new standard, profits will be recognised gradually over the life of the policy.

 

“A key concept introduced is the contractual service margin, which represents the unearned profit when a policy is issued. This margin is recognised gradually as the insurer provides coverage,” Joseph said.

 

This approach aligns profit recognition with the actual insurance service delivered during the policy period. According to Joseph, the shift is expected to reduce volatility in earnings and offer a clearer view of insurers’ long-term profitability.

 

Greater transparency and global comparability

 

Another important change is the adoption of market-based valuation of insurance liabilities along with enhanced disclosures.

 

Rakesh Kumar, founder and managing director of Square Insurance, said the new framework will give more information about insurers’ financial strength.

 

“Ind AS introduces market-consistent valuation of liabilities and detailed disclosures around risks, assumptions and cash flows. This improves transparency and comparability with global insurers,” Kumar said.

 

He added that for policyholders, this could strengthen trust in insurers’ ability to meet long-term obligations such as claims payouts.

 

Kar noted that the shift would also align India’s insurance accounting practices with global norms, potentially boosting investor confidence in the sector.

 

Possible impact on pricing and capital

 

While the change is mainly about financial reporting, experts say it could influence how insurers manage products and capital over time.

 

“Greater visibility into product profitability and risks may gradually influence pricing strategies, product design and capital management decisions across the industry,” Kumar said.

 

However, Kar emphasised that the reform itself does not directly change policy benefits or bonuses, as these are governed by insurance regulations.

 

Overall, experts say the move to Ind AS is aimed at modernising insurance accounting in India and providing a more accurate reflection of the long-term economics of insurance business, which could strengthen confidence in the sector among both investors and policyholders.