India: Insurance Newsletter – February 2015

REGULATORY UPDATES

THE INDIAN INSURANCE COMPANIES (FOREIGN INVESTMENT) RULES, 2015 NOTIFIED

Pursuant to the promulgation of the Insurance Laws (Amendment) Ordinance, 2014 ("Ordinance"), the Ministry of Finance, Government of India has, by way of a notification dated 19 February, 2015 notified the Indian Insurance Companies (Foreign Investment) Rules, 2015 ("Foreign Investment Rules") to implement the decision of increase in the foreign investment limit in the insurance sector to 49%.

The Foreign Investment Rules will now have to be placed before each House of Parliament for thirty days. If both Houses modify the Foreign Investment Rules or agree that such Rules should not have effect or have effect only in a modified form then they will not have effect or have effect in such modified form. Since the ruling party has a majority in the Lower House of Parliament, it is unlikely that the Foreign Investment Rules will be amended by Parliament. However, the fate of the Foreign Investment Rules is linked to that of the Ordinance, which would have to be passed by both the Houses of Parliament in the forthcoming budget session. If the Government fails to have the Ordinance approved by Parliament within 6 weeks of its re-assembly, it would lapse. In such instance, the only option the Government would have would be to re-promulgate the Ordinance. Since, the Foreign Investment Rules have been made under the Ordinance, the Foreign Investment Rules will also cease to have effect unless the re-promulgated ordinance has a saving provision.

Nevertheless, the move of the Indian Government to notify the Foreign Investment Rules having come just ahead of the budget session of Parliament (starting 23 February, 2015) is indicative of the Government's resolve to have the Ordinance approved at such session.

Key updates on the Foreign Investment Rules are below.

KEY HIGHLIGHTS

  1. An Indian insurance company will be permitted to have 'Total Foreign Investment' of up to 49%. Such investment includes Foreign Direct Investment ("FDI") and investments by Foreign Institutional Investors and Foreign Portfolio Investors ("FII/FPI").

    For the purposes of the Foreign Investment Rules, FDI includes investment by Foreign Venture Capital Investors (FVCI).

    Notably, the Foreign Investment Rules now take into account FII investment as part of the FDI cap while FII investment was earlier excluded while computing the total foreign ownership (which then was 26%).
  2. FDI of up to 26% of the total paid up equity capital of an Indian insurance company will be allowed through the automatic route, i.e., without the prior permission of the Foreign Investment Promotion Board ("FIPB"). Any increase in the FDI stake beyond 26% to up to 49% will be subject to the approval of the FIPB1.
  3. "Ownership"2 and "Control" of an Indian insurance company will at all times have to be with resident Indian citizens or Indian companies, owned and controlled by resident Indian citizens.

    The Insurance Act, 1938 (as amended by the Ordinance) defines "Control" to include the right to appoint the majority of directors or to control the management or policy decisions, including by virtue of shareholding or management rights or shareholders' agreements or voting agreements.

    At present, there is no precedent on whether negative/veto rights would amount to "control". The Foreign Investment Rules also do not clarify the effect of Indian "control" which causes concerns particularly for existing joint ventures which allow veto rights to foreign promoters despite the 26% cap on foreign investment. Accordingly, the scope of "control" would be a key concern for any investor and it will be interesting to see how IRDA views "control" and whether it would consider minority protection/veto rights as constituting "control". It is common for joint venture agreements in insurance companies to grant affirmative voting/veto rights to non-resident shareholders holding a 26% stake.
  4. Any increase in foreign investment in an Indian insurance company will have to be in accordance with the pricing guidelines specified by the Reserve Bank of India under the Foreign Exchange Management Act, 1999.
  5. The foreign investment cap of 49% will also apply to insurance intermediaries such as insurance brokers, third party administrators, surveyors and loss assessors. Accordingly, foreign investment up to 26% in insurance intermediaries may be done under the automatic route and beyond 26% to up to 49%, with the prior approval of the FIPB.
  6. For insurance intermediaries such as banks, whose primary business is not in the insurance sector, the foreign equity investment caps applicable in the respective sector will continue to apply. Such insurance intermediaries would, however, be required to ensure that their revenues from their primary (i.e. non-insurance related) business remains above 50% of their total revenues in any financial year.

ONLINE FILING OF FDI APPLICATIONS

The Department of Economic Affairs, Ministry of Finance, has, by way of a Press Release ("Press Release") dated 17 February, 2015, launched a new upgraded and secure user friendly web site for filing and processing of applications for Foreign Direct Investment requiring Government approval.

Applications were earlier required to be filed at www.fipbindia.com which had limited features and processing capabilities. Applications regarding FDI in approval route sectors would henceforth be received at the new website Applications were earlier required to be filed at www.fipbindia.com which had limited features and processing capabilities. Applications regarding FDI in approval route sectors would henceforth be received at the new website http://fipb.gov.in.

TRANSITORY INVESTMENT PROVISIONS – THE ORDINANCE

The IRDA has, by way of a circular ("Investment Circular") dated 16 February, 2015 clarified that until the approval of the amendments to the IRDA (Investment) Regulations, 2000 in accordance with the Ordinance, all investments made and kept invested by insurers under the existing Insurance Act, 1938 ("Insurance Act") would continue to be part of "Approved Investments".

The Investment Circular also clarifies that insurers must continue to apply fixed deposit and current deposit limit of 3% under the provisions of the existing Insurance Act for any one banking company.

EXPOSURE DRAFT ON APPOINTMENT OF INSURANCE AGENTS

IRDA had, by way of a circular dated 27 January, 2015 issued an Exposure Draft, Insurance Regulatory and Development Authority of India (Appointment of Insurance Agents) Regulations, 2015 ("Exposure Draft"), for stakeholder comments (if any, by 5 February, 2015). Key provisions of the exposure draft are as follows.

  1. Insurers must, inter alia, check whether a prospective agent has been black-listed before such agent is appointed.
  2. The exposure draft proposes to prohibit persons from taking out or renewing or continuing an insurance policy through a multilevel marketing scheme3.
  3. No individual will be permitted to act as an insurance agent for more than one life insurer, one general insurer, one health insurer.
  4. The IRDA has, under the Exposure Draft also set up a code of conduct for all insurance agents which inter alia, requires agents to sell as per customer's needs. Agents are also proposed to be required to bring to the notice of the insurer any adverse habits or income inconsistency of any prospect customer, in the form of a report called the "Insurance Agent's Confidential Report".

Footnotes

1 This is in addition to requirement of permission from the IRDA.

2 The Foreign Investment Rules define "Indian Ownership" of an Indian Insurance Company to mean more than 50% of the equity capital in such company being beneficially owned by resident Indian citizens or Indian companies, which are owned and controlled by resident Indian citizens.

3 "Multilevel Marketing Scheme" is defined as any scheme or programme or arrangement or plan (by whatever name called) for the purpose of soliciting and procuring insurance business through persons not authorized for the said purpose with or without consideration of whole or part of commissions or remuneration earned through such solicitation and procurement and includes enrolment of persons into a multilevel chain for the said purpose either directly or indirectly.

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.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Phoenix Legal
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Phoenix Legal
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
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).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions