1 Legal framework
1.1 Which legislative and regulatory provisions govern the insurance sector in your jurisdiction?
The primary legislation regulating the Indian insurance sector is the Insurance Act 1938 and the Insurance Regulatory and Development Authority Act 1999. Pursuant to the powers granted to the Insurance Regulatory and Development Authority of India (IRDAI) under both statutes, it has issued various regulations, guidelines and circulars governing the licensing and functioning of insurers, reinsurers and insurance intermediaries, among other things. Appeals against orders issued and decisions made by the IRDAI may be referred to the Securities Appellate Tribunal, in accordance with the notified procedural rules.
The Indian insurance sector is highly regulated. The IRDAI regulations govern a wide range of issues, including:
- registration of Indian insurance companies;
- registration of Indian reinsurers;
- registration of foreign reinsurance branches under the IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd's) Regulation 2015 and registration of service companies under the IRDAI (Lloyd's India) Regulations 2016;
- registration of international insurance offices under the International Financial Services Centres Authority (Registration of Insurance Business) Regulations 2021;
- assets and solvency margins that must be maintained by insurers;
- preparation of financial statements;
- issuance of capital;
- outsourcing arrangements;
- commission/remuneration and reward structures; and
- corporate governance norms for companies in the insurance sector.
The Reserve Bank of India's Master Direction – Insurance of 1 January 2016 (as amended) consolidates the foreign exchange regulations for insurance and provides guidance on various issues, including the manner and extent to which an Indian insurance company can issue and settle claims in respect of overseas residents. Separately, the Foreign Exchange Management (Insurance) Regulations 2015 regulate the manner and extent to which a person resident in India can take or continue to hold a general, life or health insurance policy issued by an overseas insurer.
In addition, the principles contained in the Marine Insurance Act 1963 (which has its basis in the UK Marine Insurance Act 1906) have been extended to non-marine insurance contracts.
1.2 Which bilateral and multilateral instruments on insurance have effect in your jurisdiction?
There are no binding bilateral or multilateral instruments or covenants that have an impact on the Indian insurance sector. However, the Indian courts often refer to the decisions of overseas courts and tribunals where there is a lack of express law or precedent in India.
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
Insurers, reinsurers and insurance intermediaries are governed by the IRDAI. The IRDAI derives its authority from the Insurance Act and the IRDA Act, and has wide-ranging powers to introduce and enforce regulations, guidelines and circulars on matters such as:
- the registration and operation of entities in the insurance sector; and
- disclosure, reporting, personnel and capital requirements for entities carrying on insurance business or distributing insurance products.
1.4 What is the regulators' general approach in regulating the insurance sector?
Over the years, the IRDAI has issued guidance on a number of matters and has issued various orders against regulated entities. With the aim of supervising practices in the insurance sector, the IRDAI also carries out regular inspections to determine whether insurers, reinsurers and insurance intermediaries are conducting their operations in accordance with the relevant rules and regulations. In the past few months, the IRDAI has conducted discussion panels with various stakeholders in the insurance sector on a number of diverse topics, and has issued several circulars aimed at making it easier to carry out insurance business in India. Similar reforms are in the pipeline for the coming months.
2 Insurance contracts
2.1 What are the main types of insurance available in your jurisdiction?
The Insurance Act specifies the types of insurance business that can be undertaken by insurers, such as:
- general (including marine, fire and miscellaneous);
- health (whether standalone or as a part of general insurance business); and
2.2 Are all insurance contracts regulated? What terms do they typically include?
Life, health and general insurance products can be offered to retail and commercial customers only once the specified procedure for filing the insurance product with the Insurance Regulatory and Development Authority of India (IRDAI) has been completed.
Until recently, retail products across lines of insurance business had to be filed under a 'file and use' procedure, where the product required the IRDAI's prior approval before it could be launched; while commercial products could be filed under a 'use and file' procedure, where the product could be filed with the IRDAI and launched immediately thereafter. Further to a number of circulars issued by the IRDAI recently, insurers are now broadly permitted to offer all insurance products (ie, retail and commercial) under the 'use and file' procedure, where the product is approved and certified by the insurer's internal committees, filed with the IRDAI and then launched.
In terms of the content of insurance contracts, the IRDAI has issued guidance for various forms of insurance products, including the following:
- The IRDAI (Protection of Policyholders' Interests Regulations) 2017 ('Policyholders Regulations') prescribe certain terms that must be incorporated into life insurance, general insurance and health insurance policies.
- In addition, the Policyholders Regulations set out norms on the classification of exclusions and policy conditions that must be followed on policies. Further, all conditions precedent and warranties must be stated in express terms in the policy documentation.
- A number of regulations and guidelines specify that, broadly, product literature must be in "simple language" and "easily understandable to the public at large"; and technical terms used in the policy wording must be clarified to the insured.
- The IRDAI has issued specific guidance in addition to the foregoing for certain forms of insurance contracts, such as life, health, trade credit and surety insurance contracts.
- General insurers must still follow the wordings issued by the erstwhile Tariff Advisory Committee for various forms of property and engineering insurance contracts.
- In the last few years, the IRDAI has issued various standard form insurance contracts for various lines of insurance business, including standard products for fire and allied perils for dwellings, micro and small businesses, personal accident, health and individual immediate annuity.
Further, there are extraneous rules that impact on policy terms. For example, the Insurance Act gives the policyholder a right to override contrary policy terms in favour of Indian law and jurisdiction; and Indian policyholders cannot be stopped from approaching the consumer courts.
2.3 What are the formal and documentary requirements for conclusion of an insurance contract?
Except in case of a marine insurance cover or other cover where the use of a proposal form is exempted, a proposal for grant of insurance cover – whether for life insurance business, general insurance business or health insurance business – must be evidenced by a document in written or electronic form.
The Policyholders Regulations require the insurer to process proposals with "speed and efficiency"; and the decision on the proposal must be communicated to the proposer in writing within 15 days of the date of receipt of the proposal (or any other requirements called for by the insurer). It is also the duty of the insurer to give the insured (free of charge) a copy of the proposal form submitted by the insured within 30 days of acceptance of the proposal.
2.4 What are the procedural requirements for conclusion of an insurance contract?
Please see questions 2.2 and 2.3.
2.5 What are the respective obligations and liabilities of insurer and insured, both on concluding an insurance contract and during its term? What are the consequences of any breach?
In addition to the applicable norms and regulations, the insurer and insured must comply with certain guiding principles which act as the basis for the obligations that arise upon the conclusion of an insurance contract. Principles such as utmost good faith, disclosure of material information and confidentiality must be followed by both parties, both prior to and after execution of the insurance contract. The consequence of breach of or non-compliance with these principles may result in a right to avoid the policy, with or without a refund of the premium.
3 Making a claim
3.1 What are the formal and documentary requirements for making a claim?
The formal and documentary requirements to make a claim must be specified in the policy document and vary from one policy to another in line with the Policyholders Regulations. Among other things, these prescribe the following key requirements to be incorporated in life insurance, general insurance and health insurance policies:
- 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 conditions to be followed when a claim arises, along with a list of necessary documents that are required to be submitted in case of a claim.
3.2 What are the procedural requirements for making a claim?
The procedural requirements for making a claim must also be specified in the policy document, which usually requires that claims or circumstances of the claim be intimated to the insurer within the period specified in the policy. This requirement may be expressed as a condition or a condition precedent to the insurer's liability under the policy; and the consequences of non-compliance will to some extent depend on whether the notification clause is expressed as a condition or a condition precedent.
Typically, the notification of a claim is required 'immediately', 'as soon as practicable' or 'as soon as reasonably practicable'. The Insurance Regulatory and Development Authority of India (IRDAI), through its circulars of 20 September 2011, 28 October 2016 and 28 June 2017, also provided guidance in relation to reporting requirements. This is an evolving sphere; but at present, the courts appear to be adopting a fairly strict approach towards adherence with policy terms and conditions, including the notification requirement. For instance, a three-judge bench of the Supreme Court in Sonell Clocks and Gifts Ltd v The New India Assurance Co Ltd upheld repudiation on the basis of delayed notification and observed that the notification requirement "is not a technical matter but sine qua non for a valid claim to be pursued by the insured, as agreed upon between the parties".
3.3 On what grounds can the claim be denied? How can the insured challenge the denial of claim?
Insurers can deny a claim on various coverage grounds, including the insured's failure to establish that the claim falls within the insuring clause, if:
- the insurer is satisfied that a policy exclusion applies; or
- there is a breach of the policy terms and conditions, including an express or implied warranty.
Insurers can also avoid the policy entirely if there is fraud, misrepresentation or material non-disclosure by the insured.
The insured can challenge the denial of claim by:
- resorting to the dispute resolution mechanism set out in the policy document (usually arbitration);
- depending on the nature of the grievance, approaching:
- the internal grievance redressal mechanism of the insurer;
- the grievance cell of the IRDAI; or
- the insurance ombudsman; or
- initiating formal legal proceedings against the insurer before the consumer protection forums or a civil court with the requisite jurisdiction.
3.4 How can third parties make a claim?
There is no equivalent in India of the UK Third Parties (Rights against Insurers) Act 2010. As a general rule, Indian law recognises the principle of privity of contract and consequently a third party may be unable to bring a direct action or claim against an insurer.
However, it is a common practice for third parties to name the defendant's insurer in motor accident-related proceedings. The Motor Vehicles Act 1988 provides that the rights of an insured under a policy are transferred to a third party claiming against the insured in the event of the insured's insolvency. The act empowers the Motor Claims Tribunal to seek the insurer's involvement in a third-party action against the insured if:
- the tribunal believes the claim is collusive; or
- the insured fails to contest the claim.
However, Section 164 of the act has limited the insurer's liability concerning third-party insurance with effect from 1 April 2022 in the following terms:
- In case of death: INR 500,000; and
- In case of grievous hurt: INR 250,000.
There are presently no limits on the insurer's liability in cases of permanent disability or minor injury.
4 Form and structure of insurers
4.1 What types of insurance companies are typically found in your jurisdiction?
The Insurance Act specifies that an insurer must be one of the following:
- a public limited company formed under the Companies Act 2013;
- a statutory body established by an Act of Parliament to carry on insurance business;
- an insurance cooperative society; or
- a foreign company engaged in reinsurance business through a branch established in India.
A 'foreign company' has been defined to mean a company or body established under the law of any country outside India, and includes Lloyd's as established under the UK Lloyd's Act 1871 or any of its members.
4.2 How are these insurance companies typically structured and funded?
Currently, foreign investment in an insurance company is allowed up to 74% of the paid-up equity capital. In terms of structuring, there are broadly two structures that are prevalent in India:
- Direct investment: Shareholders and investors invest directly in the insurance company.
- Indirect investment: A special purpose vehicle (SPV) is formed in accordance with the Insurance Regulatory and Development Authority of India (Investment by Private Equity Funds in Indian Insurance Companies) Guidelines 2017 and the shareholders/investors/promoters invest in the insurance company through that SPV.
Further, there are certain restrictions set out in the insurance regulatory framework, including in relation to the shareholding percentage of Indian investors and the transfer of shares, which must be adhered to at the time of structuring the shareholding of an insurance company in India.
4.3 Are there any restrictions on foreign ownership of insurance companies?
The foreign investment ceiling in insurance companies was increased from 49% to 74% by way of the Insurance (Amendment) Act of 2021. Pursuant to this, the Ministry of Finance had also issued the Indian Insurance Companies (Foreign Investment) Amendment Rules 2021 on 19 May 2021 amending specific provisions of the Indian Insurance Companies (Foreign Investment) Rules 2015 to expressly provide norms which must be followed by insurance companies with foreign investment. The amendment rules are yet to be notified and to come into force.
5.1 What authorisations are required to provide insurance services in your jurisdiction? What activities do they cover?
An entity must be registered with the Insurance Regulatory and Development Authority of India (IRDAI) and obtain a certificate of registration under the applicable laws to undertake insurance activities in India.
The scope of insurance activities may vary based on the registration with the IRDAI and various conditions broadly encompassed under applicable regulations, guidelines and circulars. For instance, an applicant for registration as an insurer may undertake insurance business under the classes specified in the IRDAI (Registration of Indian Insurance Companies) Regulations 2000; whereas an insurance broker registered under the IRDAI (Insurance Broker) Regulations 2018 may exclusively carry on the business of an insurance broker as permitted under these regulations. Similarly, a corporate agent may be registered under the IRDAI (Registration of Corporate Agents) Regulations 2015 where its principal business is other than the distribution of insurance products and insurance distribution is a subsidiary activity. Thus, the scope of activities undertaken by an entity is determined based on the conditions and restrictions applicable to it under its certificate of registration and the relevant norms governing its operations.
5.2 What requirements must be satisfied to obtain authorisation?
Any entity applying for a licence or certificate of registration from the IRDAI must fulfil certain essential requirements, including in relation to the following:
- the form of the entity;
- the permissible foreign investment limits (if any);
- minimum capitalisation requirements and net worth requirements (if any);
- minimum qualification requirements of directors/principal officers/other specified key managerial personnel or other personnel; and
- the provision of adequate documentation on its constitution and structure (if applicable).
5.3 What is the procedure for obtaining authorisation? How long does this typically take?
For insurers and branches of foreign reinsurers, a multi-stage application process is set out in the respective regulations for these entities. For insurance intermediaries, broadly, a single-stage application process is set out under the respective regulations.
The timelines for obtaining registration are not expressly speciﬁed under the applicable regulations and thus vary on a case-by-case basis and depending on the form of entity being registered.
6 Regulatory capital and liquidity
6.1 What minimum capital requirements apply to insurance companies in your jurisdiction?
Indian insurers/reinsurers must have a minimum paid-up equity share capital of INR 1 billion/INR 2 billion respectively.
Foreign reinsurers seeking to set up a branch oﬃce in India must have a minimum net owned fund of INR 50 billion and must further infuse a minimum assigned capital of INR 1 billion into the branch oﬃce.
Syndicates of Lloyd's India must maintain a minimum assigned capital of INR 50 million through their service companies set up in India.
6.2 What liquidity requirements apply to insurance companies in your jurisdiction?
Section 64VA of the Insurance Act requires insurers and reinsurers to maintain an excess of their assets over liabilities. It provides as follows:
- The Insurance Regulatory and Development Authority of India (IRDAI) may specify, by way of regulations, a 'control level of solvency', which is the excess margin (of assets over liabilities) below which the IRDAI may take remedial measures to correct the insurer's existing deficiency.
- This excess margin, also referred to as the 'minimum solvency ratio', must:
- not be less than 50% of the insurer's minimum capital requirement; and
- be as specified under the applicable regulations.
- Failure to maintain the minimum solvency ratio will result in the entity being considered as insolvent (and potentially being wound up) per Section 64VA(2).
In this regard, insurers must value their assets, determine their liabilities and maintain required solvency margins, the details of which must be periodically filed with the IRDAI. The required solvency margin is calculated by insurers 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.
7 Supervision of insurance groups
7.1 What requirements apply with regard to the supervision of insurance groups in your jurisdiction?
In relation to the Insurance Regulatory and Development Authority of India's (IRDAI) supervision of the group to which an insurer, an Indian reinsurer or an insurance intermediary belongs, the IRDAI directly regulates only entities permitted by it to operate in the Indian insurance sector; currently, it does not regulate the operations of the group entities of such entities. However, there are some restrictions on entities operating in the same group undertaking insurance activities, where the IRDAI has discretion (in some cases) to determine the scope of the 'group', as follows:
- An Indian corporate group can have an insurer and an insurance broker within the same group, subject to the fulfilment of certain conditions;
- Typically, within a group, the IRDAI will grant one certificate of registration to one entity for insurance intermediation, unless a case on the merits and with no conflict of interest is made out before the IRDAI;
- A web aggregator cannot be a related party of an insurer;
- There is no express restriction on insurers and surveyors operating in the same group, but this is likely to be viewed as an inherent conflict of interest;
- There is no express restriction on insurers and third-party administrators operating in the same group;
- An insurance agent or insurance intermediary is not permitted to be a director of an insurance company; and
- Only one entity in a group can apply for a certificate of registration to act as a foreign reinsurance branch in India.
Additionally, to avoid conﬂicts of interest, two entities from the same group are ordinarily not permitted to undertake the same line of insurance business.
8 Reporting, governance and risk management
8.1 What key disclosure requirements apply to insurance companies in your jurisdiction?
The Insurance Regulatory and Development Authority of India (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations 2002 prescribe certain disclosures which must be made by insurers in their financial statements. Further, the Insurance Regulatory and Development Authority of India (IRDAI) has specified additional disclosure requirements for different forms of insurers under the Guidelines for Corporate Governance for Insurers in India of 18 May 2016 ('CG Guidelines').
- comply with public disclosure requirements by publishing key information – including balance sheets and profit and loss accounts – on their websites and in newspapers; and
- file certificates with the IRDAI on a periodic basis confirming compliance with the public disclosure requirements.
8.2 What key reporting requirements apply to insurance companies in your jurisdiction?
There are a number of regular filing requirements that insurers must comply with, such as in relation to the following:
- financial statements;
- board policies on various issues; and
- the appointment of, and changes in, key management personnel (KMPs).
Various other compliance reports must also be filed with the regulator.
In addition, a range of reports and filings must be submitted to the regulator on the occurrence of various events, which may be either for regulatory approval or post-facto intimation.
8.3 What key governance requirements apply to insurance companies in your jurisdiction?
Under the CG Guidelines, insurers must comply with the following key governance requirements, among others:
- An insurer must ensure the proper constitution and functioning of the board of directors by appointing an executive or a non-executive chairman, KMPs, independent directors and statutory auditors.
- To avoid conflicts of interest, auditors, actuaries, directors and KMPs are not permitted to hold more than one position in the insurer.
- To ensure the insurer's proper functioning, the board of directors must form certain committees (eg, audit, investment, risk management, policyholder protection, nomination and remuneration, corporate social responsibility, investment, ethics and asset liability management). Per the CG Guidelines:
- the creation of some of these committees is mandatory;
- committees must meet at least four times in a year; and
- not more than four months can lapse between two successive meetings of such committees.
- A related-party transactions policy must be formulated by the board which defines a 'transaction', the method of determining arm's-length pricing and so on.
- A whistleblower policy must be formulated by the board through which employees can raise concerns or report a possible breach of law or regulations, either directly to the chairman or to the committee of the board of directors.
- The insurer must establish a board policy setting out:
- the methods to identify an efficient mechanism for monitoring risk;
- appropriate internal controls for ensuring the effectiveness of risk management and compliance policies; and
- an internal audit function to review and assess the adequacy and effectiveness of the insurer.
- All insurers must disclose:
- the number of meetings conducted in a year;
- the remuneration paid to the directors;
- the number of meetings attended by directors; and
- other necessary information as required under the Companies Act 2013 and the Secretarial Standards.
- After the commencement of business, promoters of the insurer are prohibited from transferring their shares for a period of five years without the IRDAI's prior approval.
8.4 What key risk management requirements apply to insurance companies in your jurisdiction?
The CG Guidelines require all insurers to establish a risk management committee to implement the insurer's risk management strategy and formulate an effective risk management framework and risk management policy. The risk management committee is also required, among other things, to:
- advise the board on risk management decisions in relation to strategic and operational matters;
- set tolerance limits and assess costs and benefits associated with risk exposure;
- maintain an aggregated view on the risk profile of the insurer for all categories of risks;
- review and monitor the solvency position and business continuity of the insurer; and
- formulate and implement the board-approved fraud monitoring policy.
In addition, the CG Guidelines require:
- the incorporation of regulatory norms on risk management into the investment policy; and
- the periodic notification of all outsourcing arrangements entered into by the insurer to the risk management committee.
Further, the board of directors must disclose the risk management architecture in its annual accounts. The IRDAI also reviews the quality of risk management functions while assessing the corporate governance of the insurer.
9 Senior management
9.1 What requirements apply with regard to the management structure of insurance companies in your jurisdiction?
Insurers may have different structures, with the board of directors headed by an executive or non-executive chairman with distinct responsibilities over the other directors and key managerial personnel (KMPs). As per the Guidelines for Corporate Governance for Insurers in India ('CG Guidelines'), the following management structure must be observed by insurers:
- The board must have a minimum of three independent directors (with a relaxation of two independent directors for the initial period of five years from grant of the certificate of registration).
- An independent director of an insurer must comply with Section 149 of the Companies Act 2013. Further, where the number of independent directors falls below the required minimum count, the vacancy must be filled before the immediately following board meeting or three months from the date of such vacancy, whichever is later, under intimation to the Insurance Regulatory and Development Authority of India (IRDAI).
- Every insurer must have at least one woman director.
- Where the chairman of the board of the insurer is a non-executive director, the chief executive officer should be a full-time director of the company.
Insurers must also ensure that directors of the company have various different types of financial and management expertise such as "accountancy, law, insurance, pension, banking, securities, economics, etc., with qualifications and experience that is appropriate to the company".
In terms of remuneration, the IRDAI's Guidelines on Remuneration of Non-executive Directors and Managing Director/Chief Executive Officer/Whole-time Directors of Insurers dated 5 August 2016 ('Remuneration Guidelines') stipulate the remuneration mechanisms for non-executive directors and managing directors/chief executive officers (CEOs)/full-time directors of insurers. Recently, the IRDAI issued an exposure draft which will modify the existing guidelines if brought into force.
9.2 How are directors and senior executives appointed and removed? What selection criteria apply in this regard?
Directors and senior executives of insurers must be appointed in accordance with the provisions of the Companies Act 2013 and the relevant norms under the CG Guidelines, which derive from the Insurance Act. Section 34A of the Insurance Act requires the prior approval of the IRDAI for the appointment, reappointment or termination of, among others, the managing director, the CEO and full-time directors of an insurer.
The CG Guidelines also prescribe norms in relation to the appointment or termination of all KMPs, which include a requirement for the approval of the board of directors for the appointment or termination of KMPs that follows the recommendation of the nomination and remuneration committee.
Prior to the appointment of a person as a KMP, the board or a committee thereof must carry out due diligence to ensure that the appointee is 'fit and proper' for the proposed position.
The CG Guidelines also prohibit persons from holding more than one KMP position that may involve a potential conflict of interest, unless the IRDAI's prior approval has been obtained.
9.3 What are the legal duties of directors and senior executives of insurance companies?
In terms of eligibility, all directors and KMPs of insurers must comply with the 'ﬁt and proper' criteria stipulated by the IRDAI.
The legal duties of directors and senior executives are set out in Section 166 of the Companies Act 2013 and include:
- the duty to act in accordance with the articles of company;
- the duty to act in good faith;
- the duty to act with due and reasonable care, skill and diligence;
- the duty not to have direct or indirect conflict with the interest of the company;
- the duty not to achieve undue gain or advantage for himself or herself, or his or her relatives, partners or associates; and
- the duty not to assign his or her office.
In addition, the CG Guidelines impose additional responsibilities on directors, such as those relating to:
- setting the insurer's business strategy, underwriting policy, retention and reinsurance policy, asset investment policy and so on;
- defining and setting standards for servicing and grievance redressal of policyholders and business conduct and ethical behaviour for directors and senior management; and
- ensuring proper implementation and periodic review of business strategy.
9.4 How is executive compensation regulated in your jurisdiction?
As discussed in question 9.1, the IRDAI's Remuneration Guidelines set out the manner of remuneration payable for non-executive directors and managing directors/CEOs/full-time directors of insurers.
10 Change of control and transfers of insurance companies
10.1 How are the assets and liabilities of insurance companies typically transferred in your jurisdiction?
Insurers can transfer their assets and liabilities in accordance with the following:
- The Insurance Act lays down a detailed procedure for the "Amalgamation and transfer of insurance business", which specifies the process and the role played by the Insurance Regulatory and Development Authority of India (IRDAI) in the course of such transactions. Additionally, insurers must adhere to:
- the IRDAI (Scheme of Amalgamation and Transfer of General Insurance Business) Regulations 2011, applicable to general and health insurers; and
- the IRDAI (Scheme of Amalgamation and Transfer of Life Insurance Business) Regulations 2013, applicable to life insurers.
- Insurers must value their assets, determine their liabilities, maintain the required solvency margins and file related details periodically with the IRDAI as per:
- the IRDAI (Assets, Liabilities, and Solvency Margin of Life Insurance Business) Regulations 2016, applicable to life insurers; and
- the IRDAI (Assets, Liabilities, and Solvency Margin of General Insurance Business) Regulations 2016, applicable to general and health insurers.
- The Guidelines for Corporate Governance for Insurers in India require all insurers to establish an investment committee to recommend investment policy and lay down the operational framework for the company's investment operations.
Further, new norms on the method for assessing compensation due to shareholders or members whose interests in or rights against the transferee insurer resulting from amalgamation are less than their interests in or rights against the original insurer have been introduced under the IRDAI (Manner of Assessment of Compensation to Shareholders or Members on Amalgamation) Regulations 2021.
10.2 What requirements must be met in the event of a change of control?
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 insurer or reinsurer where, after the transfer, the total shareholding of the transferee is likely to exceed 5% of the total paid-up capital of the company.
The prior approval of the IRDAI must also be obtained if the nominal value of the shares intended to be transferred by any individual, firm, group, constituent of a group or body corporate under the same management, jointly or severally, exceeds 1% of the total paid-up capital of the insurer or reinsurer.
The Registration Regulations also impose the following reporting requirements, among others:
- Every insurer must file a statement with the IRDAI stating any shareholding changes exceeding 1% of the paid-up capital of the promoter within 45 days of the end of every quarter; and
- Any change exceeding 5% of the paid-up capital of the promoters must be reported to the IRDAI immediately.
11 Consumer protection
11.1 What requirements must insurance companies comply with to protect consumers in your jurisdiction?
The Policyholders Regulations issued by the Insurance Regulatory and Development Authority of India are the primary regulations on the protection of policyholders' interests. The Policyholders Regulations prescribe the practices that must be undertaken by insurers and insurance intermediaries at the point of sale of the insurance policy to ensure that the policyholder understands the terms of the policy properly.
In addition, the Policyholders Regulations prescribe the claims procedure that must be followed by insurers to ensure the timely processing of claims. Insurers must pay interest at 2% above the prevalent bank rate where payment of the claim amount is delayed.
Insurers must also put in place proper grievance redressal procedures and mechanisms in accordance with the applicable provisions for the resolution of grievances of policyholders.
11.2 What other measures has the state implemented to protect consumers in the insurance sector?
The Consumer Protection Act 2019 was notified on 9 August 2019. It aims to strengthen the existing framework for consumers while also introducing a centralised agency, the Central Consumer Protection Authority (CCPA). The CCPA has wide-ranging powers, including the power to initiate investigations and impose such sanctions and penalties as may be required to prevent the violation of consumer rights.
By operation of law, an insured can approach a consumer forum in relation to any claim against an insurer. This right of forum is independent of any right which the insured may have under the policy terms to initiate arbitration or court proceedings.
The consumer commissions have a three-tier hierarchy, with district commissions on the lowest rung, followed by a state commission (for every state) and a national commission at the apex level. District commissions have jurisdiction to deal with complaints arising from contracts for goods services where the consideration does not exceed INR 5 million. State commissions have jurisdiction where the consideration is above INR 5 million and below INR 20 million; while the national commission hears original complaints where the consideration is above INR 20 million.
The fee for filing a complaint before a consumer forum is nominal, unlike court fees, which are ordinarily determined based on the claim amount.
The government also notified the Consumer Protection (Direct Selling) Rules 2021 on 28 December 2021. The rules aim to regulate trade practices across all models of direct selling; any unfair trade practices which result in a breach of the rules by direct selling entities or direct sellers are punishable under the Consumer Protection Act.
12 Data security and cybersecurity
12.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for insurance companies?
The Policyholders Regulations require insurers to maintain all policyholder data as confidential, unless it is necessary to disclose such information to statutory authorities due to the operation of law. Further, data pertaining to all policies issued and all claims made in India must be held in data centres located and maintained in India.
12.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for insurance companies?
Given the signiﬁcant increase in e-commerce over the years, the Insurance Regulatory and Development Authority of India (IRDAI) has recognised the sale and servicing of insurance products online and the issuance of e-insurance policies. The insurance sector is continuously adapting to various technological advancements – such as artificial intelligence, data analytics and digital marketing – in relation to:
- policyholder communication/grievance management;
- digi-lockers for the maintenance of records and data; and
- various data security and protection measures.
The IRDAI has also issued specific norms on issues such as:
- information asset management;
- data security;
- application security;
- endpoint security;
- cloud security; and
- incident management
Insurers and reinsurers must comply with these norms.
On 7 April 2017 the IRDAI also issued its Guidelines on Cybersecurity which, among other requirements, provide that insurers must have:
- an information security committee;
- a board-approved information and cybersecurity policy;
- a chief information security officer; and
- a cyber crisis management plan.
The guidelines also mandate that the risk management committee should be responsible for an annual comprehensive assurance audit, including vulnerability assessment and penetration testing, and should report the findings to the IRDAI.
Further, on 1 October 2021 the IRDAI issued a public notice on a cybersecurity awareness campaign, in which it set out a list of dos and don'ts to be considered while carrying out various insurance transactions.
13 Financial crime
13.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for insurance companies?
The Prevention of Money Laundering Act 2002 came into force on 1 July 2005 and, along with the Prevention of Money Laundering (Maintenance of Records) Rules 2005, obliges entities such as insurers to:
- verify the identities of their clients;
- maintain a record of all transactions; and
- formulate and implement a client due diligence programme.
On 1 August 2022, the Insurance Regulatory and Development Authority of India issued the Master Guidelines on Anti-Money Laundering/Counter Financing of Terrorism 2022, which consolidate the earlier guidance issued on this subject for insurers. The guidelines are to be implemented from 1 November 2022 and require insurers to establish policies and procedures for the prevention of money laundering and terrorist financing. The guidelines will apply to all classes of life, general and health insurance; but will not apply to reinsurers.
14.1 What specific challenges or concerns does the insurance sector present from a competition perspective? Are there any pro-competition measures that are targeted specifically at insurance companies?
The Competition Act 2002 regulates anti-competitive activities in India through the Competition Commission of India (CCI), which was established under the act. The Competition Act regulates, among other things:
- anti-competitive agreements, including cartels;
- abuse of dominant position; and
- combinations (mergers, acquisitions and amalgamations).
Mergers and acquisitions in the insurance sector are governed by the Insurance Act as well as the Competition Act. The Insurance Act sets out the requirements and procedure for obtaining in-principle approval from the Insurance Regulatory and Development Authority of India for the amalgamation and transfer of an insurance business. Upon receipt of in-principle approval, the entities in question must seek 'other regulatory approvals', including any applicable approvals under the Competition Act. The standards adopted by the CCI are similar across sectors and there are no specific measures targeted towards insurers.
15 Restructuring and insolvency
15.1 What provisions govern insolvency in your jurisdiction and what specific implications do these have for insurance companies?
The Insolvency and Bankruptcy Code 2016 governs the law relating to the insolvency of corporate persons, partnership firms and individuals. The definition of 'corporate persons' under Section 3(7) of the code excludes 'financial service providers', including insurers. The code also provides the government with the power to introduce specific rules on the insolvency of financial service providers.
Pursuant to this power, the government notified the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules 2019. The rules apply to such financial service providers as may be notified. To date, the rules have only been notified for non-banking finance companies, including housing finance companies.
Consequently, the insolvency of insurers is still governed by the Insurance Act and the relevant provisions of the Companies Act 2013.
16 Trends and predictions
16.1 How would you describe the current insurance landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Recently, norms have been introduced or amended in relation to a number of important issues in the insurance sector, including:
- trade credit insurance;
- surety insurance contracts; and
- the assessment of compensation for shareholders or members.
The new chairperson of the Insurance Regulatory and Development Authority of India (IRDAI) has also held a number of meetings with the aim of increasing the ease of doing business and insurance penetration in India.
The IRDAI has also conducted sessions with market players to:
- identify steps to promote the healthy growth of the insurance industry;
- rationalise the regulatory framework; and
- potentially reduce the compliance burden.
It has identified various areas within the existing legal/regulatory architecture for internal review. The IRDAI is also known to have held various sessions with industry players in order to review and discuss progress made towards enhancing insurance penetration and policyholder welfare.
Recently, the IRDAI has issued exposure drafts on:
- group health insurance;
- remuneration of non-executive directors and managing directors/chief executive officers/full-time directors of insurers;
- insurance intermediaries;
- other forms of capital;
- expenses of management of insurers;
- the obligations of an insurer in respect of motor third-party insurance business;
- the IRDAI (Other Forms of Capital) Regulations 2022;
- the IRDAI (Insurance Intermediaries) (Amendment) Regulations 2022; and
- the payment of commission or remuneration or reward to insurance agents and insurance intermediaries.
While these exposure drafts are at the deliberation stage and stakeholder comments have been invited, we anticipate that new regulations and guidelines will be issued on these and other matters in the coming year.
17 Tips and traps
17.1 What are your top tips for insurance companies operating in your jurisdiction and what potential sticking points would you highlight?
The Indian insurance sector is highly regulated. As per the regulatory guidance issued in recent years and past orders of the Insurance Regulatory and Development Authority of India, we note that the primary focus has been to protect and promote policyholders' interests and increase insurance penetration. Judgments from the Indian courts and other forums, particularly on retail matters, also appear to be focused on protecting policyholders' interests. Therefore, insurers should develop robust internal controls and mechanisms to ensure compliance with the reporting requirements, approval requirements, record requirements and various other requirements which apply on a day-to-day level. They should also develop strong internal policies and procedures which are focused on:
- protecting policyholders' interests;
- increasing insurance penetration; and
- maintaining appropriate corporate governance standards.
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.