INDIA Trends and Developments Contributed by: Shailaja Lall and Uday Opal, Shardul Amarchand Mangaldas & Co
Net owned fund requirements for reinsurers The Amendment Act reduces the net owned fund requirement for foreign reinsurers seeking to estab- lish a branch in India, as well as for Lloyd’s entities, from INR50 billion to INR10 billion. This brings the net owned fund requirement for foreign reinsurers in the domestic tariff area of India on a par with those in the International Financial Services Centre at GIFT City in Gandhinagar, Gujarat. This change is expected to incentivise the entry of more foreign reinsurers in India. Insurance business, licensing and market structure For the first time, the Amendment Act introduces stat- utory definitions of “insurance business” and “class of insurance business”, encompassing life insurance, general insurance, health insurance and reinsurance. The Central Government, in consultation with the IRDAI, has also been empowered to notify additional classes or sub-classes of insurance business. This definition addresses a long-standing gap in the legislative framework and provides a foundation for more nuanced licensing and regulatory approaches. While minimum capital thresholds remain unchanged, the framework offers flexibility to potentially introduce specialised classes of insurance business and com- posite classes of insurance business in the future. Moreover, the scope of “insurance business” is expanded to include not only effecting insurance contracts, but also such other forms of contract as notified by the Government in consultation with the IRDAI. This broader formulation may accommodate ancillary or value-added services connected to insur- ance operations, including risk management services, wellness offerings and technology-enabled solutions. The extent to which this flexibility is realised in prac- tice will depend on subsequent notifications and regu- latory guidance. Investment in private companies The Amendment Act omits Section 27A of the Insur- ance Act, which previously barred insurers from investing in private companies. With the omission of this provision, it is up to the IRDAI to prescribe checks and balances safeguarding investments by insurers into private companies and consequently protecting policyholders’ interests.
Perpetual registration for insurance intermediaries The Amendment Act introduces perpetual registration for insurance intermediaries, replacing the three-year renewal cycle. This is a practical, business-friendly change and aligns with a long-standing industry request. There is, however, some ambiguity as certain provisions regarding renewal application for insurance intermediaries seem to have been retained despite perpetual registration norms. Managing General Agents (MGAs) MGAs (who are typically authorised to underwrite and bind risks on behalf of insurers) are now recognised as a new category of insurance intermediary. Globally, MGAs play a critical role in facilitating underwriting specialisation, geographic expansion and efficient deployment of underwriting capacity. Their introduc- tion into the Indian market aligns domestic regulation with international practice and is expected to enable insurers to access specialised expertise and penetrate niche segments more effectively. The success of the MGA model will largely depend on how this intermedi- ary is set up and regulated. Regulatory oversight, enforcement and governance While liberalising ownership and operational norms, the Amendment Act simultaneously strengthens the IRDAI’s supervisory and enforcement powers. Insur- ance intermediaries are now explicitly brought within the regulator’s investigative remit. The IRDAI has also been empowered to direct disgorgement of wrong- ful gains or losses avoided as a result of regulatory contraventions. Governance restrictions addressing conflicts of interest have been expanded, particularly in relation to common directorships across insurers, banks and investment companies. Enhanced penalties • The Amendment Act raises the maximum penalty for contravention of the Insurance Act or its regu- lations from INR10 million to INR100 million. The penalty imposed for each day of contravention continues to be INR100,000. • While penalising regulated entities, the IRDAI must now weigh factors such as the nature, severity and duration of the violation; whether it is repeated; any disproportionate gain or unfair advantage; and the
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