The Insurance Laws (Amendment) Ordinance 2014 (Ordinance) which
was promulgated on 26th December 2014 brought about a
slew of reforms to the legal framework governing India's
insurance sector. While, the Ordinance remains a temporary law on
date as it is yet to be passed by the Indian Parliament in the form
of an 'Amendment Act', it is anticipated that the Insurance
Regulatory and Development Authority of India (IRDAI) and the
Central Government are likely to notify a number of new rules and
regulations and amend existing provisions to implement various
provisions of the Ordinance.
As one of the first steps aimed at implementing the changes in
law introduced by the Ordinance, the Ministry of Finance,
Government of India notified the Indian Insurance Companies
(Foreign Investment) Rules 2015 (Rules) on 19th February
2015. The main features of the Rules are:
Insurers are not permitted to allow 'Total Foreign
Investment' in their equity shares by foreign investors,
including portfolio investors, to exceed 49% percent. 'Total
Foreign Investment' has been defined to be the sum total of
direct and indirect foreign investment by foreign investors,
calculated in accordance with the IRDA (Registration of Indian
Insurance Companies) Regulations 2000 read with ¶4.1.4 of the
Consolidated FDI Policy issued by the Department of Industrial
Policy and Promotion, Ministry of Commerce and Industry, Government
of India (FDI Policy). Please, however, note that ¶4.1.4 of
the extant FDI Policy states that the methodology of determining
direct and indirect foreign investment under the FDI Policy does
not apply to the insurance sector which shall be governed by the
Foreign direct investment of up to 26% of the total paid-up
equity of an Insurer is allowed through the automatic route ie
without the need for prior government approval.
Foreign direct investment proposals which take total foreign
investment above 26% will need the approval of the Foreign
Investment Promotion Board (FIPB).
Investment by Foreign Venture Capital Investors as permissible
under the FEMA Regulations 2000 is also to be considered as foreign
Insurers are required to ensure that ownership and control
remains in the hands of resident Indian entities at all times.
The foreign equity investment cap of 49% also applies to
insurance brokers, third-party administrators, surveyors and loss
assessors and other insurance intermediaries appointed under the
provisions of the Insurance Regulatory and Development
Authority Act 1999.
Any increase of foreign investment in an Insurer has to be in
accordance with the pricing guidelines specified by the Reserve
Bank of India (RBI).
The Rules clarify that other aspects related to or flowing from
matters related to foreign investment in Insurers which have not
been dealt with by the Rules are to be regulated by regulations
framed by the IRDAI.
The Rules are a step further in providing a mechanism for
implementing the increase in foreign direct investment limit for
the insurance sector. This change follows the amendment to
§2(7A)(c) of the Insurance Act 1938 (as amended by the
Ordinance) which increased the foreign investment limit (including
portfolio investment) to 49% of the paid-up equity capital of an
Indian insurance company which is Indian owned and controlled. The
Rules provide some much awaited clarity in terms of the manner of
increase in foreign investment in Insurers as well as insurance
intermediaries. However, in order for the changes introduced by the
Ordinance to be implemented completely, further clarification in
the form of regulations and otherwise are awaited including:
Amendments to R11 of the IRDA (Registration of Indian Insurance
Companies) Regulations 2000 to provide the exact manner of
calculation of the permissible foreign investment limit of
Amendment of the FDI Policy to reflect the increased foreign
Clarifications in terms of permitted foreign investment in
corporate agents whose main business is not distribution of
insurance products and that are not banks; and
Clarifications in terms of the permitted foreign investment in
web aggregators, as they are presently not expressly listed as a
separate category of insurance intermediary.
There is presently no indication of the likely timeframe for the
issuance of these amendments/clarifications and until such time,
complete implementation of the Rules may be difficult to
For further information on this topic please contact Tuli &
Tel +91 11 4593 4000, fax +91 11 4593 4001 or email
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Health insurance business in India has, traditionally, been regulated by the framework governing general insurance business as issued by the Insurance Regulatory and Development Authority of India (IRDAI)...
The insurance statutory and regulatory framework has,
historically, strictly restricted the amount of commission or
remuneration that can be paid to insurance agents and insurance
intermediaries (such as insurance brokers, corporate agents, web
aggregators and insurance marketing firms) for the solicitation and
procurement of insurance business.
The Insurance Regulatory Development Authority of India ("IRDAI") has, by way of a circular dated 18 May, 2016 issued revised Guidelines for Corporate Governance for insurers in India ("CG Guidelines").
The Insurance Regulatory and Development Authority of India has on December 15, 2015 issued the IRDA (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance Business) Regulations, 2015.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).