There is a specific gap in Indian insurance law, and on October 1 it was the subject of a letter from a Rajya Sabha member to the Prime Minister. Ajeet Madhavrao Gopchade wrote on September 25, 2026 asking for a statutory policyholders protection scheme with separate arrangements for life and long-term business and for general insurance, funded through an industry levy, together with a mechanism to keep policies alive by transferring viable portfolios to another insurer or running them off in an orderly way, and an early-intervention framework for insurer insolvency. He identified the United States, the United Kingdom, Singapore, Australia, Canada and Hong Kong as jurisdictions operating arrangements of this kind, and asked the Department of Financial Services to conduct a country-wise and legislative study. He had raised the same subject as a starred question in the Rajya Sabha on February 11, 2025, and the government's reply, which he sets out, is the best available statement of the current position. That reply is not a refusal. It is a list of what already exists: the separation of policyholders' funds from shareholders' funds under the Insurance Act, 1938, prescribed solvency requirements, investment norms, periodic risk assessment and compliance audits, periodic returns and public disclosures, and IRDAI's on-site and off-site supervisory framework. It also states that the applicable controlled level of solvency is presently 150 percent of the required solvency margin. What it does not contain is any mechanism that pays a policyholder if an insurer becomes insolvent. That is the gap, and it is worth understanding precisely, because the distinction between prudential supervision and a guarantee scheme is the whole question.
What the solvency number means, and why three of four state general insurers are below it
Solvency is expressed as available solvency margin against required solvency margin, and the controlled level IRDAI operates to is 150 percent of the required figure. A ratio of 1.5 means the insurer holds one and a half times the assets its own risk profile requires, not that it holds 1.5 times its liabilities. The FY26 figures for the four public sector general insurers, published by the General Insurance Council and reported by The Hindu on September 17, 2026, are stark. Their combined net result swung to a loss of Rs 10,050.79 crore from a profit of Rs 802.87 crore a year earlier. Their combined pure underwriting loss widened to Rs 30,892.09 crore from Rs 18,366.41 crore, and their combined ratio rose to 134.37 percent from 121.23 percent, meaning claims and operating expenses exceeded premiums by more than a third. Three of the four reported negative solvency ratios: National Insurance at minus 1.11 against minus 0.67, Oriental Insurance at minus 1.63 against minus 1.03, and United India at minus 1.36 against minus 0.65. Only New India Assurance remained positive, at 1.84 against 1.91, and it was also the only one of the four to report a net profit, of Rs 1,383.59 crore. The accumulated losses of the other three rose to Rs 35,959.73 crore from Rs 24,513.44 crore, an increase of about 47 percent. Read carefully, a negative solvency ratio in this presentation means the available margin is below the required margin by more than the whole required amount, which is a measure of how far accumulated losses have consumed the balance sheet. It is not a prediction of failure, and these insurers wrote business and paid claims through FY26. It is a statement that the buffer regulatory capital represents is gone.
What actually protects you, and what each protection does not cover
- The policyholders fund is real protection, and it is narrower than it sounds. The fund is the pool out of which claims are paid, kept separate from shareholders' funds, and the separation means an insurer's shareholders cannot take from it to meet their own obligations. What it does not do is guarantee that the fund is sufficient. A large loss year, which is what a combined ratio above 130 percent is, consumes the fund as claims are paid. Ring-fencing protects the fund from being raided; it does not top it up when claims outrun premium.
- Solvency supervision is a probability, not a promise. The 150 percent controlled level, the regular inspections, the directions the Authority issues and the appellate route to the Securities Appellate Tribunal all reduce the chance of a failure reaching policyholders. None of them create a payment if a failure happens. The analogy that helps is the difference between a bank being supervised and a depositor being insured: the first manages risk, the second transfers it to a fund, and only the second pays you when the institution cannot.
- The Policyholders Education and Protection Fund is not a guarantee fund. It is funded from penalties and from allocations, and it exists to fund education, awareness and the Bima Bharosa complaint infrastructure, not to settle claims against a failed insurer. Confusing the two is the most common error in this area, and the naming invites it. If the MP's proposal were adopted in the form he describes, it would be a different instrument, not an enlargement of this one.
What would change, and what to watch
Nothing in the current framework changes your policy if your insurer is sound, and nothing in a future scheme would either. The value of a guarantee scheme is that it is unwinding value in the case where nothing else works, and the design questions an Indian scheme would have to answer are the same ones every other jurisdiction answered. Whether the trigger is a formal determination of insolvency or an earlier regulatory intervention, because a scheme that only pays after a liquidation has missed most of the policyholder's need. Whether cover is capped and at what level, and whether the cap differs for long-term and general business, which is the distinction the MP drew. Whether the mechanism is a fund, a levy, or a run-off arrangement in which an existing insurer assumes the liabilities. And whether policyholders are paid in cash or the cover is maintained, because for a term policy with fifteen years to run, continued cover and an immediate payout are different products for a family in difficulty. The precedent for continuity already exists in Indian insurance, though it is a commercial route rather than a statutory one, and the route most often discussed in a failure is a transfer of the viable portfolio to a stronger insurer with the run-off of the rest supported by resolution and liquidity arrangements. The first test of any scheme will not be its benefit level. It will be whether it pays before liquidation, because that is the only timing at which the money is worth anything to the family that needs it.
Action
For a policyholder, the useful action is to be able to check solvency yourself, and the number is disclosed in the insurer's published financial statements, with the margin available and required shown separately. Compare the ratio across the insurers you hold policies with, and note the direction of travel rather than the single year, because the direction is what the state insurers' figures illustrate. Beyond that, the practical protection is diversification across insurers, which for most people means not putting every policy with the same group, and keeping the policy documents and the policyholders fund claim process in order. If you are an agent or an adviser, the honest conversation with a client in the event of a failure is that the claim is paid by whoever ends up holding the liability, and continuity depends on regulatory action, not on the policy terms. Watch item: whether the Department of Financial Services commissions the country-wise study the letter asked for, and whether any such study addresses the pre-liquidation trigger. A review that only compares benefit levels across jurisdictions will reproduce the gap it was meant to close.
Watch item: the solvency ratios of the three state general insurers in the FY27 filings. The FY26 figures show the buffer consumed rather than restored, and the direction of the accumulated loss line, up 47 percent in a single year, is the number that would have to reverse for the question to become less urgent rather than more.