In this newsletter, we look at certain key regulatory and judicial developments during the second half of 2022 (July- December) for the insurance sector in India, including key regulatory and other measures notified by the Insurance Regulatory and Development Authority of India ("IRDAI").

Market Bulletin

Key market developments from July to December 2022 included the following:

  • In September 2022, Medi Assist (India's largest health insurance third-party administrator) acquired Medvantage Insurance Third-Party Administrator for a reported deal value of INR 350 million (or ~ USD 4.2 million).
  • In September 2022, Aviva plc (Aviva) acquired an additional 25% stake from Dabur Invest Corp in their joint venture, Aviva Life Insurance Company India Limited ("ALICIL"), for a reported deal value of INR 9.4 billion (or ~ USD 11.3 million). As a result of this acquisition, Aviva became the majority shareholder in ALICIL with 74% shareholding.
  • In September 2022, Ageas Insurance International NV ("Ageas") increased its stake in its Indian insurance joint venture, Ageas Federal Life Insurance Company Limited ("AFLIC"), by acquiring an additional 25% stake from IDBI Bank, for a reported deal value of INR 5.8 billion (or ~ USD 70.5 million). As a result of this acquisition, Ageas became the majority shareholder of AFLIC with 74% shareholding.
  • In September 2022, Axis Bank and HDFC Bank announced that they have entered into indicative and non-binding term sheets with Go Digit Life Insurance Limited for the acquisition of up to 9.94% by each bank.
  • In October 2022, Abu Dhabi Investment Authority ("ADIA") acquired 9.99% in Aditya Birla Health Insurance Company Limited for an investment value of approximately USD 81 million. The balance shareholding is held by Aditya Birla Capital (45.91%) and Metropolitan Strategic Investments (Pty) Ltd (44.10%).

IRDAI proposed draft expenses of management regulations

In November 2022, the IRDAI issued two exposure drafts of revised regulations for expenses of management of life1 and non-life insurance companies2 in India ("Draft EoM Regulations"). Public comments were invited until December 15, 2022 and the Draft EoM Regulations are expected to be notified in final form by April 1, 2023.

For life insurance companies, some of the key changes proposed in the Draft EoM Regulations are as follows:

  1. additional limits for permissible expenses: up to 5% of the overseas generated premium for head office expenses;3 up to 15% of each of incremental annual premium from rural sector businesses and other notified government schemes; up to 15% of direct premium under the Pradhan Mantri Jeevan Jyoti Bima Yojana4; and up to 5% of aggregate permissible expenses in a financial year towards insurance awareness and technology-enabled innovation in insurance services5; and
  2. expense allowances increased for annuity policies (from half to three-fourth, of 1% of all annual paid annuities) and for paid-up policies (from one-twentieth to one-tenth, of 1% of average of aggregate sum assured of paid-up policies).6

On the other hand, for non-life insurance companies, the following key changes are proposed:

  1. a single expense limit based on the gross premium of 30% for general insurance companies7 and 35% for health insurance companies8 (instead of separate limits based on segments and sub-segments); and
  2. additional limits for permissible expenses: up to 15% of each of incremental annual premium from rural sector businesses and other notified government schemes; and up to 15% of direct premium under the Pradhan Mantri Jeevan Jyoti Bima Yojana.9

Both life and non-life insurance companies would need to adopt a board-approved policy on expenses of management, which would need to include cost-effectiveness measures and stipulations for payment of commissions to agents and intermediaries.10 In the case of life insurance companies, the policy must also include annual projections on required capital and solvency margins and require the board to regularly monitor business plan implementation.11 In the case of non-life insurance companies, the policy must also include the manner of expense allocation and apportionment across business segments.12

IRDAI proposes draft regulations on payments of commission to insurance agents and insurance intermediaries

Earlier in August 2022, the IRDAI had issued draft regulations on payment of commission, remuneration and reward to insurance agents. The draft regulations released in August had proposed a composite overall limit for the various amounts (including rewards) paid by insurers to their agents and intermediaries. Life insurers were permitted to set up a composite overall limit for compensation and incentives paid to their intermediaries, provided their management expenses remain within 70% of the applicable limits. For life insurers whose management expenses exceeded 70%, specific composite limits were prescribed. On the other hand, for general and health insurers, a composite overall limit of 20% of gross premium written in India was proposed.

Click here to continue reading . . .

Footnotes

1. Draft IRDAI (Expenses of Management of Insurers Transacting Life Insurance Business) Regulations, available at https://irdai.gov.in/document-detail?documentId=1623336; last accessed on March 24, 2023.

2. Draft IRDAI (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2022, available at https://irdai.gov.in/document-detail?documentId=1622976; last accessed on March 24, 2023.

3. Regulation 6 of the Draft IRDAI (Expenses of Management of Insurers Transacting Life Insurance Business) Regulations, 2022.

4. Id.

5. Regulation 7 of the Draft IRDAI (Expenses of Management of Insurers Transacting Life Insurance Business) Regulations, 2022.

6. Regulation 4 of the Draft IRDAI (Expenses of Management of Insurers Transacting Life Insurance Business) Regulations, 2022.

7. Regulation 3(1) of the Draft IRDAI (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2022.

8. Regulation 3(2) of the Draft IRDAI (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2022.

9. Regulation 4 of the Draft IRDAI (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2022.

10. Regulation 8 of the Draft IRDAI (Expenses of Management of Insurers Transacting Life Insurance Business) Regulations, 2022 and Regulation 5 of the Draft IRDAI (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2022.

11. Regulation 9 of the Draft IRDAI (Expenses of Management of Insurers Transacting Life Insurance Business) Regulations, 2022.

12. Regulation 6 of the Draft IRDAI (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2022.

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.