Two Reforms Arriving Together, and Why a Buyer Should Care
Most corporate insurance buyers regard an insurer's solvency and its accounting as back-office matters that have nothing to do with the cover they buy. That assumption is about to break. Two structural reforms are converging on the Indian general-insurance market: a move from the existing factor-based solvency regime to a risk-based capital (RBC) framework, and the adoption of Ind AS 117, India's version of the IFRS 17 insurance-contracts standard. The Insurance Regulatory and Development Authority of India had targeted adoption around the 2026 financial year, and the General Insurance Council has formally asked for roughly a twelve-month extension, citing the difficulty of aligning IT systems, data structures and actuarial models with the new requirements. Whether the regime lands in April 2026 or a year later, the direction is fixed, and it changes how insurers think about the risks they write.
The reason a buyer should care is that both reforms operate directly on underwriting. Under the old solvency rules, an insurer held capital broadly as a function of premium and claims volume, with limited sensitivity to how risky any particular line actually was. A catastrophe-exposed property book and a stable, well-diversified book attracted broadly comparable capital treatment relative to their size. Under RBC, that changes: an insurer must hold capital in proportion to the risks it underwrites, with higher charges for lines that carry volatile claims, long-tail liability, or concentrated exposure to catastrophic events such as flood and earthquake. Capital becomes a price signal that flows back into appetite.
The second reform, Ind AS 117, changes how an insurer recognises the profit on the contracts it writes. Instead of booking premium as revenue when received, the standard recognises profit as the insurer delivers the service and is released from risk, and it forces explicit, current measurement of the obligations under each group of contracts. For the buyer, the practical consequence is that insurers will look much harder at whether a contract is expected to be profitable over its life, because an onerous contract has to be recognised as a loss up front. The era in which an insurer could write a thin or loss-making commercial risk and rely on aggregate cash flow to paper over it is closing.
How Risk-Based Capital Rewires Underwriting Appetite
The core mechanism of RBC is simple to state and powerful in effect: the more uncertain and concentrated the risk, the more capital the insurer must set aside to write it, and capital has a cost. Under the framework being calibrated for India, an insurer's required capital is built up from explicit charges for each risk module (underwriting risk, catastrophe risk, market and credit risk, and operational risk), then partly offset by a diversification credit where those risks do not move together, to arrive at a target capital level above which the insurer must hold eligible own funds. That target capital has a cost, and the cost has to be earned back through premium. So a line that consumes a large capital charge must either command a higher price or be written in smaller size, otherwise it dilutes the insurer's return on capital. This is the channel through which a regulatory capital reform reaches into a commercial renewal, and it is why the industry's two quantitative impact studies pointed to required capital rising materially over the existing factor-based position for catastrophe-heavy and long-tail writers.
Consider how this plays across the main commercial lines:
- Catastrophe-exposed property. Fire and property policies carrying storm, tempest, flood and inundation (STFI) and earthquake perils generate volatile, correlated losses. Under RBC these attract a meaningful catastrophe capital charge, especially where an insurer's book is concentrated in a single flood basin or seismic zone. Expect insurers to price catastrophe perils more deliberately, to manage aggregate exposure by location, and to reward risks that demonstrably reduce their tail.
- Long-tail liability. Public liability, product liability and professional indemnity carry reserving uncertainty that stretches over years. Capital must be held against the risk that reserves prove inadequate, which makes disciplined pricing and clear policy terms more valuable to the insurer than top-line growth.
- Diversifying, stable lines. Well-spread, low-volatility books attract relatively lower capital and become more attractive to write, which can sharpen competition and pricing for clean, well-managed risks.
The strategic consequence for insurers is that return on capital, not premium volume, becomes the organising metric of underwriting. An underwriter is no longer rewarded simply for filling a target; the question becomes whether the risk earns its capital. That reshapes appetite in ways buyers will feel directly. Risks that are well-engineered, well-documented and diversifying for the insurer will find capacity and competitive terms. Risks that are catastrophe-concentrated, poorly documented or historically loss-making will find capital scarcer and dearer.
Inside Ind AS 117: The Contractual Service Margin and the Onerous-Contract Test
Ind AS 117 deserves separate attention because its measurement mechanics, not just its spirit, are what change underwriting behaviour. The standard requires insurers to group contracts and to measure each group under a building-block approach (the general measurement model), or, for short-duration covers, a simplified premium allocation approach (PAA) that resembles the familiar unearned-premium method. Under the general model, the value of a group of contracts is built from explicit blocks: the present value of future cash flows, a risk adjustment for non-financial risk, and a contractual service margin (CSM), which is the unearned profit the insurer expects to make and releases into the income statement only as it provides cover over the life of the contract.
Two features of this matter intensely for commercial underwriting. The first is that profit can no longer be front-loaded. Where premium was once largely booked as it came in, the CSM forces the expected profit to be earned gradually as the insurer delivers the service and is released from risk, so writing a large account no longer flatters this year's result the way it used to. The second, and sharper, feature is the onerous-contract test. At inception and at each reporting date, the insurer must check whether a group of contracts is expected to lose money, meaning the fulfilment cash flows plus risk adjustment exceed the premium. If a group is onerous, there is no CSM to spread; the entire expected loss must be recognised immediately through profit or loss, and a loss component is set up that the insurer has to track until the group recovers or runs off.
Under the previous accounting approach, an insurer could write a commercial risk below its expected cost and still report acceptable results, because aggregate premium inflow and deferral masked the shortfall. Soft-market pricing on large property and liability accounts was often sustained this way. Ind AS 117 removes that cover: an underpriced group surfaces as an up-front loss visible to management, the board, auditors and the regulator, and the loss component sits on the balance sheet as a standing reminder. The standard therefore enforces a discipline that pricing committees have often struggled to impose on their own, and it does so at the granularity of contract groups, which prevents a profitable cohort from quietly absorbing an unprofitable one.
The practical implications for commercial buyers are threefold:
- Persistently underpriced segments will correct. Lines written below technical cost to win or retain volume become hard to sustain when the loss must be booked up front and tracked as a loss component. Buyers enjoying unsustainably cheap cover should plan for correction at renewal.
- The actuarial view gains authority over the sales view. When mispricing produces an immediate, visible accounting hit, the technical-pricing and reserving view carries more weight against the pressure to win the account, so buyers should expect insurers to defend a technical floor more firmly.
- Profitability transparency cuts both ways. The same machinery that exposes onerous groups lets an insurer see clearly which cohorts carry a healthy CSM. A buyer that presents as a profitable, low-volatility risk can use that to argue for capacity and continuity, because the insurer can now measure and value that quality at the group level.
The combined effect of RBC and Ind AS 117 is to make underwriting profitability both capital-aware and immediately visible at inception. These are precisely the conditions under which underwriting discipline holds through the cycle rather than collapsing in every soft market. For the buyer, the loose pricing of the recent soft phase is being structurally constrained, and the response is to compete on risk quality rather than on the hope of finding a carrier willing to write a group into a loss component.
What Commercial Buyers and Brokers Should Do Now
The reforms are technical, but the buyer-side response is practical and can begin well before the regime formally lands. The objective is to position the programme so that it consumes less capital and presents as demonstrably profitable to the insurer, because under RBC and Ind AS 117 those two qualities translate directly into capacity, continuity and price.
Strengthen the data that drives the capital charge. Under RBC, the capital an insurer holds against a risk reflects how much uncertainty it faces. Vague, incomplete submissions force conservative assumptions and higher capital. Detailed, accurate occupancy and construction data, current valuations, clear protection information and a properly explained loss history all reduce the uncertainty the insurer must price for. The submission becomes a capital-management document, not just a paperwork exercise.
Engineer down the tail, not just the average. RBC charges most heavily for volatility and catastrophe accumulation. Investments that cut the severity of a plausible large loss, such as fire detection and suppression, flood defences, separation of values and business-continuity planning, are now doubly valuable: they reduce expected losses and they reduce the capital the insurer must hold against your tail. Document these measures and quantify their effect.
Structure retentions deliberately. Sensible deductible and retention structures lower the insurer's exposure to attritional and volatile losses and therefore the capital and price attached to the risk. A buyer with the balance sheet to carry more working-layer loss can convert that into better terms on the volatile upper layers the insurer most wants to control.
Plan renewals around correction, not continuity. In segments that have been underpriced through the soft market, expect the technical floor to firm as onerous-contract accounting takes hold. Build that into budgeting and start renewal marketing early, with a submission strong enough to attract the insurers whose capital models reward quality.
This is where structured market intelligence earns its place. Knowing how different insurers' wordings treat catastrophe perils, deductibles and key exclusions, and how their appetite is shifting as capital models bite, lets a broker steer a programme toward the carriers best placed to write it efficiently. Sarvada gives commercial-insurance brokers and corporate risk teams structured, searchable access to insurer wordings and the intelligence around them, so a programme can be built and defended against the capital-aware underwriting now taking shape in the Indian market. Brokers and risk managers preparing for the RBC and Ind AS 117 transition can Request Access to evaluate the platform for renewal strategy and wording comparison.