Why has regulator IRDAI stopped Reliance Health Insurance from selling new policies

Reliance Health Insurance commenced operations in October 2018 but has not been able to maintain the required solvency margin since June 2019

Kumar Shankar Roy Nov 7, 2019

Stop saleIn probably a first in many years, insurance regulator IRDAI has stopped Reliance Health Insurance from selling new policies. Reliance Health Insurance Company (RHICL) had commenced operations in October 2018. The regulator says that the new company has not been able to maintain the required solvency margin since June 2019. This has meant that the continuation of health insurance, unless numbers improve, at this juncture will not be in the interests of policyholders.

After working out the assets and liabilities, an insurer works out the available solvency margin. In essence, the solvency margin is the difference between the value of assets and that of insurance liabilities. IRDAI rules mandate that an insurance company must maintain control level of solvency at 150% but Reliance Health Insurance’s solvency level was 106% on June 30, 2019 and then it further dipped to 63% on September 30, 2019. Ravi Vishwanath is the ED and CEO of Reliance Health Insurance.

The IRDAI also said that an insurer is expected to maintain Rs 50 crore as the minimum excess value of assets over the amount of liabilities, but the number for Reliance Health Insurance was Rs 38.50 crore as on August 31, 2019 and Rs 31.66 crore as on September 30, 2019.

“After it came to the knowledge of IRDAI in the later part of August, 2019, a direction was issued to RHICL to restore the required level of solvency margin within a period of one month. However, despite repeated follow-up, this has not been carried out so far. Thereafter, the insurer was issued a show-cause notice and given another opportunity to present its case. As there has been no improvement but a further deterioration in the financial position of RHICL, in order to protect the policyholders’ interest, IRDAI has now issued directions to the insurance company…” IRDAI said.

The instructions to Reliance Health Insurance are that the company must stop selling new policies and also transfer the entire policyholders’ liabilities along with financial assets to Reliance General Insurance Co. Ltd (RGICL) with effect from 15th November, 2019. “Till that time, RHICL has been prohibited from using its assets for any payment other than claim settlement. It is estimated that the underlying assets are sufficient to meet the claims of the existing policyholders that may arise in future,” IRDAI said.

Reliance Health Insurance used to sell health cover under ‘More Health Insurance’.

RGICL has been directed to service the claims of the RHICL policyholders promptly and efficiently with effect from 15th November, 2019. IRDAI said it will be closely monitoring the situation to ensure the smooth transfer of the portfolio, settlement of claims and protection of the interest of the policyholders.

In so far as policyholders of RHICL are concerned, IRDAI said it would like to assure them that all their interests have been adequately protected and all genuine claims will continue to be duly honoured.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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