We noted last month that the IRDAI notified the Indian Insurance Companies (Foreign Investment) Amendment Rules 2019 (Amendment Rules), effectively increasing the limit on FDI in insurance intermediaries to 100%1.
Pursuant to the Amendment Rules 2019, the IRDAI has now notified:
(i) The IRDAI (Insurance Intermediaries) (Amendment) Regulations 2019 (Amendment Regulations); and
(ii) Circular on "Withdrawal of Indian owned and controlled condition for insurance intermediaries" of 19 November 2019 (IOC Circular).
Amendment Regulations – Key Highlights
The Amendment Regulations amend the following regulations governing insurance intermediaries:
a) IRDAI (Insurance Brokers) Regulations 2018;
b) IRDAI (Insurance Web Aggregators) Regulations 2017;
c) IRDAI (Registration of Insurance Marketing Firm) Regulations 2015;
d) IRDAI (Registration of Corporate Agents) Regulations 2015;
e) IRDAI (Insurance Surveyors and Loss Assessors) Regulations 2015;
f) IRDAI (Third Party Administrators – Health Services) Regulations 2016.
In addition to the conditions stipulated under the Amendment Rules, the Amendment Regulations have introduced certain additional conditions which are required to be complied by an insurance intermediary where the majority stake is held by foreign investors. The additional conditions introduced pursuant to the Amendment Regulations are set out below:
a) No payments will be made to any related parties of the insurance intermediary beyond 10% of the total expenses of the insurance intermediary in any financial year;
b) Majority of the key management persons and directors on the board of such insurance intermediary are required to be resident Indian citizens.
Insurance intermediaries having majority shareholding of foreign investors are required to submit an undertaking to the IRDAI, stipulating compliance with the above conditions, per the prescribed format. The Amendment Regulations also omit the requirement of Indian Owned and Controlled which was stipulated under the IRDAI (Insurance Brokers) Regulations 2018 and the IRDAI (Insurance Web Aggregators) Regulations 2017.
Withdrawal of IOC Guidelines
Pursuant to the notification of the Amendment Rules, there was a lack of clarity regarding the applicability of the "Guidelines on Indian Owned and Controlled" of 19th October 2015 (IOC Guidelines) to insurance intermediaries, which was noted by us last month2.
The IRDAI has now notified the IOC Circular, pursuant to which ¶6 of the IOC Guidelines which extended the applicability of the IOC Guidelines to the insurance intermediaries, has been deleted3. In addition, the IRDAI circular on "Guidelines on Indian Owned and Controlled for Insurance Intermediaries" of 20th November 2015, which stipulated the undertakings required to be submitted by insurance intermediaries confirming compliance with the "Indian Owned and Controlled", has been withdrawn.
The Amendment Regulations and the Circular have brought the much needed clarity with respect to the practical concerns surrounding "Indian Owned and Controlled" requirements pursuant to the notification of 100% FDI in insurance intermediaries. However, the reaction/ feedback of the insurance industry remains to be seen with respect to the additional conditions stipulated under the Amendment Rules and Amendment Regulations, particularly with respect to the conditions stipulating majority of key managerial persons and the directors of an insurance intermediary having majority shareholding of foreign investors to be Indian residents.
1 "100% FDI in Insurance Intermediaries", Mondaq, 3 October 2019 http://www.mondaq.com/india/x/850494/Insurance/100+FDI+In+Insurance+Intermediaries+A+Welcome+Change (Last accessed on 25th November 2019)
3 Erstwhile ¶6 of the IOC Guidelines is in the following terms:
"Insurance Intermediaries: These guidelines are also applicable to Insurance Intermediaries as defined in the IRDA Act, 1999 such as Brokers, Third Party Administrators, Surveyors and Loss Assessors etc. However, in case of an insurance intermediary having more than 50 percent of its revenue from the non-insurance activities, these guidelines shall not be applicable to such insurance intermediaries."
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