Regulation

Regulatory agencies

Identify the regulatory agencies responsible for regulating insurance and reinsurance companies.

Insurance and reinsurance companies and insurance intermediaries in India are governed by the Insurance Regulatory and Development Authority of India (IRDAI). The primary legislation regulating the Indian insurance sector comprises the Insurance Act 1938 (the Insurance Act) and the Insurance Regulatory and Development Authority Act 1999 (the IRDA Act). Under the powers granted to it under the IRDA Act, the IRDAI has issued various regulations for governing the licensing and functioning of insurers, reinsurers and insurance intermediaries. The IRDAI has also released the IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations 2015 (the Branch Office Regulations), which govern the establishment and functioning of branch offices in India set up by foreign reinsurers (foreign reinsurer branches), and has also notified regulations on the entry of Lloyd’s into the Indian market.

Although the Insurance Laws (Amendment) Act 2015 and the Insurance (Amendment) Act 2021 (Amendment Act 2021) have resulted in many changes to the Insurance Act and the insurance regulatory framework in general, the primary insurance regulator continues to be the IRDAI. Appeals from orders issued and decisions made by the IRDAI may be referred before the Securities Appellate Tribunal (SAT). Procedural rules for filing appeals from the IRDAI orders or decisions with the SAT have also been notified.

Formation and licensing

What are the requirements for formation and licensing of new insurance and reinsurance companies?

Under the Insurance Act, an Indian insurance company is permitted to carry out insurance business in India. An Indian insurance company is a public limited company formed under the Companies Act 2013 (the Companies Act) that exclusively carries out life insurance, general insurance, health insurance or reinsurance business. An entity seeking to carry out insurance business is required to apply for a certificate of registration from the IRDAI following a three-stage process set out under the IRDA (Registration of Indian Insurance Companies) Regulations 2000 (the Registration Regulations). A certificate for registration is required for each category of insurance business (ie, life, general, stand-alone health and reinsurance). Also, the Registration Regulations set out the essential requirements that an applicant for registration is required to fulfil, including, but not limited to:

  • permissible foreign investment limits;
  • minimum capitalisation requirements;
  • minimum qualifications of the directors and principal officers;
  • planned infrastructure; and
  • general track record of conduct and performance of each of the Indian promoters and foreign investors in the business or profession they are engaged in.

 

The applicant must also provide adequate documentation in support of its application as prescribed under the Registration Regulations.

On 1 February 2021, pursuant to the central budget speech for the 2021–22 financial year (Budget Speech), the Indian Finance Minister announced that the foreign direct investment cap for Indian insurance companies would be increased from 49 per cent to 74 per cent. The Budget Speech also indicated that additional safeguards would be introduced under the extant insurance regulatory framework concerning foreign ownership and control of insurance companies. With the recent notification of the Amendment Act 2021, the relevant amendments to the Insurance Act have been notified. The Amendment Act 2021 will become effective on a date to be specified by the government and, once effective, the Amendment Act 2021 may also trigger corresponding revisions to the insurance regulatory framework, including changes to the Registration Regulations in line with the safeguards proposed in the Budget Speech.

Further, the establishment of foreign reinsurer branches and the setting up of service companies under the Lloyd’s India framework is also permitted. The Branch Office Regulations prescribe that a foreign reinsurer is required to apply for registration of a foreign reinsurer branch. The Branch Office Regulations specify the eligibility criteria for a foreign reinsurer, such as credit rating, infusion of minimum assigned capital into the foreign reinsurer branch, in-principle clearance from the home country regulator and a commitment to meet all liabilities of the foreign reinsurer branch.

Also, syndicates of Lloyd’s may participate under the Lloyd’s India framework (Syndicates of Lloyd’s India) through a service company set up in India under the IRDAI (Lloyd’s India) Regulations 2016 (the Lloyd’s India Regulations). The IRDAI notified the IRDAI (Re-insurance) Regulations 2018 (Reinsurance Regulations), thereby consolidating the provisions governing reinsurance business in India into one set of applicable regulations.

Other licences, authorisations and qualifications

What licences, authorisations or qualifications are required for insurance and reinsurance companies to conduct business?

Other than registration under the Insurance Act and general company law, no additional licences, authorisations or qualifications are required for insurance and reinsurance companies to conduct business. Banks that intend to set up insurance joint ventures with equity contributions on a risk participation basis or make investments in insurance companies are required to obtain the prior approval of the Reserve Bank of India before engaging in such business.

Officers and directors

What are the minimum qualification requirements for officers and directors of insurance and reinsurance companies?

The Registration Regulations prescribe that the IRDAI will examine the following when considering granting registration to an insurance or reinsurance company:

  • the performance record of the directors and persons in the management of the promoter of the applicant and the applicant;
  • the level of actuarial and other professional expertise within the management of the applicant company; and
  • the academic and professional qualifications, professional experience, reputation and character of the directors and key persons, and whether any censure or disciplinary actions, dismissals and litigations have been instituted against them.

 

Further, the application process for registration requires substantial details about the qualifications and professional background of the top management of the applicant. With the recent notification of the Amendment Act 2021 it is anticipated that once the provisions of the Amendment Act 2021 are notified, changes may be made by the IRDAI to, inter alia, the Registration Regulations and the Guidelines for Corporate Governance for insurers in India of 18 May 2016 to mandate that the majority of directors on the board and key management persons of the insurance company be resident Indians, in line with the safeguards proposed under the Budget Speech and to introduce other changes corresponding with the amendments.

The Branch Office Regulations, which prescribe similar requirements as above, require the key management persons of the foreign reinsurer branch to be appointed with the prior approval of the IRDAI. Moreover, an executive committee of the foreign reinsurer branch is required to be constituted by the board of directors of the foreign reinsurer to perform the functions of the board with a clearly defined delegation from the board of the foreign reinsurer. Lloyd’s is required to obtain prior approval from the IRDAI for the appointment, removal or managerial remuneration payable to the Chief Executive Officer of Lloyd’s India. Further, details of the key management persons of service companies along with their biodata are required to be submitted at the time of registration with the IRDAI. Any change in the details submitted is required to be intimated to the IRDAI.

Capital and surplus requirements

What are the capital and surplus requirements for insurance and reinsurance companies?

Insurance companies are required to have a minimum paid-up equity capital of 1 billion rupees, whereas a minimum paid-up capital of 2 billion rupees has been prescribed for reinsurance companies. For foreign reinsurer branches, the minimum assigned capital shall be 1 billion rupees. Also, a minimum assigned capital of 1 billion rupees is required to be assigned to Lloyd’s India. Syndicates of Lloyd’s India are required to maintain an assigned capital of 50 million rupees through their service companies in India.

Reserves

What are the requirements with respect to reserves maintained by insurance and reinsurance companies?

Insurance and reinsurance companies are required to maintain at all times an excess value of assets over the number of liabilities of not less than 50 per cent of the amount of the minimum capital requirement of such insurance or reinsurance company. Also, insurance and reinsurance companies are mandated to maintain a minimum solvency margin. The required solvency margin is calculated by insurance companies based on their mathematical reserves and the sum at risk. The IRDAI periodically specifies the factors that are considered in the calculation of the required solvency margin. With the recent notification of the Amendment Act 2021, whereby the foreign direct investment limit in insurance companies has been increased from 49 per cent to 74 per cent, it is anticipated that future amendments may be made to the extant provisions to specify a requirement for a specified percentage of profits of the insurance company being retained as a general reserve, in line with the safeguards proposed under the Budget Speech. The Branch Office Regulations prescribe that the foreign reinsurer setting up a foreign reinsurer branch shall fully comply with the solvency margin requirements under the home country’s regulatory requirements. Moreover, the foreign reinsurer branch and the service companies registered under the Lloyd’s India framework are also required to maintain their solvency margin following the applicable regulations issued by the IRDAI.

Product regulation

What are the regulatory requirements with respect to insurance products offered for sale? Are some products regulated by multiple agencies?

The IRDAI (Protection of Policyholders’ Interests Regulations) 2017 (the Policyholders Regulations) prescribe certain matters to be mandatorily incorporated in life insurance, general insurance and health insurance policies. Some of the key requirements are as follows:

  • the name and unique identification number allotted by the IRDAI for the product, its terms and conditions, details of the salesperson;
  • benefits payable and the contingencies upon which these are payable and the other terms and conditions of the insurance contract, including any riders or endorsements;
  • details of the nominee;
  • the premiums payable, frequency of payment, grace period allowed and the implication of discontinuing the payment of an instalment of the premium;
  • any special clauses, exclusions or conditions imposed on the policy;
  • the address and email of the insurer to which all communications in respect of the policy must be sent;
  • details of the insurer’s internal grievance redressal mechanism, along with the right of the insured to approach the insurance ombudsman with requisite territorial jurisdiction; and
  • the list of documents that are normally required to be submitted in case of a claim.

 

Where exclusions are to be stipulated in the policy, the Policyholders Regulations require that, wherever possible, insurers must endeavour to classify the exclusions into the following:

  • standard exclusions applicable in all policies;
  • exclusions specific to the policy that cannot be waived; and
  • exclusions specific to the policy that can be waived on payment of an additional premium.

 

Similarly, to give clarity and understanding of the conditions to the policyholder, insurers are also required to endeavour to broadly categorise policy conditions into the following:

  • conditions precedent to the contract
  • conditions applicable during the contract;
  • conditions when a claim arises; and
  • conditions for renewal of the contract.

 

The terms and conditions of property and engineering insurance covers are currently governed by the policy wording specified by the former Tariff Advisory Committee. Very few modifications to this policy wording have been permitted. In all other lines of insurance business, insurers are permitted to issue only those policy terms and conditions, endorsements and other ancillary documentation that have either been approved by the IRDAI in advance or filed with the IRDAI, under the prescribed product filing procedures.

The IRDAI has issued standardised wordings for general clauses for indemnity based health insurance policies (excluding personal accident and domestic or overseas travel) and exclusions under health insurance contracts. Also, for health insurance policies, the IRDAI has specified a standard set of definitions, standard nomenclature for critical illness, a standard list of excluded expenses, exclusions not allowed in health insurance policies, existing diseases that may be permanently excluded, modern treatment methods that should be covered and standards and benchmarks for hospitals in the insurance network. It has also specified a number of other conditions for health insurance policies, making these policies highly regulated.

The IRDAI has in the past year notified standardised or tariff products such as an individual health insurance product, a standard non-linked non-participating individual pure risk life insurance product and a standard individual immediate annuity product, which are mandatorily required to be offered by all insurers. The IRDAI has also recently issued standard terms and conditions for fire and allied perils for dwellings and small and micro-businesses.

Regulatory examinations

What are the frequency, types and scope of financial, market conduct or other periodic examinations of insurance and reinsurance companies?

Insurance companies, reinsurance companies and insurance intermediaries are amenable to inspections and investigations by the IRDAI. No specific frequency has been prescribed for these investigations and inspections. With the passing of the Amendment Act, even service providers and contractors to insurance companies or intermediaries are obliged to furnish to the IRDAI, if required, during any investigation or inspection, all such books of account, registers, other documents and databases in their custody or power that relate to the affairs of the insurance company or intermediary. Directors and other officers of such service providers or contractors may also be called on by the IRDAI to furnish statements on oath.

Investments

What are the rules on the kinds and amounts of investments that insurance and reinsurance companies may make?

Investments made by insurance and reinsurance companies are governed by:

  • the Insurance Act;
  • the IRDAI (Investment) Regulations 2016 (the Investment Regulations);
  • the Investments – Master Circular – IRDAI (Investment) Regulations 2016 of 3 May 2017; and various circulars issued by the IRDAI.

 

The Insurance Act mandates that:

  • life insurers should invest assets of at least 25 per cent in government securities, a further sum equal to not less than 25 per cent in government securities or approved securities and the balance in any other approved investment under the Investment Regulations;
  • general insurers are required to invest 20 per cent of the assets in government securities, a further sum equal to not less than 10 per cent of the assets in government securities or approved securities and the balance in any other approved investment under the Investment Regulations; and
  • reinsurers and foreign reinsurer branches are required to invest and keep invested at all times 20 per cent of the assets in government securities, a further sum equal to not less than 10 per cent of the assets in government securities or approved securities and the balance in any other approved investment under the Investment Regulations.

 

The Investment Regulations, which contain the exposure or prudential norms, set out, inter alia, the limits on investments to be made by insurers or reinsurers based on the investee company, group or industry. Also, subject to the Investment Regulations, insurers cannot invest more than 5 per cent of their assets in companies belonging to promoters. Moreover, insurers are also prohibited from investing the funds of policyholders, directly or indirectly, outside India.

Change of control

What are the regulatory requirements on a change of control of insurance and reinsurance companies? Are officers, directors and controlling persons of the acquirer subject to background investigations?

Under section 6A of the Insurance Act, read with the IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations 2015, prior approval from the IRDAI must be obtained in the event of a change in shareholding of an insurance or reinsurance company where, after the transfer, the total shareholding of the transferee is likely to exceed 5 per cent of the total paid-up capital of the company.

Also, prior approval of the IRDAI must be obtained if the nominal value of the shares intended to be transferred by any individual, firm, group, constituents of a group or body corporate under the same management, jointly or severally, exceeds 1 per cent of the total paid-up capital of the insurance or reinsurance company.

No specific provisions deal with background investigations of officers and directors of acquirers. However, while obtaining the IRDAI’s approval, information may be required to be submitted regarding whether the directors of the transferee have ever been refused a licence or authorisation in the past to carry out regulated financial business or whether any company, firm or organisation with which such directors have been associated as directors, officers or managers has been investigated by a regulatory or professional body.

Financing of an acquisition

What are the requirements and restrictions regarding financing of the acquisition of an insurance or reinsurance company?

The Indian insurance regulatory framework does not expressly regulate the financing of the acquisition of an Indian insurance or reinsurance company.

Minority interest

What are the regulatory requirements and restrictions on investors acquiring a minority interest in an insurance or reinsurance company?

There are no specific provisions or requirements under the Indian insurance regulatory framework on the acquisition of a minority interest in an insurance company or reinsurance company.

Foreign ownership

What are the regulatory requirements and restrictions concerning the investment in an insurance or reinsurance company by foreign citizens, companies or governments?

With the recent notification of the Amendment Act 2021, the foreign direct investment limit in insurance and reinsurance companies has been increased from 49 per cent to 74 per cent. The Amendment Act 2021 also seeks to do away with the requirement of Indian ownership and control, stipulating that restrictions or norms (if any) will come by way of regulations or guidance to be issued by the IRDAI. The 2021 Amendment Act states that the provisions of the 2021 Amendment Act shall come into force on such date as the central government may, by notification in the Official Gazette, appoint (yet to be notified). At present, it is unclear when the provisions of the 2021 Amendment Act will become enforceable.

On 2 September 2019, the Indian Insurance Companies (Foreign Investment) Amendment Rules 2019 (the Amendment Rules) were notified, which effectively increased the permissible limit of foreign direct investment in insurance intermediaries to 100 per cent.

Private equity or alternative investment funds are permitted to invest in Indian insurance companies as either investors or promoters under the norms stipulated under Investment by Private Equity Funds in Indian Insurance Companies Guidelines of 5 December 2017.

Group supervision and capital requirements

What is the supervisory framework for groups of companies containing an insurer or reinsurer in a holding company system? What are the enterprise risk assessment and reporting requirements for an insurer or reinsurer and its holding company? What holding company or group capital requirements exist in addition to individual legal entity capital requirements for insurers and reinsurers?

Concerning the IRDAI’s supervision of the group to which an insurance company, reinsurance company or insurance intermediary belongs, the IRDAI directly regulates only those insurance companies, reinsurance companies and insurance intermediaries operating in the Indian insurance sector, and currently does not regulate the operations of the group entities of such insurance companies or insurance intermediaries. However, there are some restrictions on insurance companies and insurance intermediaries operating in the same group, where the IRDAI has discretion (in some cases) to determine the scope of ‘group’:

  • an Indian corporate group can have an insurance company and an insurance broker within the same group, subject to certain conditions being fulfilled;
  • typically, within a group, the IRDAI will grant one certificate of registration to only one entity for insurance intermediation, unless a case on merits and with no conflict of interest is made before the IRDAI;
  • a web aggregator cannot be a related party of an insurance company;
  • there is no express restriction on insurance companies and surveyors operating in the same group, but the IRDAI is likely to view this as an inherent conflict of interest;
  • there is no express restriction on insurance companies and TPAs operating in the same group; and
  • an insurance agent or insurance intermediary is not permitted to be a director of an insurance company.
Reinsurance agreements

What are the regulatory requirements with respect to reinsurance agreements between insurance and reinsurance companies domiciled in your jurisdiction?

Concerning reinsurance contracts, the Reinsurance Regulations issued by the IRDAI define a reinsurance contract as a commercial agreement that is legally binding on all the parties, and is evidenced by a reinsurance slip or cover note, or another such document. Reinsurance arrangements need not be pre-approved by the IRDAI, but they must be documented and filed with the IRDAI within the stipulated time frame.

The overarching regulatory framework for the reinsurance of all insurance risks in India is set out in the Reinsurance Regulations, which repeal the erstwhile IRDAI (General Insurance – Reinsurance) Regulations 2016 and IRDAI (Life Insurance – Reinsurance) Regulations 2013. They also amend to the relevant extent the Branch Office Regulations and the Lloyd’s India Regulations. The guiding principle is maximising retentions within India, so each Indian insurer must maintain the maximum possible retention commensurate with its financial strength, quality of risks and volume of business. In this regard, both Indian reinsurers and foreign reinsurance branches are required to maintain a minimum retention of 50 per cent of their Indian business. An Indian insurer is also strictly prohibited from fronting for a foreign insurer or reinsurer. ‘Fronting’ is defined as a process of transferring risk in which an Indian insurer cedes or retrocedes most or all of the assumed risk to a reinsurer or a retrocessionaire.

Further, Indian insurers are required to mandatorily cede a certain percentage of the sum assured on each policy for different classes of insurance written in India to Indian reinsurers as defined under the provisions of the Insurance Act. Apportionment of obligatory cession for the financial year 2020–21 is 5 per cent and is required to be placed with General Insurance Corporation of India.

The Reinsurance Regulations do not stipulate categories of reinsurance branches. Also, subject to the retention limit and the mandatory cession to the Indian reinsurer for reinsuring the remaining insurance risks, every cedent, is required to comply with the ‘order of preference for cession’ set out in the Reinsurance Regulations, where ‘cedent’ is defined under the Reinsurance Regulations as an Indian insurer writing ‘direct’ insurance business, who contractually cedes a portion of the risk. A cedent is required to first offer its facultative and treaty surpluses to Indian reinsurers transacting reinsurance business during the immediate past three continuous financial years, and thereafter to other Indian reinsurers and foreign reinsurer branches. The Indian insurer may then proceed to offer the surplus to foreign reinsurer branches set up in special economic zones (IIOs) and overseas reinsurers, who meet the required credit rating criteria, followed by other IIOs, and then other overseas reinsurers and Indian insurers (only for facultative placements).

Although the order of preference does not apply to Indian insurers transacting life insurance business, the Reinsurance Regulations require them to endeavour to utilise the Indian domestic capacity before offering reinsurance placements to cross border reinsurers (CBRs). Life insurers are also required to obtain the prior approval of the IRDAI before entering into reinsurance arrangements with their promoter company, or associate or group companies, except where the arrangements are on commercially competitive terms and an arm’s-length basis.

Indian insurers are also required to comply with various requirements set out in the Reinsurance Regulations, including filing requirements for the reinsurance programme, and the wordings of each reinsurance contract, as well as details of their shares in the reinsurance arrangements entered into.

Further, proposals for alternative risk transfer – namely non-traditionally structured reinsurance solutions tailored to the specific needs and profile of an insurer or a reinsurer – are also required to be submitted to the IRDAI.

Ceded reinsurance and retention of risk

What requirements and restrictions govern the amount of ceded reinsurance and retention of risk by insurers?

Indian insurers are mandated to retain risk proportionate to their financial strength, quality of risks and business volume. The IRDAI has issued no specific guidance on the appropriate minimum amount to be retained by non-life insurers. However, life insurers are required to maintain a minimum retention of 25 per cent of the sum at risk for pure protection life insurance business portfolios and 50 per cent otherwise. Further, Indian insurers are also required to mandatorily cede the prescribed percentage of the sum assured on each policy for different classes of insurance written in India to the Indian reinsurer. Concerning the order of preference for cession, no specific amount or percentage has been prescribed for the placement of reinsurance risks by an Indian insurer with the relevant entities set out therein.

For cedents transacting other than the life insurance business, the surplus over the domestic reinsurance arrangements shall be placed outside India with only those CBRs that satisfy the prescribed criteria and have the details filed with the IRDAI.

Specifically, the Reinsurance Regulations stipulate the maximum limits on reinsurance cession that can be made by an Indian insurer to a particular CBR under any insurance segment, and are as follows:

  • if Standard and Poor’s (S&P) rating of the CBR is BBB or BBB+, up to 10 per cent cession is allowed;
  • if S&P’s rating of the CBR is greater than BBB+ and up to and including A+, up to 15 per cent cession is allowed; and
  • if S&P’s rating of the CBR is greater than A+, up to 20 per cent cession is allowed.

 

The percentages of the cession limits are calculated on the total reinsurance premium ceded outside India. Any cession to a CBR that does not satisfy the eligibility criteria or where the cession is above the prescribed limit requires the prior approval of the IRDAI for placement.

Collateral

What are the collateral requirements for reinsurers in a reinsurance transaction?

The Indian insurance regulatory framework does not specify any collateral requirements for reinsurance companies in a reinsurance transaction.

Credit for reinsurance

What are the regulatory requirements for cedents to obtain credit for reinsurance on their financial statements?

The Indian insurance regulatory framework does not presently expressly regulate requirements for cedents to obtain credit for reinsurance on their financial statements.

Insolvent and financially troubled companies

What laws govern insolvent or financially troubled insurance and reinsurance companies?

Insolvency and bankruptcy law in India was overhauled by way of the Insolvency and Bankruptcy Code 2016 (the Insolvency and Bankruptcy Code). It provides the insolvency and liquidation process for corporate persons. However, insurers have been excluded from the scope of ‘corporate debtor’ as defined under the Insolvency and Bankruptcy Code.

The Insurance Act specifically provides that the winding-up of an insurance company shall be under the procedure laid out in the Companies Act. Also, the Insurance Act specifies certain other conditions under which the court may order the winding-up of an insurance company.

The process for winding up involves compliance with various procedural requirements set out in the Companies Act. The process includes:

  • the appointment of a company liquidator;
  • the realisation of the assets of the company;
  • repayment of all the outstanding creditors and any other statutory dues owed by the company; and
  • dissolution of the company.

 

Concerning repayment of the creditors and outstanding dues of the company, the Companies Act provides that certain dues are required to be paid on priority, including dues to employees of the company, and the statutory dues owed to governmental authorities.

Further, the Insurance Act provides that the voluntary winding-up of an insurance company is subject to certain restrictions. An insurance company cannot be wound up voluntarily except to effect an amalgamation or a reconstruction of the company, or on the ground that because of its liabilities it cannot continue its business.

An insurance company may also be partially wound up, whereby a class of its business is wound up but another class either continues to operate or is transferred to another insurance company. In this scenario, a scheme may be prepared and submitted in court that should provide for the following: the allocation and distribution of the assets and liabilities of the company between any classes of business affected (including the allocation of any surplus assets that may arise on the proposed winding-up) for any future rights of every class of policyholders in respect of their policies; and the manner of winding up any of the affairs of the company that are proposed to be wound up. The scheme may also include provisions for altering the memorandum of association of the company concerning its objects and such further provisions as may be expedient for giving effect to the scheme.

Moreover, the Insurance Act also authorises the IRDAI, after allowing being heard, to appoint an administrator to manage the affairs of the insurer (under the direction and control of IRDAI), if at any time the IRDAI has reason to believe that the insurer carrying out life insurance business is acting in a manner likely to be prejudicial to the interests of holders of life insurance policies. In June 2017, the IRDAI, in the exercise of this authority, appointed an administrator for Sahara Life Insurance Company.

Claim priority in insolvency

What is the priority of claims (insurance and otherwise) against an insurance or reinsurance company in an insolvency proceeding?

The Indian insurance regulatory framework does not specifically regulate the priority of claims against an insurance or reinsurance company in an insolvency proceeding. However, because the winding-up of an insurance company would be under the Companies Act and the Insolvency and Bankruptcy Code 2016, the priority of claims prescribed thereunder would apply to an insurance and a reinsurance company as well.

Intermediaries

What are the licensing requirements for intermediaries representing insurance and reinsurance companies?

The IRDAI regulations govern all insurance agents and intermediaries, that is:

  • corporate agents;
  • insurance brokers;
  • insurance marketing firms (IMFs);
  • third-party administrators;
  • surveyors and loss assessors; and
  • web aggregators.

 

Insurance intermediaries need to obtain licences and registrations under the provisions of the specific regulations that apply to them given the nature of the business proposed to be undertaken by them. The IRDAI has issued regulations setting out the licensing or registration requirements (including eligibility criteria, capital and net worth requirements, qualification requirements of the principal officer and directors or partners of the concerned entity) and procedures for all the above-mentioned intermediaries. Licence or registration is typically granted for three years and may be renewed thereafter.

On 2 September 2019, the Amendment Rules were notified, which effectively increased the permissible limit of foreign direct investment in insurance intermediaries to 100 per cent. However, where an entity whose primary business is outside the insurance sector, is allowed by the IRDAI to function as an insurance intermediary, the foreign equity investment caps applicable in that sector shall continue to apply to such intermediary, subject to the condition that the revenues of such entities from the primary (non-insurance related) business remain above 50 per cent of their total revenues in any financial year.

The IRDAI also notified the IRDAI (Insurance Intermediaries) (Amendment) Regulations 2019, which amended the existing regulations governing insurance intermediaries in line with the Amendment Rules. Also, the requirement for insurance intermediaries to be Indian owned and controlled was expressly removed vide notification of Circular on Withdrawal of Indian Owned and Controlled Condition for Insurance Intermediaries of 19 November 2019.

 

Insurance agents

An individual may be appointed as an insurance agent by an insurer on complying with the conditions provided under the regulations notified by the IRDAI in this regard. An insurance agent is required to have passed the relevant examination and is also required to possess the requisite knowledge for soliciting insurance business and providing necessary services to policyholders. An insurance agent is permitted to solicit insurance business for only:

  • one life insurer;
  • one general insurer;
  • one health insurer; and
  • one each of the monoline insurers.

 

Corporate agents

Entities eligible to operate as corporate agents include:

  • firms;
  • banks;
  • non-banking financial companies;
  • cooperative societies;
  • non-governmental organisations; and
  • companies.

 

An entity registered as a corporate agent may either exclusively carry out the business of insurance distribution or engage in any business other than insurance distribution as its main business. Where a corporate agent has a main business other than insurance distribution, that agent is not permitted to make the sale of its products contingent on the sale of an insurance product, or vice versa. A corporate agent may have arrangements with a maximum of three insurers in each category of life, general or health insurance.

 

Insurance brokers

Insurance brokers are required to exclusively carry out the distribution of insurance products. Any company, limited liability partnership or cooperative society may apply to the IRDAI for the grant of an insurance broker certificate of registration. Applicants may register as a direct broker (life, general, or life and general), a reinsurance broker or a composite broker (involved in both direct and reinsurance broking). The minimum capital for a direct broker is 7.5 million rupees; a reinsurance broker, 40 million rupees; and a composite broker, 50 million rupees. All insurance brokers are required to be members of the Insurance Brokers Association of India.

 

IMFs

Entities such as companies, limited liability partnerships or cooperative societies that are registered as IMFs are permitted to distribute insurance products along with mutual funds, pension products and certain other financial products, provided that permissions from the respective regulator are in place to distribute these financial products. IMFs are permitted to distribute the insurance products of only two life insurers, two general insurers and two health insurers at any one time, and a change in the insurer whose products are to be distributed may take place only on the prior approval of the IRDAI. IMFs are required to have a net worth of 0.5 million rupees, if the IMF is operating out of only one district (aspirational district), and a net worth of 1 million rupees in all other cases. IMFs are also permitted to undertake survey functions through licensed surveyors employed on its rolls, policy servicing activities and other activities that are permissible to be outsourced by insurers under the applicable regulatory framework.

 

Web aggregators

An entity such as a company or a limited liability partnership that is registered as a web aggregator is permitted to display on its website information on insurance products of insurers with whom the web aggregator has partnered. The web aggregator is also permitted to display product comparisons on its website, carry out activities for lead generation and share leads with insurers. A web aggregator is required to have a minimum capital of 2.5 million rupees.

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