The issuance of employee stock options (ESOPs) to CEOs, whole-time directors and managing directors of insurers has been expressly recognised since 2016. Now, the Insurance Regulatory and Development Authority of India has issued a circular to clarify the requirement to obtain its prior approval with regard to the exercise of ESOPs. Going forward, insurers are likely to take a more pragmatic approach and consider the logistics of obtaining regulatory approvals (if applicable) with regard to ESOPs.
For several years, stakeholders in the Indian insurance sector have wanted the foreign direct investment (FDI) limit for Indian insurers to be increased to 74% in parity with the FDI limit applicable to the private banking sector. The finance minister recently announced that the FDI cap for Indian insurers will be increased from 49% to 74%. The increase in FDI for insurers is a key development at a time when new investments in the insurance space have been limited.
Entities engaged in insurance business must follow additional norms regarding foreign investment as specified by the Insurance Regulatory and Development Authority of India. This article answers commonly asked questions in relation to foreign investment in insurers in light of the extant insurance statutory and regulatory framework.
In order to clarify issues pertaining to the pledge and transfer of shares of insurers by promoters and shareholders, the Insurance Regulatory Development Authority of India recently issued the Circular on the Transfer of Shares of Insurers. This article summarises the key clarifications set out in the circular.
Despite the relaxation of the foreign investment limits for insurance intermediaries, insurance intermediation remains a regulated activity. In this respect, the Insurance Regulatory Development Authority of India recently issued guidelines on the repatriation of dividends by insurance intermediaries with a majority foreign investment and a circular mandating the submission of an undertaking by insurance intermediaries.
The Insurance Regulatory Development Authority of India (IRDAI) recently notified the Indian Insurance Companies (Foreign Investment) Amendment Rules 2019 and the IRDAI (Insurance Intermediaries) (Amendment) Regulations 2019, which have introduced additional conditions with which insurance intermediaries that have a majority shareholding of foreign investors must comply. The regulations have brought much-needed clarity, but the insurance industry's reaction remains to be seen.
Since 2015, foreign investment in insurers and insurance intermediaries has been capped at 49%. However, many felt that this parity in the foreign direct investment (FDI) limits was unfair, as – unlike insurers – insurance intermediaries are not custodians of policyholders' money. Thus, the recently notified Indian Insurance Companies (Foreign Investment) Amendment Rules 2019 have effectively increased the limit on FDI in insurance intermediaries to 100%.
The Insurance Regulatory and Development Authority (IRDAI) recently issued the IRDAI (Regulatory Sandbox) Regulations 2019, which aim to facilitate the creation of a regulatory sandbox in which to test new business models, processes, proposals and applications in order to strike a balance between the orderly development of the insurance sector and the protection of policyholders' interests. Although insurance players are calling the sandbox a game changer, it remains to be seen how much it will be used.
The account aggregator ecosystem was introduced to solve the problems of data portability in the insurance sector, among others. However, the question of whether the business model is viable will largely hinge on the successful implementation of the consent architecture envisaged under the Master Directions Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions and the terms of the contractual arrangements which are entered into with the various regulated entities.
The Insurance Regulatory and Development Authority recently issued the Exposure Draft on Insurance Regulatory and Development Authority of India (Conflict of Interest) Guidelines 2019, which seek to provide guidance on the conflicts of interest that arise between insurers and other insurance companies or intermediaries which have the same directors.
The Aadhaar and Other Laws (Amendment) Bill 2018 was recently passed in the Lok Sabha. The new bill has been welcomed as it provides much-needed clarity regarding the use and storage of Aadhaar numbers. The Insurance Regulatory and Development Authority has taken the bill's enactment as a cue to start providing clarity on the collection and storage of customers' Aadhaar data. It is hoped that the bill will be enacted quickly, as it is unenforceable in its present form.
In recent years, the Indian insurance sector has been abuzz with the news of new players looking to acquire stakes in insurers and insurance intermediaries. While the Insurance Act 1938 provides for the manner in which insurers may carry out amalgamations and transfers of insurance business, the regulations governing the amalgamation or transfer of an insurance intermediary's business remain scattered and, in some cases, non-existent.
The Insurance Regulatory and Development Authority of India (IRDAI) recently released the IRDAI (Insurance Brokers) Regulations 2018 to revise the norms governing the establishment and operation of insurance brokers in India. The regulations have introduced a myriad of changes which largely appear to bring parity between the norms applicable to insurance brokers and web aggregators, particularly with respect to solicitation through online, telemarketing and distance marketing modes.
The Insurance Regulatory and Development Authority of India (IRDAI) has recently been receiving requests to allow private equity funds to acquire a majority stake in Indian insurers. In response to such requests from private equity funds, venture funds and alternate investment funds, the IRDAI released new guidelines to facilitate and regulate private equity funds' investment in insurers as investors and promoters.
The draft Financial Resolution and Deposit Insurance Bill 2017 has recently attracted significant attention. This is mainly due to the objections raised by the Insurance Regulatory and Development Authority of India (IRDAI), among other parties. Although the exact nature of the IRDAI's objections to the bill are unclear, a balance may need to be struck between the powers of the existing sectoral regulators and the proposed Resolution Corporation.
As the Indian insurance market develops and matures further, Indian insurers and insurance intermediaries will aim to introduce public issues and list on recognised stock exchanges in order to raise more funds from the public and provide liquidity to their existing shareholders. Companies looking to be initial public offering ready should focus on ensuring optimum regulatory compliance and rectifying any identified compliance issues, which will go a long way in simplifying the process of listing.
The Insurance Regulatory and Development Authority of India recently notified the Motor Insurance Service Providers Guidelines to identify and regulate the role of automobile dealers in distributing and servicing motor insurance products. This move to recognise the role of automobile dealers gives legitimacy to existing practices of solicitation and servicing of motor insurance.
The Insurance Regulatory and Development Authority of India recently replaced the 2009 corporate governance guidelines with the Guidelines for Corporate Governance for Insurers in India. The 2016 guidelines seek to incorporate relevant changes introduced by the Companies Act and consider other relevant changes in the insurance sector in order to provide an appropriate corporate governance regime for Indian insurers.