Legislations Governing Operation of Insurance Companies in India

The insurance industry of India has 57 insurance companies -24 are in the life insurance business, while 34 are non-life insurers. Among the life insurers, LIC is the sole public sector company. There are six public sector insurers in the non-life insurance segment. In addition to these, there is a sole national re-insurer namely General Insurance Corporation of India (GIC Re). Other stakeholders in the Indian Insurance market include agents, brokers, and Third Party Administrators (TPA), servicing health insurance claims.

The Insurance business in India is regulated by the Insurance Act, of 1938, the Life Insurance Corporation Act, of 1956, the General Insurance Business (Nationalisation) Act, of 1982, the Marine Insurance Act, of 1963, and the Motor Vehicles Act, of 1988, and IRDAI (Investment) Regulations, 2016.

The Authority, to enforce IRDAI (Investment) Regulations, had issued various Circulars and guidelines at different times. IRDAI (Investment) Regulations, 2016 read along with Master Circular version 3 of 27 October 2022 and guidelines amended from time to time currently regulate Insurers’ Investments.

The investments made by insurance and reinsurance companies are governed by the Insurance Act; the IRDAI (Investment) Regulations 2016 (Investment Regulations); and. the Investments – Master Circular – IRDAI (Investment) Regulations 2016 version 3 of 27 October 2022 and various other circulars issued by the IRDAI.

According to IRDAI (Investment) Regulations (1), life insurance companies should invest assets of at least 25 per cent in government securities, in addition, a further sum equal to not less than 50 per cent in government securities or approved securities, and the balance in any other approved investment under the Investment Regulations.

Approved Investments as specified in Schedule I

Infrastructure and Social Sector: Not less than 15%

• Others to be governed by Exposure/ Prudential Norms specified in Regulation 5: Not exceeding 20%
• Other than in Approved Investments to be governed by Exposure/ Prudential Norms specified in Regulation 5: Not exceeding 15%

Pension and General Annuity Business: Every insurer shall invest and at all times keep invested assets of Pension Business, General Annuity Business, and Group Business in the following manner:-

1. Government securities, being not less than 20%.
2.  Government Securities or other approved securities inclusive of (i) above, being not less than 40%.
3.  Balance to be invested in Approved Investments as specified in Schedule I and to be governed by Exposure/ Prudential Norms specified in Regulation 5 not exceeding 60%

Note: For this sub-regulation:

a)      No unapproved investments shall be made.

b)      All investments shall be made in graded securities and the grading shall not be less than of ‘very strong’ rating by a reputed and independent rating agency (e.g. AA of Standard and Poor).

c)      Every insurer shall invest assets in securities that are actively traded in any Stock Exchange in India and which are attributable to segregated funds, in respect of linked business

Regulation 4 of Investments:

(1) General Insurance Business: Without prejudice to Section 27 or Section 27B of the Act, – Every insurer carrying on the business of general insurance shall invest and at all times keep invested his total assets in the manner set out below:

i)  Central Government Securities being not less than 20%

ii) State Government securities and other Guaranteed securities including (i) above being not less than 30%.

iii) Housing and Loans to State Government for Housing and Fire Fighting equipment, being not less than 5%

 Investments in Approved Investments as specified in Schedule II

1. Infrastructure and Social Sector: Not less than 10%
2. Others to be governed by Exposure/ Prudential Norms specified in Regulation 5:  Not exceeding 30%

 Other than in Approved Investments to be governed by Exposure/ Prudential Norms specified in Regulation 5: Not exceeding 25%.

Note: All investments shall be made in graded securities and the grading shall not be less than of ‘very strong’ rating by a reputed and independent rating agency (e.g. AA of Standard and Poor).

 Reinsurance Business: Every reinsurer carrying on reinsurance business in India shall invest and at all times keep invested his total assets in the same manner as set out in sub-regulation (1), until such time separate regulations in this behalf are made by the Authority.

The Amendment Act 2021 has increased the foreign direct investment limit in insurance and reinsurance companies from 49 per cent to 74 per cent. Further, the IRDAI has notified the Registration Regulations, which repealed the earlier IRDAI (Registration of Indian Insurance Companies) Regulations 2000 and IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations 2015 and which broadly set out the various requirements for investment in an insurance company, viz. lock-in period for investment in the form of equity shares either in the capacity of a promoter or an investor. The minimum lock-in period has been classified in terms of the time at which the investment is being made; and the maximum investment that may be made by a single investor or collectively by all the investors in insurance companies that are not listed on an Indian stock exchange.

Other important Regulations:

• Insurance and reinsurance companies, FRBs, and insurance intermediaries in India are governed by the IRDAI, and insurance and reinsurance entities set up as IIOs in GIFT City are governed by the IFSCA. ‘International Financial Service Centre Insurance Office’ (IIO) means a branch office (of an applicant) to transact direct insurance business or reinsurance business as permitted by the Authority.
• The following are examples of insurance coverage that is compulsory by central law:

Insurance that is compulsory for an employer to cover

• Standard policy wordings for professional indemnity policies for all insurance intermediaries) in terms of IRDAI (Registration of Insurance Marketing Firm) Regulations 2015, IRDAI’s Guidelines on Repositories and Electronic Issue of Insurance Policies of 29 May 2015, IRDAI (Registration of Insurance Marketing Firm) Regulations 2015 , and Brokers Regulations, IRDAI (Insurance Web Aggregators) Regulations 2017
• Insurance for employees in case of sickness, maternity, and employment injury must be covered under the Employees State Insurance Act 1948.
• Insurance for employees in case of sickness, maternity, and employment injury must be covered under the Employees State Insurance Act 1948.
• Insurance on the lives of crew members must be covered under the Merchant Shipping Act 1958.
• Deposits in Banks should be compulsorily insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act 1961.
• Insurance for marine adventures must be covered under the Marine Insurance Act 1963 (Marine Act).
• Parties are required to maintain adequate insurance covering any liabilities that may arise under the Carriage by Air Act 1972.
• Insurance for gratuity payments to employees must be covered under the Payment of Gratuity Act 1972:
• Accidental cover for persons handling hazardous substances and environmental issues should be compulsorily covered under the Motor Vehicles Act 1988 and the Public Liability Insurance Act 1991.
• Employers’ liability for workers sustaining injuries must be covered under the Personal Injuries (Compensation Insurance) Act 1963: employers’ liability for workers sustaining injuries;
• Insurance for the consignment of dangerous or hazardous goods must be covered under the Carriage by Road Act 2007.
• Insurance scheme for employees with disabilities under the Rights of Persons with Disabilities Act 2016: an insurance scheme for employees with disabilities;
• Insurance must be covered for mechanically propelled vessels under the Inland Vessels Act 2021.

Regulation for individuals employed by insurers:

Individuals employed by Indian insurers must be internally trained by the insurer to carry out the distribution of insurance products. Indian insurers are also permitted to use individual insurance agents that are licensed in terms of the IRDAI (Appointment of Insurance Agents) Regulations 2016 for the distribution of insurance products.

Only licensed or registered insurance agents and insurance intermediaries (insurance brokers, corporate agents, web aggregators, and insurance marketing firms) may solicit, procure, and service insurance businesses for insurers. In addition, insurers can use registered motor insurance service providers (for solicitation and servicing of motor insurance) and point-of-sale persons (for solicitation and servicing of point-of-sale products).

Overseas non-admitted insurers cannot write direct insurance business in India. Non-admitted insurers who have registered with the IRDAI as cross-border reinsurers can reinsure risks written by Indian insurers in terms of the IRDAI (Re-insurance) Regulations 2018.

Reference: IRDAI website

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a purchase.

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