India: Insurance & Reinsurance

All insurance contracts are required to be filed with the Insurance Development and Regulatory Authority of India (IRDAI), ie, the Indian insurance regulator, in accordance with the applicable product filing guidelines issued by the IRDAI.

Insurers are permitted to market group health insurance products and commercial general insurance products without the prior approval of the IRDAI, subject to compliance with applicable laws. However, life insurance products, retail general insurance products and individual health insurance products can only be offered if the terms and conditions of these products have been approved by the IRDAI. The construction of health insurance contracts is regulated under the IRDAI specified general terms and conditions, defined terms and certain specific terms and conditions specified under various standardization guidelines and the IRDAI (Health Insurance) Regulations 2016. Life insurance products are regulated by the IRDAI (Non-Linked Insurance Products) Regulations 2019 and the IRDAI (Unit Linked Insurance Products) Regulations 2019.

Further, there are extraneous rules that impact policy terms. For example, the Insurance Act 1938 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.

Yes, the IRDAI issues specific regulations/guidelines/circulars which govern the establishment, licensing and functioning of life insurers, general insurers, health insurers, Indian reinsurers and foreign reinsurers, including branch offices of foreign reinsurers set up in India under IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations 2015 (Branch Regulations) as applicable, and syndicates of reinsurers operating through service companies set up in India under the IRDAI (Lloyd’s India) Regulations 2016 (Syndicates of Lloyd’s India).

Yes, all insurance intermediaries(including insurance brokers) are subject to the specific regulations issued by the IRDAI. Insurance intermediaries are required to be licensed in accordance with the applicable regulations for that form of intermediary business and are required to comply with, inter alia, the specific code of conduct prescribed by the IRDAI.

Yes, all insurers, insurance intermediaries, Indian reinsurers, branch offices of foreign reinsurers and syndicates of Lloyd’s India, are required to be registered in accordance with the applicable regulations issued by the IRDAI and subject to the conditions stipulated therein.

Broadly, for most of these entities the registration process is divided into stages. The timelines for obtaining registration are not expressly specified under the applicable regulations and, therefore, vary on a case to case basis and depending on the form of entity being registered.

Any direct or indirect foreign investment in an insurer is restricted to 74% of the paid up equity capital. Further, for insurance intermediaries, 100% foreign direct investment limit is permitted. Pursuant to the foregoing increases in foreign investment in the insurance sector, the IRDAI has withdrawn the requirements of insurers and insurance intermediaries being Indian-owned and controlled.

Non-admitted insurers are not permitted to directly insure property situated in India or any ship or other vessel or aircraft registered in India.

However, a person resident in India is permitted to take or continue to hold a health insurance policy issued by an insurer outside India provided the aggregate remittance does not exceed the limits prescribed by the Reserve Bank of India (RBI).

Further, a person resident in India may take or continue to hold a life insurance policy issued by an insurer outside India, provided that the policy is held under a specific or general permission of the RBI.

Non-admitted insurers who are listed with IRDAI as cross-border reinsurers can reinsure risks in India in accordance with the IRDAI (Re-insurance) Regulations 2018.

Overseas reinsurers are allowed to access the Indian market and are permitted to set up branch offices in India or operate through service companies set up in India under the IRDAI (Lloyd’s India) Regulations 2016. These entities are subject to a number of norms applicable to Indian insurance companies.

The present Indian insurance framework is silent on any mechanism for overseas insurance intermediaries like insurance brokers for setting up a branch office in India. An insurance intermediary who wants to carry out its business in India can only do so by incorporating a company under the Indian laws and obtaining the requisite license from IRDAI.

A person carrying out insurance business in India without valid registration could face a penalty of up to INR 25 crores (c. US$ 3,263,000) and imprisonment for a term of up to ten years.

A person acting as an insurance intermediary (including an insurance broker) without being registered could face a penalty of up to INR 10 lakh (c. US$ 13,000). In addition, the appointment of an unlicensed person to act as an insurance intermediary is punishable with a penalty of up to INR 1 crore (c. US$ 130,000).

The insurance industry is highly regulated in India. The IRDAI has suo motu powers for undertaking inspections, conducting enquiries and investigations (including audit) of insurers, reinsurers (including branch offices of foreign reinsurers), insurance intermediaries and other organizations connected with insurance business.

Further, by way of the Insurance Laws (Amendment) Act 2015, the maximum penalty for non-compliance with the applicable regulations or directions issued by the IRDAI has been significantly increased from INR 5 lakh (c. US$ 6,500) to INR 1 crore (c. US$ 130,000).

The solvency of insurers, Indian reinsurers, branch offices of foreign reinsurers and service companies representing syndicates of Lloyd’s India is required to be calculated in accordance with the applicable regulations issued by the IRDAI. The respective entities are required to file a periodical statement of solvency with the IRDAI in accordance with the format prescribed under the applicable regulations/guidelines.

An insurer/Indian reinsurer is required to have a minimum paid up equity share capital of INR 100 crore (c. US$ 13,000,000) and INR 200 crore respectively (c. US$ 26,000,000).

A foreign reinsurer seeking to set up a branch office in India is required to have a minimum net owned fund of INR 5,000 crore (c. US$ 655,000,000) and is further required to infuse a minimum assigned capital of INR 100 crore (c. US$ 13,000,000) into the branch office.

Syndicates of Lloyd’s India are required to maintain a minimum assigned capital of INR 5 crore (c. US$ 650,000) through their service companies set up in India.

The minimum capital requirement for brokers is in the following terms:

Direct brokers – INR 75 lakh (c. US$ 98,000);

Reinsurance brokers – INR 4 crore (c. US$ 500,000);

Composite brokers – INR 5 crore (c. US$ 650,000).

The IRDAI (Protection of Policyholders’ Interests) Regulations 2017 (Policyholders’ Regulations) issued by the IRDAI are the primary regulations on the protection of policyholders’ interests.

The Policyholders’ Regulations prescribe the practices that are required to be undertaken by the 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 is required to be followed by insurers to ensure timely processing of claims. Insurers are required to pay interest at 2% above the prevalent bank rate, in cases where there is delayed payment of the claim amount.

Insurers are also required to put in place proper grievance redressal procedures and mechanisms in accordance with the applicable provisions for the resolution of grievances of the policyholders.

To avoid conflicts of interest, ordinarily, two entities from the same group are not permitted to undertake the same line of insurance business. Further, two entities under one group are ordinarily not granted licenses to act as insurance intermediaries.

However, the IRDAI has permitted an Indian Corporate Group to have an insurance company as well as an insurance broking entity with the same group.

All directors and key managerial personnel of insurers and insurance intermediaries are required to be compliant with the fit and proper criteria stipulated by the IRDAI under the respective regulations/guidelines.

The IRDAI has been given extensive power under the rules and regulations to investigate and examine the conduct of the key managerial personnel. For instance, §105A of the Insurance Act 1938 stipulates that where any offence has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

Insurers are required to obtain a certificate of registration from the IRDAI prior to commencement of business. The pre-conditions in order to apply for such registration is prescribed under the Insurance Act 1938 and the IRDAI (Registration of Indian Insurance Companies) Regulations 2000. The regulator’s expectation is for insurers and insurance distribution/intermediation entities to have minimum of one physical office in India. Further, one of the considerations of the IRDAI while granting a certificate of registration is to ensure that the applicant has adequate infrastructure in place.

The outsourcing of activities by Indian insurers/reinsurers, branch offices of foreign reinsurers and service companies set up under Lloyd’s India, is subject to the restrictions and compliances prescribed under applicable law, in relation to, inter alia, confidentiality and security requirements, due diligence of vendors and reporting of agreements and payouts. Broadly, these entities are prohibited from outsourcing their core functions (including underwriting, claim decisions and investments) to third party service providers.

Yes, there are restrictions on the types of assets which insurers or reinsurers can invest in. By way of illustration, we note that insurers are prohibited from investing in the shares or debentures of any private limited company. The IRDAI has also prescribed certain exposure/prudential norms which limit the investments of the Insurers and apply on a per entity, per industry and per group level. Further, general insurers carrying on general insurance business, re-insurance or health insurance business are required to ensure that at least 10% of their assets are invested in government securities.

Insurers are permitted to solicit and procure insurance business either directly though their sales executives or through licensed insurance agents and intermediaries. Insurers are prohibited from engaging unlicensed persons for soliciting and procuring insurance business or for providing introductions or leads.

Payment of commission/remuneration to insurance agents and insurance intermediaries is required to be in accordance with the limits prescribed by the IRDAI. Insurers are also expressly permitted to pay “rewards” to certain insurance intermediaries in accordance with the overall limits prescribed under the applicable regulations.

In order to solicit and service insurance products in India, an entity must be licensed as an insurance intermediary with the IRDAI and such solicitation and procurement of insurance may only be undertaken in accordance with the regulatory framework applicable to the entity. In addition, insurers and insurance intermediaries are also permitted to sell and service insurance policies through recognized distance marketing modes per the “Guidelines on Distance Marketing of Insurance Products” and through an Insurance Self-Network Platforms (ISNP) in accordance with the “Guidelines on insurance e-commerce”.

While the present RBI framework permits a person resident in India to ‘take’ or obtain a general (including health) insurance policy issued by an overseas non-admitted insurer, if the premium payments are within the overall limits prescribed by the RBI, the present statutory and regulatory framework remains silent on the manner in which such overseas insurance may be sold or serviced, or whether any Indian entity may assist such overseas insurer in servicing such insurance policy.

Yes, consumer policies, i.e. policies issued to retail customers (rather than commercial entities) are required to go through the regulator’s file and use procedure before they can be offered to consumers.

Generally, all insurance policies are required to incorporate various customer protections including but not limited to the following:

• The policy shall clearly specify the grounds for the cancellation of the policy, such as misrepresentation, non-disclosure of material facts, fraud or non-corporation of the insured.
• The policy shall give details of the insurer’s grievance redressal mechanism to enable the policyholders to raise complaints against the insurers.
• The policy shall give details of the Insurance Ombudsman, who is appointed by the Insurance Council to address complaints by the insured against the insurer, in relation to the settlement of claims.

The IRDAI Regulations provide for strict timelines for the assessment of a claim. In the event a claim is not settled within the stipulated timelines, the insurer is liable to pay interest at 2% above the bank rate from the date of receipt of the last relevant and necessary document received from the policyholder till the date of actual payment of the claim.

IRDAI Regulations provide, amongst other obligations, that insurers follow certain practices at the point of sale of the insurance policy to ensure that the insured can understand the terms of the policy properly.

In addition to the above, the policyholder has an option of approaching the consumer courts to seek redressal of their disputes with the insurers.

The Indian courts can hear commercial claims. In 2015, the Commercial Courts, Commercial Division & Commercial Appellate Division of High Courts Act 2015 (Commercial Courts Act), was introduced which carves out special benches in all existing civil courts which will adjudicate commercial matters exclusively. By providing for exclusive fora, the Commercial Courts Act has expedited the litigation process for commercial disputes. Commercial disputes are referred to the commercial court having the requisite territorial and pecuniary jurisdiction. The pecuniary jurisdiction of commercial courts is INR 300,000 and above. Recent amendment to the Commercial Courts Act has mandated compulsory mediation for parties before filing a commercial suit except where a party seeks urgent interim relief. The legislation is meant to speed up the adjudication process. Insurance and reinsurance disputes are categorised as commercial disputes and can be heard by the commercial courts.

The Indian jurisdiction recognises arbitration, mediation and conciliation as means of alternative dispute resolution.

The Indian Arbitration and Conciliation Act 1996 (ACA) governs arbitration in India and it is based on the UNCITRAL model law. The ACA preserves party autonomy in relation to most aspects of arbitration, such as the freedom to agree upon the qualification, nationality, number of arbitrators (provided it is not an even number), the place of arbitration and the procedure to be followed by the Tribunal. The principle of party autonomy has been confirmed by the Supreme Court in a number of cases. Increasingly arbitration is a preferred mechanism for settlement of commercial disputes in this jurisdiction. Arbitrations are required to be completed within strict timelines. Parties can also choose to conduct arbitration proceedings in a fast-track manner, with the award being granted within six months. In addition to the foregoing, a cost regime with regard to providing the costs of arbitration proceedings to a successful party has also been set out.

An Arbitral Tribunal has a time frame of six months for the completion of pleadings and 12 months thereafter to conclude the arbitration. This period can be extended by another six months upon the consent of the parties, but any further extensions can only be granted by a court.

An arbitration agreement, as per the ACA, needs to be in writing and should reflect the intention of the parties to submit their dispute(s) to arbitration. There is no prescribed form required for the purpose of an arbitration agreement. In fact, it is not necessary for an arbitration agreement to be incorporated into an insurance/reinsurance contract at all. An arbitration agreement can come into existence if it is contained in a subsequent exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement. The Supreme Court has recently upheld the principle of party autonomy in arbitration proceedings and held that two Indian parties can choose a foreign seat of arbitration. In another judgement, the Supreme Court held that full party autonomy is given to parties by the ACA in order to have their dispute(s) decided in accordance with institutional rules which can include an Emergency Arbitrator delivering interim orders and such an order will be enforceable in India.

Further, in relation to domestic arbitration, the ACA bars intervention from the courts except for some specific instances where the courts are allowed to intervene – for example, for interim relief, reference to arbitration when an action has been instituted before the court for the appointment of arbitrators, where parties have failed to nominate arbitrators within the stipulated time frame, a party can also seek the court’s assistance for recording evidence.

The Courts also generally refrain from interfering in arbitrations or arbitration awards and uphold the sanctity of the arbitration agreement and arbitration awards.

The present Indian insurance framework is silent on any mechanism of transfer of books of a reinsurer to an Indian branch office.

The IRDAI has notified the Branch Office Regulations and the IRDAI (Lloyd’s India) Regulations 2016, thereby permitting foreign reinsurers to set up branch offices in India. However, at the same time, the IRDAI has mandated Indian insurers to follow the order of preference for cessions while placing reinsurance business. Under the order of preference of cessions, the General Insurance Corporation of India, ie, the Indian reinsurer, has been granted the right of first offer.

This is a concern for foreign reinsurance players who have entered India or are considering an entry into India.

While the requirement of being Indian owned and controlled is now withdrawn and foreign investment limit is increased, entities are required to adhere to new conditions such as requirement of resident Indian citizens to make up majority of the Board of the company and limits on repatriation, due to which potential investors may have concerns in terms of investing in the Indian insurance industry.

With the significant increase in e-commerce transactions over the years, the 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 AI, data analytics and digital marketing, vis-à-vis claims, underwriting, policyholder communication/grievance management, digilockers for maintenance of records and data and various data security and protection measures. The IRDAI has also issued specific norms on, inter alia, information asset management, data security, application security, endpoint security, cloud security and incident management, which are required to be complied with by insurers and reinsurers.

With growing trends in digitisation, especially after the pandemic the IRDAI has further issued and relaxed norms including on issuance of e-insurance policies, including “Video Based Identification Process (VBIP)” for simplifying identity verification electronically.

Indian Insurers are also utilising applications, artificial intelligence, telematics and Internet of Things (IoT) and other InsurTech products and transforming the manner of distribution of insurance business in India. However, adoption of such new technologies is subject to bringing its own set of transitional issues. In this context, the IRDAI has issued a guidance document on product structure for cyber insurance policies issued with model policy wordings for personal cyber insurance cover.

The IRDAI has also introduced the IRDAI (Regulatory Sandbox) Regulations 2019 (Sandbox Regulations) which aim to create a regulatory sandbox environment to test new business models, processes, proposals, and applications, aimed at balancing the orderly development of the insurance sector and the protection of policyholders’ interests. In the past couple years, the IRDAI has approved various proposals under the Sandbox Regulations, including wellness and fitness trackers through wearable devices, claims and collision estimation by using AI, digital wallets and specialized insurance products.

The IRDAI has recognised the sale and servicing of insurance products online and the issuance of e-insurance policies. Please also refer to our response to Question 20 above.

The IRDAI (Protection of Policyholders’ Interest) Regulations 2017 requires insurers to maintain all policyholder data as confidential, unless it is necessary to disclose such information to statutory authorities due to operation of law. Further, privacy law in India is set to undergo a change, as a draft bill titled “Personal Data Protection Bill 2019” is pending in the legislature. However, as the draft bill now stands, there will not be much change in the abovementioned position, even if it becomes the law.

As stated in question 28 above, the regulator’s expectation in India is that all insurers shall maintain complete confidentiality of the policyholders’ data. Further, data pertaining to all policies issued and all claims made in India has to be held in data centres located and maintained in India.

Insurers have a statutory obligation to undertake certain amount of insurance business in rural and social sectors in accordance with applicable regulatory norms. Further, the company law framework also requires companies whose net worth is more than INR 500 crore (c. US$ 65,377,850), or turnover is more than INR 1000 crore (c. US$ 130,762,500) or net profit is more than INR 5 crore (c. US$ 654,000), to undertake CSR activities, and insurers who fall within this category will be required to undertake CSR activities in the prescribed manner.

The IRDAI has issued specific guidance for various categories of life, general and health insurance contracts, and has recognized and provided guidance on insurance contracts for title insurance, surety contracts, cyber risks and trade credit. With express guidance on trade credit, cyber insurance and title insurance products, we anticipate that the insurance market may see an increase in such products in the coming years.

The insurance sector is also continuously adapting to various technological advancements such as AI, data analytics and digital marketing, vis-à-vis claims, underwriting, policyholder communication/grievance management, data security and protection mechanisms.

The IRDAI has also conducted sessions with market players to identify steps for healthy growth of insurance industry, rationalising the regulatory framework, and potentially reducing the compliance burden, and has identified various areas in the existing legal/regulatory architecture for internal review. It appears that the IRDAI proposes to hold on-going sessions with industry players in order to review and discuss progress made towards insurance penetration and policyholder welfare.