Tuli & Co

Introduction For some time now, there has been a growing impetus towards establishing a clear regulatory approach and governance mechanism for artificial intelligence in India (AI). Early groundwork was laid by the NITI Aayog’s discussion papers on “National Strategy for AI” in 2018 and “Principles of Responsible AI” in 2021. Thereafter, on 7 March 2021, the Government of India approved the IndiaAI Mission, which acknowledged the technology’s transformative potential as well as the need for responsible development and deployment. In November 2023, the Ministry of Electronics and Information Technology (MeitY) constituted a sub-committee under this IndiaAI Mission to offer actionable recommendations. We note that these developments are connected to a wider legislative effort to replace the Information Technology Act of 2000 and modernise regulatory frameworks governing India’s digital ecosystem, by way of the Digital India Act[[1]] proposed in March 2023 (Digital India Act). The Digital India Act aims to create an umbrella framework for emerging technologies such as blockchain, internet-of-things, machine learning and AI, and introduce stricter measures to address accountability and cybersecurity concerns. Sectoral Norms on AI Some sector-specific guidance has also been issued. For instance, in November 2024, the Securities and Exchange Board of India (SEBI) proposed amendments to various regulations aiming to hold registered entities liable to investors for any consequences arising from their use §AI tools[[2]]. In July 2023, the Telecom Regulatory Authority of India (TRAI) had recommended establishing an independent statutory authority “immediately”[[3]] to ensure development of responsible AI and regulation of various use cases in India. In June 2023, the Indian Council of Medical Research (ICMR) had also issued ethical guidelines for AI in biomedical research and healthcare. AI Framework Report More recently, on 7 January 2025, the MeitY’s sub-committee published its report on “AI Governance and Guidelines Development” (Report) for stakeholder comments[[4]]. This Report attempts to identify certain key issues, analyse gaps within existing frameworks, and propose recommendations for developing an AI regulatory framework. This article discusses the key developments in AI governance in India, with a particular focus on the recent sub-committee report of January 2025 and its potential relevance to the insurance industry. Key Concerns and Recommendations The Report highlights certain key areas where existing legal frameworks fall short and suggests various actionable recommendations for development of an AI governance framework. These are discussed below, with particular reference to the potential impact on the Indian insurance sector. 1. AI-led Bias and Discrimination: The Report notes that while existing laws in India do address discrimination and bias, AI systems have the potential to reinforce and amplify existing societal biases, which may be present in its training data, on a large scale[[5]]. Depending on the scale of its deployment across industries, it can become more challenging to detect and address discrimination despite the presence of existing legal protections[[6]]. The Report thus identifies the current lack of transparency in how AI systems arrive at their outputs as a key risk of AI, which coupled with unreliable or unrepresentative datasets, can lead to deployers of AI systems unknowingly using biased tools that violate existing laws. This is particularly pertinent to the insurance sector where underwriting processes and claims decisions are already seeing AI assistance. If an AI model used for these purposes is trained on data containing any historical biases, its outputs may be discriminatory to certain demographic groups. In terms of recommendations to address this and generally ascertain liability, the Report suggests that “traceability” and “transparency” may be mandated for AI systems to ensure that the decision-making processes are interpretable and auditable, particularly for high-risk systems[[7]]. This means being able to trace the problem back to its source (traceability) to understand: (i) why the AI made a particular decision (explainability), and (ii) who is responsible (transparency). However, practically, it is relevant to consider that most AI systems are based on highly complex neural networks and effectively act as “blackboxes”, since their calculations are not easily translated into human-understandable explanations. The fundamental concerns that arise for regulators are then, broadly: Regulating them extensively may require the inner workings of these AI models to be simplified. This may have the unintended effect of compromising on the performance of such AI systems (and thus hindering innovation) in the field. However, without these steps, if an AI system makes a harmful decision (such as denying insurance cover or repudiating a claim unfairly), it may be difficult to determine: (i) why, (ii) who is at fault (the main developer, the Insurance Company, or the training data used) and (iii) how to prevent similar unfair outcomes in the future. Thus, a key challenge for regulators and the AI industry would be to navigate such inherent trade-offs and develop a balanced approach. 2. Malicious Content and Deepfakes Legal frameworks for malicious AI-generated content already exist in India, such as under the IT Act, the Indian Penal Code (now the Bharatiya Nyaya Sanhita 2024), and potentially other laws such as the Prevention of Children from Sexual Offences Act 2012[[8]]. These laws can be used to address offences such as cheating by impersonation, identity theft, and publication of obscene content, and the IT Act framework also mandates intermediaries to remove content reported as impersonation in electronic form, including artificially morphed images, within 24 hours of a complaint[[9]]. Despite the legal provisions, the rapid advancement and increasing sophistication of AI models mean that existing laws may require adaptation in terms of their application and enforcement[[10]]. For insurance companies, the proliferation of deepfakes presents several potential risks. These include: Fraudulent claims: AI-generated images or videos could be used to fabricate incidents and support fraudulent insurance claims. Reputational damage: Deepfakes could be used to spread false information or create damaging content involving the company or its representatives. Social biases and discrimination: If AI systems used by insurers are trained on or influenced by biased data, they could also reinforce or amplify discriminatory outcomes. To address these gaps, the Report strongly recommends leveraging techno-legal measures, which include technological solutions such as (i) watermarking[[11]] and (ii) content provenance chains (such as those used in blockchains ie, digital methods to track the creation, modifications and ownership of documents, such as those used in blockchains) to establish the origin and track the lifecycle of digital content[[12]]. These measures are suggested to aid in tracing the origin of AI generated content and determining if they were created in violation of the law. In March 2024, the MeitY also issued an advisory to platforms requiring measures for identifying and marking misinformation and AI-generated content[[13]]. Insurance Companies in India may also need to prepare for the rampant use of such malicious content by implementing relevant techno-legal measures, as well as complying with any regulatory requirements that may be imposed. 3. Intellectual Property Rights The Report highlights significant gaps and uncertainties within the existing IPR framework in India: The Report questions the legality of training AI on copyrighted data, noting that such commercial use may fall outside fair use exceptions and potentially constitute copyright infringement[[14]]. The Report also raises concerns on who should be assigned liability for IP infringement, ie, the developer of the AI system or the user who generates such content[[15]]. In terms of any infringing content that may be generated by AI systems, the copyrightability of such AI generated work is also untested under current Indian law, given the requirement of “human authorship”[[16]]. At present, the Report does not discuss the arguments that are typically advanced by AI companies such as the non-expressive use of copyrighted work (ie, the use ideas or facts in a copyrighted work are not themselves protected by IPR laws) or the significant transformation that an AI-generated output may go through (which may, in isolation, be compliant with copyright laws). Clarity on this is widely expected to be laid down by the Delhi High Court, where is hearing the on-going dispute between the Indian news agency, ANI and the creators of ChatGPT, OpenAI[[17]]. 4. Cybersecurity While existing laws apply to AI related cybersecurity incidents, and sectoral regulators such as the SEBI and IRDAI have also issued circulars and guidelines on cybersecurity for entities within their purview, the Report acknowledges that AI-related cybersecurity threats may require stricter compliance and enforcement by regulatory bodies[[18]]. For the insurance sector, cybersecurity is already a critical concern due to the vast amounts of sensitive personal and financial data they handle. The increasing use of AI in various aspects of their operations, such as data analysis, customer service, and even fraud detection, introduces new avenues for cyber risks. Any AI systems that Insurance Companies use may themselves be targets for cyberattacks, potentially leading to data breaches, manipulation of decision-making processes, or denial of service. 5. Assigning Liability: In terms of liability, the Report suggests that AI developers as well as deployers of such systems (such as Insurance Companies) may bear responsibility for errors or harm caused by AI systems[[19]] and not be able to claim any safe harbour protection: “One of the conditions for availing safe harbour is that the intermediary does not “select or modify the content”. In case [of] AI models, this condition would not be met in many scenarios.” [[20]] This responsibility could mean Insurance Companies may be held liable for consequences arising from AI-driven advice or decisions that impact stakeholders. This is also echoed in SEBI’s recent proposal concerning the use of AI by regulated entities in the financial market, which underscore the responsibility of deployers for the outcomes of their AI systems. The insurance sector, being regulated by the IRDAI, could see these overarching principles of accountability being applied to the insurance companies and intermediaries/TPAs as well. Other Recommendations in the Report Regulatory Approach: While the Report identifies three possible approaches to AI regulation— entity-based regulation (such as banking, or telecom sector), activity-based regulation (such as data protection, consumer protection etc), and a combination — it suggests that given the nascent stage of AI development in India, the starting point should be activity-based regulation[[21]]. Governance across entire lifecycle: The Report advocates for oversight/regulation throughout the lifecycle of AI ie, the development, deployment, and diffusion stages, as the risks differ/vary at each stage[[22]]. It also recommends that the proposed framework should govern all actors involved in the AI lifecycle (including data provider, AI developer, AI deployer and any end users)[[23]]. Institutional Mechanisms: The Report also recommends establishing a coordination committee between Governmental ministries (including representatives from MeitY, NITI Aayog, RBI, SEBI, and other sectoral regulators)[[24]], a central MeitY-led technical advisory body[[25]], and an AI incident database for evidence-based policymaking[[26]]. Concluding Remarks This Report follows similar developments in the United States[[27]], United Kingdom[[28]], and European Union[[29]], where governments have proposed/implemented comparable AI governance frameworks. While the Report acknowledges that overbearing regulation could stifle the organic evolution of India’s AI ecosystem[[30]], there is also a recognition that AI may pose novel risks that existing laws may be ill-equipped to handle, and which could concern the fundamental rights enshrined in the Indian constitution as well as have a potential for irreversible harm. The Report lays down the foundation for India’s AI regulation path, but at present, there is no indicative timeline for adopting its recommendations or even the issuance of related frameworks such as the proposed Digital India Act. Due to the increasing usage of and dependency upon AI systems across all financial sectors, entities in the insurance space should look to review their existing AI models based on the principles identified in the Report, align any handling of personal data by such AI systems with the Digital Personal Data Protection Act 2023, and potentially even build internal capacity for expectations such as traceability and algorithmic audits. 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. For further information on this topic please contact Tuli & Co  T: +91 11 4593 4000, E: [email protected], or W: www.tuli.co.in [[1]]           While the draft bill is yet to be published for public consultation, the former MoS Rajeev Chandrashekhar organised a pre-draft consultation on 9 March 2023 where the Digital India Act’s broad structure and goals were presented in an official announcement. [[2]]           SEBI’s consultation paper on “Proposed amendments with respect to assigning responsibility for the use of Artificial Intelligence Tools by Market Infrastructure Institutions, Registered Intermediaries and other persons regulated by SEBI” of 13 November 2024. [[3]]           TRAI, Information Note to the Press (Press Release No. 62/2023) of 20 July 2023, available at https://www.trai.gov.in/sites/default/files/2024-08/PR_No.62of2023.pdf. [[4]]        IndiaAI, “Report on AI governance guidelines development”, available at https://indiaai.gov.in/article/report-on-ai-governance-guidelines-development. [[5]]        ¶III(A)(4) of the Report. [[6]]        ¶III(A)(4) of the Report. [[7]]        ¶III(B) of the Report. [[8]]        ¶III(A)(1) of the Report. [[9]]        Rule 3(2)(b) of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 (IT Rules). [[10]]      Chaitanya Rohilla v Union of India, Delhi High Court [WP(C) 15596/2023], available at https://dhcappl.nic.in/dhcorderportal/GetQROrder.do?ID=mmh//2023//100018561701785455000_27500_155962023.pdf. [[11]]      ¶III(A)(1) of the Report. [[12]]      ¶IV(5) of the Report. [[13]]      MeitY’s advisory of 1 March 2024 (as amended on 15 March 2024) mandated such content labelling across all intermediary platforms: “Where any intermediary through its software or any other computer resource permits or facilitates synthetic creation, generation or modification of a text, audio, visual or audio-visual information, in such a manner that such information may be used potentially as misinformation or deepfake, it is advised that such information created generated or modified through its software or any other computer resource is labelled… that such information has been created generated or modified using the computer resource of the intermediary.” [[14]]      ¶III(A)(3)(a) of the Report. [[15]]      ¶III(A)(3)(a) of the Report. [[16]]      ¶III(A)(3)(b) of the Report. [[17]]      Ani Media Pvt Ltd v Open AI, Delhi High Court [CS(COMM) 1028/2024]. [[18]]      ¶III(A)(2) of the Report. [[19]]      ¶II(A)(2) of the Report. [[20]]      Annexure of the Report. [[21]]      Conclusion of the Report. [[22]]      ¶II(B)(1) of the Report. [[23]]      ¶II(B)(2) of the Report. [[24]]      ¶IV(1) of the Report. [[25]]      ¶IV(2) of the Report. [[26]]      ¶IV(3) of the Report. [[27]]      Please note various states of the USA have implemented their respective AI governance framework such as the Colorado AI Act of 2024, Illinois Supreme Court’s AI Policy of 2025 etc. There is not law at the federal [[28]]      Please note that United Kingdom has implemented various plans and strategies to govern AI. They are: the UK National AI Strategy (2021), the A pro-innovation approach to AI regulation (2023) and the AI Opportunities Action Plan (2025). [[29]]      The European Union has notified the EU Artificial Intelligence Act on 1 August 2024 and operationalised Chapter 1 and Chapter 2 on 2 February 2025. [[30]]      MeitY’s press release on “India’s AI Revolution - a Roadmap to Viksit Bharat” of 6 March 2025, available at https://pib.gov.in/PressReleseDetail.aspx?PRID=2108810®=3&lang=1.

Introduction Following a review of the insurance legislative framework in India by the Finance Ministry,in consultation with the IRDAI and other stakeholders in the industry, and the comments received on the erstwhile Bill issued in 2022 (Erstwhile Bill), the Government of India has issued a draft Bill titled “The Insurance Laws (Amendment) Bill, 2024” (Draft Bill) on 26 November 2024. The Draft Bill proposes significant amendments to the Insurance Act 1938 (Insurance Act), the Insurance Regulatory and Development Authority Act 1999 (IRDA Act), and the Life Insurance Corporation Act 1956 (LIC Act) and is aimed at achieving the overarching goal “Insurance for All by 2047” by focusing on promoting policyholders’ interests, enhancing the financial security of policyholders, facilitating entry of more players in the insurance market leading to economic growth and employment generation, enhancing efficiencies of the insurance industry, and enabling ease of doing business. The Draft Bill proposes various amendments such as raising the limit of Foreign Direct Investment (FDI) in Indian Insurance Companies to 100%, allowing Insurers to undertake multiple classes of insurance business, and allowing differential capital requirements. We have discussed the key changes proposed in the Insurance Act below. Proposed Changes A brief summary of the key changes proposed under the Draft Bill are set out below: Increase of FDI Limit: The Draft Bill proposes to insert §3AA in the Insurance Act to allow up to 100% foreign investment in an Indian Insurance Company (subject to any conditions imposed) and up to 26% foreign investment in an insurance co-operative society. The Central Government or the IRDAI is expected to issue operational guidelines and/or amend existing norms on foreign investments, which will likely shape the actual impact on the entry of new players into the Indian insurance market. Increased Scope of Business: The Draft Bill seeks to expand the existing scope of business undertaken by Indian Insurance Companies. In this regard: The IRDAI may grant a certificate of registration for “class or classes of insurance business”[[i]] thereby potentially allowing an applicant to seek a certificate of registration for multiple classes of insurance business. In this regard, the Draft Bill, for the first time, proposes to define the term “class of insurance business” as class of life, general, health, re-insurance, or “any other class notified by the Central Government”. However, the Draft Bill clarifies that an entity established or incorporated under laws of any country outside India, is only permitted to carry out reinsurance business. While the Erstwhile Bill expressly proposed to allow applicants to seek certificates of registration for specific sub-classes of insurance business, the Draft Bill is unclear on whether an Insurance Company may potentially be established to carry out monoline insurance business or implement a business plan focused solely on a particular line. The reference to captive insurer, as proposed under the Erstwhile Bill, is also no longer present. Other Businesses: While presently Insurers are only permitted to carry on insurance business in accordance with their registration with the IRDAI, the Draft Bill proposes to allow an Indian Insurance Company to undertake other specific forms of business. In this regard, the Draft Bill provides that an Insurance Company may engage in one or more of the forms of business[[ii]], in the manner as may be specified, namely: (i) guarantee and indemnity business, (ii) managing, selling and realising properties obtained in satisfaction of claims, (iii) establishing or supporting the establishment of associations, institutions or trust for the benefit of employees, ex-employees or their dependents, (iv) acquiring or undertaking businesses (which are in the nature of businesses specified in this sub-section), (v) undertaking activities incidental or conducive to advancing the Insurance Company’s business, and (vi) any other business as specified by the Central Government. Interestingly, the Erstwhile Bill proposed to allow Insurers to also distribute “financial products” (such as mutual funds, loans etc), but the Draft Bill does not contain this reference. Instead, it is proposed that Insurers only perform such additional business as expressly set out in the sub-section or notified by the Central Government going forward. New/revised definitions: The Draft Bill proposes to introduce new definitions under the Insurance Act: The Draft Bill states that “Insurance Business”[[iii]] means “the business of effecting insurance contracts, whereby the insurer undertakes to assume risk and to pay to the insured an agreed compensation for loss, damage, or liability arising from a contingent event on such terms and conditions and subject to such limitations as may be agreed, and includes any other form of business as may be notified by the Central Government from time to time”. Other new introductions include definitions for “class of insurance business”, “premium”[[iv]], and “principal officer”[[v]] as well as revised definitions of existing terms such as of “Indian Insurance Company”[[vi]], “Insurance co-operative society”[[vii]], “Insurer”[[viii]], “health insurance business”[[ix]] and “intermediary or insurance intermediary”. Similar to the Erstwhile Bill, the definition of “insurance intermediary” is proposed to be moved to the Insurance Act (from the IRDA Act). The proposed definition remains inclusive but deletes “insurance consultants” from the list and adds “managing general agents” and “insurance repositories” to the list to be expressly recognised as insurance intermediaries[[x]]. The definition of “Indian insurance company” has been simplified to state that “Indian insurance company” means “an insurer being a public company, registered under the Companies Act, 2013”. Differential Capital: The Draft Bill retains the existing minimum paid-up equity capital requirement applicable to Insurance Companies[[xi]] and introduces provisions allowing the IRDAI to specify a different minimum paid-up equity capital for specified classes of insurance business. To elaborate, the IRDAI may (i) specify a paid-up equity capital, which is not less than the sum of the capital required for each class of insurance business[[xii]], and (ii) reduce the paid-up equity capital to no less than Rs.50 crores for any class of insurance business serving underserved or special segments, as may be specified by the regulations[[xiii]]. This is a shift from the proposed norm under the Erstwhile Bill which allowed the IRDAI to determine the paid-up equity capital of all categories of Insurance Companies on the basis of the size and scale of operations, class or sub-class of insurance business and the category or type of Insurer. In addition, the Draft Bill proposes to reduce the requirement of maintaining net owned funds, applicable to foreign insurance branches, to Rs.1000 crores from the presently specified Rs.5000 crores[[xiv]]. Share Transfer: The Draft Bill proposes to increase the existing limit of 1% to 5% (of the paid-up equity capital) on Insurance Companies, allowing transfer of shares within the group or under the same management without prior approval of the IRDAI, up to 5% jointly or severally[[xv]]. Actuarial Investigations & Report: The Draft Bill extends the requirement, which is presently applicable to only Life Insures to all Insurers, of conducting an annual investigation by an actuary into their financial condition, including a valuation of its liabilities and preparing a report in accordance with the regulations[[xvi]]. In this regard, the Draft Bill proposes to require all Insurers to appoint an actuary subject to the eligibility criteria and other conditions as may be specified by the regulations. Investments in a Private Limited Company: The Draft Bill proposes to amend and consolidate the norms on investment, presently spread across §27, §27A, §27B, §27C and §27D, into a consolidated §27[[xvii]] and while the norms contained under the consolidated §27 is broadly similar to the present norms, the consolidated §27 does not retain the prohibition on Insurers investing in shares and debentures of a private limited company out of its controlled funds/assets[[xviii]]. Prohibition on Common Directors: The Draft Bill extends the prohibition on having (i) a common managing director or other officers between an Insurer and any other Insurer/banking company/investment company[[xix]] and (ii) a common director between two Insurer carrying on the same class of insurance business, presently applicable to only Life Insurers, to all Insurers[[xx]]. Amalgamation with non-Insurers: The Draft Bill proposes to allow a scheme of arrangement/amalgamation or transfer of business between an Insurer and any company not engaged in insurance business, subject to the conditions under the Insurance Act and as may be specified by the IRDAI[[xxi]]. An Insurance Agent for multiple Insurers: The Draft Bill allows an insurance agent to represent more than one Insurer. In this regard, the Draft Bill proposes to delete existing provision that prohibits a person from acting as an insurance agent for more than one life insurer, one general insurer, one health insurer, and one mono-line insurer of each type and require the IRDAI to frame regulations to ensure that there is no conflict of interest in one insurance agent representing more than one Insurer[[xxii]]. Perpetual license for Insurance Intermediaries: The Draft Bill seeks to remove the existing requirement on insurance intermediaries to renew their certificate of registration every three years[[xxiii]]. In this regard, the Draft Bill proposes to insert a new provision which empowers the IRDAI to suspend or cancel the registration of such insurance intermediaries on certain conditions (such as contravention of the statutory provisions, failure of the payment of annual fee, or even “makes any other default, as may be specified by regulations”[[xxiv]]), to ensure continued oversight and accountability. Overall, this change is expected to free up resources for intermediaries to focus on business development and customer servicing. Increased Powers & Penalties: The Draft Bill propose to enhance the IRDAI’s power to issue directions, which is presently limited to Insurers, to insurance intermediaries as well and clarify that the power to issue directions includes and deems to include the power to direct any person, who made profit or loss by indulging in any transaction or activity in contravention of the provisions of the Insurance Act or regulations made thereunder, to return an amount equivalent to the wrongful gain made or loss averted by such contravention[[xxv]]. In addition, the Draft Bill increases the penalty on any Insurer or insurance intermediary failing to (i) furnish any document, statement, account, return or report to the IRDAI; or (ii) comply with the directions of the IRDAI, or (iii) maintain solvency margin, or (iv) comply with the directions on insurance treaties, to at least Rs. 1 Lakh, which may increase to Rs.5 lakhs for each day the failure continues but not exceeding Rs.10 crores. At present, the penalty is Rs.1 Lakh for each day or Rs.1 crore, whichever is lower[[xxvi]]. The Draft Bill also introduces stronger penalties on Insurers and insurance intermediaries for providing false information to the IRDAI[[xxvii]]. In this regard, the Draft Bill provides that the penalty shall not be less than Rs.1 crore and may extend to Rs.5 crores for each such failure. These higher penalties are expected to act as a significant deterrent against fraudulent activities, and emphasise greater accuracy and transparency in dealings with the regulator. Conclusion The Draft Bill, with its focus on strengthening regulatory oversight, promoting competition, and enhancing policyholder protection, is expected to re-shape the dynamics within the present Indian insurance market. The changes are primarily aimed at achieving the overarching goal of “Insurance for All by 2047”, facilitating the entry of new players in the Indian insurance sector by allowing 100% FDI in Indian Insurance Companies, 26% FDI in insurance co-operative societies, expanding the scope of business to be undertaken by Insurance Companies, introducing differential capital requirements for Insurance Companies, and one-time registration for insurance intermediaries. If implemented as proposed, the impact is likely to be wide ranging: 100% FDI limit could attract new international players, intensifying competition within the market but also potentially leading to product innovation, improved service quality, and perhaps even lower premiums for policyholders. Further, allowing Insurers to engage in other forms of business could potentially create new revenue streams for Insurers and allow them to offer policyholders a wider range of value-added services, while leveraging their existing infrastructure and expertise. Perpetual licenses could streamline operations for insurance intermediaries, reducing administrative burden. This is proposed to be balanced by the IRDAI's enhanced power to suspend or cancel licenses in case of non-compliance. The Draft Bill also aims to strengthen policyholder protection through measures like increased penalties for providing false information, the requirement for actuarial investigations, prohibiting common directors and the IRDAI's expanded powers to intervene in case of unfair practices. If the Draft Bill is implemented in the present form, it is likely to have a significant impact on several registration and operational aspects of the Indian insurance market. The Bill was initially expected to be introduced in the winter session of Parliament. However, due to the need for further refinement based on stakeholders’ feedback and time constraints, it is now anticipated that the Bill may be introduced in the upcoming Budget session. 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. Author: Celia Jenkins (Senior Partner), Anuj Bahukhandi (Partner Designate), and Priti Singh (Associate) Footnotes [i]              The proposed §3(2A) of the Insurance Act, is in the following terms: “(…) the Authority may register the applicant as an insurer and grant it a certificate of registration for such class or classes of insurance business for which it is eligible.” [ii]             The proposed §3(AB) of the Insurance Act, is in the following terms: “Other Functions of an Insurer – In addition to the insurance business, an insurer may engage in any one or more of the following forms of business, in such manner and as specified by regulations, namely: (a) carrying on and transacting of guarantee and indemnity business; (b) managing, selling and realising any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims; (c) establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company or the dependents or connections of such persons; granting pensions and allowances; (d) acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub-section; (e) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company; or (f) any other form of business which the Central Government may, by notification in the Official Gazette, specify as a function of insurer.” [iii]             The proposed §2(6D) of Insurance Act, is in the following terms: ““Insurance Business” means the business of effecting insurance contracts, whereby the insurer undertakes to assume risk and to pay to the insured an agreed compensation for loss, damage, or liability arising from a contingent event on such terms and conditions and subject to such limitations as may be agreed, and includes any other form of business as may be notified by the Central Government from time to time;” [iv]             The proposed §2(13BC) of the Insurance Act, is in the following terms: ““premium” means the consideration payable under a contract of insurance to the insurer by the policyholder;” [v]             The proposed §2(14A) of the Insurance Act, is in the following terms: ““principal officer” means an officer of an insurer, authorized as such for the purposes of this Act;” [vi]             The proposed §2(7A) of the Insurance Act, is in the following terms: ““Indian insurance company” means an insurer being a public company, registered under the Companies Act, 2013;” [vii]            The proposed §2(8A) of the Insurance Act, is in the following terms: ““Insurance co-operative society” means an insurer being a co-operative society, formed and registered under- (a) the provisions of Co-operative Societies Act, 1912; or (b) any other law for the time being in force in any State relating to Co- operative Societies; or (c) the provisions of the Multi-State Co-operative Societies Act, 2002;” [viii]           The proposed §2(9) of the Insurance Act, is in the following terms: ““insurer” means an entity carrying on insurance business;” [ix]             The proposed §2(6C) of the Insurance Act, is in the following terms: ““health insurance business” means the business of effecting the contracts of insurance that provide sickness benefits or pay for medical and health expenses, and includes,- (i) the personal accident insurance business of effecting the contracts of insurance that provide for payment of money in the event of death, disablement or hospitalization arising out of an accident; and (ii) the travel insurance business of effecting the contracts of insurance that provide for sickness benefits or pay for medical and health expenses or payment of money in the event of death, disablement or hospitalization arising out of an accident or for losses suffered, in the course of travel;” [x]             The proposed §10(B) of the Insurance Act, is in the following terms: ““insurance  intermediary”  includes- (a) insurance brokers; (b) re-insurance brokers; (c) corporate agents; (d) third party administrator; (c) surveyors and loss assessors; (f) managing general agents; (g) insurance repositories; and (h) such other entities, as may be notified by the Authority, from time to time;” [xi]             §6(1) of the Insurance Act is in the following terms: “(1) No insurer not being an insurer as defined in sub-clause (d) of clause (9) of section 2, carrying on the business of life insurance, general insurance, health insurance or re-insurance in India or after the commencement of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999), shall be registered unless he has, — (i) a paid-up equity capital of rupees one hundred crore, in case of a person carrying on the business of life insurance or general insurance; or (ii)  a paid-up equity capital of rupees one hundred crore, in case of a person carrying on exclusively the business of health insurance; or (iii) a paid-up equity capital of rupees two hundred crore, in case of a person carrying on exclusively the business as a re-insurer(…)” [xii]            The proposed proviso under §6(1) of the Insurance Act, is in the following terms: “Provided also, in case of an insurer carrying on business in more than one class of insurance business, the Authority may specify a paid-up equity capital no less than the sum of the paid-up equity capital required for each of such class of insurance business.” [xiii]           The proposed proviso under §6(1) of the Insurance Act. is in the following terms: “Provided also that the Authority may reduce the paid-up equity capital to no less than rupees fifty crore for any class of insurance business serving underserved or special segments, as may be specified by regulations.” [xiv]           The proposed §6(2) of the Insurance Act, is in the following terms: “(2) No insurer, as referred to in clause (c) of sub-section (1) of section 2C shall be registered unless it has net owned fund of not less than rupees one thousand crore.” [xv]            The proposed §6(1)(b)(iii) of the Insurance Act, is in the following terms: “(…)where, the nominal value of the shares intended to be transferred by any individual, firm, group,  constituents  of  a  group,  or  body  corporate  under  the  same  management,  jointly  or severally exceeds five per cent of the paid-up equity capital of the insurer, unless the previous approval of the Authority has been obtained for the transfer;” [xvi]           The proposed §13(1) of the Insurance Act, is in the following terms: “(1) Every insurer shall, at least once every financial year, cause an investigation to be made by an actuary into the financial condition of the business carried on by it including a valuation of its liabilities in respect thereto and shall cause  a report of such actuary to be made for such purpose and in such manner as may be specified by the regulations. Provided that every insurer shall appoint an actuary under this Act subject to the eligibility criteria, and other conditions as may be specified by the regulations.” [xvii]           The proposed §27 of the Insurance Act, is in the following terms: “(1) Every insurer shall,  in order to meet its liabilities, invest and at all times keep invested assets of value not less than that of the liabilities in the following manner, namely:— In case of an insurer carrying on life insurance business: (i) twenty-five per cent of the said assets in Government securities; (ii) a further sum equal to not less than twenty- five per cent. of the said assets in Government securities or other approved securities; and (iii) the balance in any of such approved investments with such limitations, conditions and restrictions as may be specified by the regulations; In the case of an insurer carrying on insurance business other than life insurance business: (i) twenty per cent. of the said assets in Government Securities; (ii) a further sum equal to not less than ten per cent. of the said assets in Government Securities or other approved securities; and (iii) the balance in any of the approved investments with such limitations, conditions and restrictions as may be specified by the regulations; Provided that an insurer may, subject to the conditions as may be specified by the regulations, invest or keep invested any part of its controlled funds or assets otherwise than in approved investments, if such investments do not exceed fifteen per cent of the assets referred to in this sub-section (1). (2) The investment of the whole or any part of the assets of the insurer shall be subject to— (a) the condition that the assets referred to in sub-section (1) shall be held free of any encumbrance, charge, hypothecation or lien; and (b) such limitations, and conditions as may be specified by the regulations. (3) Subject to the terms and conditions as may be specified by the regulations, an insurer may invest not more than five per cent. of the assets referred to in sub- section (1), by value, in a company or other body corporate which is owned or controlled by the promoters. (4)  Nothing contained in this section shall be deemed to affect in any way the manner in which any moneys relating to the provident fund of any employee or to any security taken from any employee or other moneys of a like nature are required to be held by or under any Central Act, or Act of a State legislature for the time being in force. (5)The assets being invested by an insurer incorporated or domiciled outside India, except to the extent of any part thereof which consists of foreign assets held outside India, shall be held in India and in trust for the discharge of the liabilities and shall be vested in trustees resident in India and approved by the Authority, and the instrument of trust shall be executed by the insurer, with the approval of the Authority, in such manner as may be specified by the Authority. (6) The Authority may, either generally or in any particular case, direct that any investment shall, subject to such conditions as may be imposed, be taken into account, in such manner as may be specified, in computing the assets referred to in sub-sections (1) and where any direction has been issued under this sub-section (6), copies thereof shall be laid before each house of Parliament as soon as may be after it is issued. (7)  If at any time the Authority considers any one or more of the investments of an insurer to be unsuitable or undesirable, the Authority may, after giving the insurer an opportunity of being heard, direct it to realise the investment or investments, and the insurer shall comply with the direction within such time as may be specified in this behalf by the Authority. (8) Without prejudice to anything contained in this section, the Authority may, in the interests of the policyholders, specify by the regulations, the time, manner and other conditions of investment of assets to be held by an insurer for the purposes of this Act. (9) The Authority may give specific directions for the time, manner and other conditions subject to which the funds of policyholders shall be invested in the infrastructure and social sector,  as may be specified by the regulations and such regulations shall apply uniformly to all the insurers on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999). (10) The Authority may, after taking into account the nature of business and to protect the interests of the policyholders, issue to an insurer the directions relating to the time, manner and other conditions of investment of assets to be held by it: Provided that no direction under this sub-section shall be issued unless the insurer concerned has been given a reasonable opportunity of being heard.” [xviii]          §27A(4) of the Insurance Act is in the following terms: “(4) An insurer shall not out of his controlled fund or assets as referred to in sub-section (2) of section 27 invest or keep invested in the shares or debentures of any private limited company.” [xix]           The proposed §32A of the Insurance Act, is in the following terms: “A managing director or other officer of an insurer shall not be a managing director or other officer of any other insurer or of a banking company or of an investment company(…)” [xx]            The proposed §48B(1) of the Insurance Act, is in the following terms: “(1) An insurer defined in clause (9) of section 2 and carrying on insurance business shall not have a common director with another insurer carrying on the same class of insurance business.” [xxi]           The proposed under §35(1A) of the Insurance Act, is in the following terms: “(1A) Without prejudice to the provisions contained in sub-section (1) the Authority may approve a scheme of arrangement or scheme of amalgamation or transfer of business between an insurer and any company not engaged in the insurance business, subject to the provisions of this Act and any other conditions specified by the Authority.” [xxii]           The Draft Bill proposes to delete §42(2) of the Insurance Act, which is in the following terms: “(2) No person shall act as an insurance agent for more than one life insurer, one general insurer, one health insurer and one of each of the other mono-line insurers(…)” [xxiii]          The Draft Bill proposes to delete §42D(3) of the Insurance Act, which is in the following terms: “(3) A registration made under this section shall remain in force for a period of three years only from the date of issue, but shall, if the applicant, being an individual does not, or being a company or firm any of its directors or partners or one or more of its officers or other employees so designated by it and in the case of any other person(…)” [xxiv]          The proposed §42D(6) of the Insurance Act, is in the following terms: “The Authority may suspend or cancel the registration of an insurance intermediary, if such insurance intermediary— (i) contravenes any provision of this Act or the Insurance Regulatory and Development Act, 1999 (41 of 1999) or the rules or regulations made thereunder or makes a default in complying with any direction issued or order made, (ii) makes a default in complying with, or acts in contravention of, any requirement of the Companies Act, 2013 (18 of 2013) or the General Insurance Business (Nationalisation) Act, 1972 or the Life Insurance Corporation Act, 1956 or the Foreign Exchange Management Act, 1999 or the Prevention of Money Laundering Act, 2002, (iii) is convicted for an offence under any law for the time being in force, (iv) having its holding company or a joint venture partner having its principal place of business in a country outside India that has been debarred by law or practice of such country to carry on insurance intermediary business, (v) fails to pay the annual fee required under sub-section (4A), (vi) being a co-operative society set up under the relevant State laws or, as the case may be, the Multi-State Co-operative Societies Act, 2002, contravenes the provisions of law as may be applicable to the insurance intermediary, (vii) no longer meets the requirements or qualifications of eligibility, or (viii) makes any other default, as may be specified by regulations.” [xxv]           The proposed §34(1) of the Insurance Act, is in the following terms: “(…)it may issue such directions as it deems fit, to insurers or insurance intermediaries generally or in particular, including directions of disgorgements and such insurer or insurance intermediary, as the case may be, shall be bound to comply with such directions(…)” [xxvi]          The proposed §102 of the Insurance Act, is in the following terms: “If any insurer or insurance intermediary, who is required under this Act or the Insurance Regulatory and Development Authority Act, 1999, or rules or regulations made thereunder fails to, — (a) furnish any document, statement, account, return or report to the Authority; (b) comply with the directions of the Authority; (c) maintain solvency margin; or; (d) comply with the directions on the insurance treaties, he shall be liable to a penalty which shall not be less than rupees one lakh but may extend to rupees five lakh for each day during which such failure continues or not exceeding rupees ten crore, whichever is less.” [xxvii]          The proposed §103A of the Insurance Act, in the following terms: “103A. Penalty for mis-statement or furnishing false documents.- If any insurer or insurance intermediary makes a statement, or furnishes any document, statement, account, report or return which is false and which he either knows or believes to be false or does not believe to be true, he shall be liable to a penalty which shall not be less than rupees one crore, but may extend to rupees five crore for each such failure.”

Introduction The IRDAI has recently introduced new regulations that significantly impact the way insurance companies operate in India.The IRDAI (Corporate Governance for Insurers) Regulations 2024 (“CG Regulations”) and the IRDAI’s Master Circular on Corporate Governance for Insurers 2024 of 22 May 2024 require all Indian Insurance Companies to have a Board-approved Environment, Social and Governance (“ESG”) framework and monitor ESG activities. Similarly, the IRDAI’s “Master Circular on Reinsurance” of 31 May 2024 extends these requirements to Branches of Foreign Reinsurers (“FRBs”) and Lloyd’s India. Previously, ESG considerations were not mandatory for Insurers under the IRDAI regulations. The only environmental guidance involved requiring certain Insurers (fulfilling certain criteria in terms of turnover, net worth or profit) to form a Corporate Social Responsibility (“CSR”) Committee and spend a minimum amount on CSR activities, as mandated by the Companies Act 2013 (“Companies Act”)[[1]]. This article discusses the evolution of ESG in India and the impact of these new requirements on the Indian insurance sector. Key Points of Difference from the Draft Guidelines ESG is a methodology that assesses a company's societal impact based on three factors: Environment: This includes a company's climate change related policies, greenhouse gas emissions, sustainability measures, and compliance with environmental regulations. Social: This considers a company's relationships with internal and external stakeholders, such as addressing employee safety and health and social issues like health awareness or disaster preparedness, including in underserved areas. Governance: This assesses a company's risk management framework, various forms of reporting/disclosures, accounting methods and diversity in leadership selection. The concept of ESG can be traced back to the (erstwhile) Companies Act 1956, which required companies to report on energy conservation efforts to shareholders. The Ministry of Corporate Affairs (“MCA”) further solidified the concept with the Corporate Social Responsibility Voluntary Guidelines (“CSR Guidelines”) in 2009, which encouraged companies to allocate and spend a specific amount towards CSR activities and disclose to stakeholders. Further, based on feedback from various stakeholders, the MCA issued the National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business (“NVG Guidelines”) in 2011. These guidelines required companies to incorporate social and environmental considerations into their operationssuch as respecting and promoting human rights. In addition, the NVG Guidelines also specified a Business Responsibility Reporting framework for companies to demonstrate their compliance. Following these developments, the Securities and Exchange Board of India (“SEBI”) in 2012 mandated top listed companies to file Business Responsibility Reports as a part of their annual report, based on the NVG Guidelines. The scope of this requirement gradually expanded to encompass more companies. The Companies Act subsequently also formalized the requirement for companies to undertake CSR activities. The MCA issued the National Guidelines on Responsible Business Conduct (“NGRBC Guidelines”) in 2019 to align with international developments such as India’s ratification of the Paris Agreement on climate change of 2016. The NGRBC guidelines introduced a revised Business Responsibility and Sustainability Reporting framework which was made applicable to top 1000 listed companies. Impact on the Insurance Sector The IRDAI’s new regulations require all Insurers, including FRBs and Lloyd’s India to have a Board/Executive Committee-approved ESG framework and monitor ESG activities. However, the extant IRDAI framework including the recently notified master circulars (on corporate governance and reinsurance) do not provide any specific guidance in terms of any activities to be undertaken, reporting/disclosures to be made or even the contents of the ESG framework. Due to the ambiguity, it remains to be seen whether the IRDAI adopts existing MCA guidelines or creates new ESG norms for Insurers. Depending on their implementation, the new regulations are likely to impact the insurance sector in some ways. Insurers are likely to place greater emphasis on identifying and managing ESG risks, such as those related to environmental risks and social issues. This may involve developing new risk assessment models and incorporating ESG factors into underwriting decisions. As an illustration, Insurers may offer discounts (i) on insurance products that incentivize sustainable practices (such as electrical vehicles) and/or (ii) to prospective companies with strong ESG practices. Another possibility is for Insurers to also design specific products that focus on any environmental damage caused by businesses. ESG norms may also involve changes in investment strategies of Insurers, such as to consider a company’s performance on ESG factors (in addition to existing investment metrics). This could involve divesting from companies with poor ESG practices and increasing investments in sustainable businesses and infrastructure projects. At present, it remains to be seen how the IRDAI will provide specific guidance and how Insurers will look to adapting to these evolving requirements. 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. Authors: Anuj Bahukhandi and Priti Singh Footnotes [1]             The Companies Act set out an illustrative list of socially responsible activities that may be undertaken by a company to ensure compliance with §135 which includes activities related to ensuring environmental sustainability, ecological balance, and protection of flora and fauna etc.