The Indian insurance market was nationalised shortly after India’s independence in 1947, and remained so until the government’s industrial policy of 1991 announced the advent of a liberalised Indian economy, which included private participation in the insurance sector. In 1993, the government set up the Malhotra Committee to review the then-existing structure of the regulation and supervision of the insurance industry and to suggest reforms. The Committee recommended, inter alia, that the private sector be permitted to enter the insurance industry and that foreign insurers be allowed to enter the Indian market by forming joint venture companies with Indian partners.
There was considerable delay in implementing these recommendations, and in particular a rather lengthy debate over the right level of the cap on foreign ownership, but in 1999 the Insurance Regulatory and Development Authority of India (IRDAI) (formerly, the Insurance Regulatory and Development Authority (IRDA)) was set up as an autonomous body to regulate the insurance industry and develop the insurance market, and in August 2000 private competition was permitted with a foreign ownership cap of 26 per cent.
Over the past decade, there were growing complaints about the relatively low 26 per cent cap on foreign investment. The cap on foreign investment was intended to be raised to 49 per cent, and ultimately, after a long legislative history, on 20 March 2015, the Insurance Laws (Amendment) Act 2015 (the Amendment Act) was notified, which, inter alia, increased the foreign investment cap to 49 per cent. The Amendment Act also permitted the establishment of branch offices in India by foreign reinsurers.
India presently has 24 life insurers, 24 general insurers and six stand-alone health insurers, 27 third-party administrators, 376 insurance brokers, 21 web aggregators, four insurance repositories, and innumerable corporate agents and insurance agents. In December 2016, the IRDAI also granted registration to five foreign reinsurer branches in India. In addition, at present, there are two reinsurance companies in India: the government-owned General Insurance Corporation; and ITI Reinsurance Limited, which was recently granted registration by the IRDAI. Moreover, Lloyd’s of London is also currently in the process of forming a branch in India and there are various other foreign reinsurers that are also looking to establish branch offices in India.
i The insurance regulator
Insurance and reinsurance companies, foreign reinsurer branches and intermediaries in India are governed by the IRDAI.
ii Position of non-admitted insurers
Overseas non-admitted insurers cannot write direct insurance business in India. Non-admitted insurers who have registered with IRDAI as cross-border reinsurers can reinsure risks written by Indian insurers in accordance with the IRDAI’s regulations on the reinsurance of life and general insurance business. Pursuant to the Amendment Act, overseas non-admitted reinsurers are now also permitted to access the Indian market by way of branch offices set up in India and service companies set up under the IRDAI (Lloyd’s India) Regulations 2016 (the Lloyd’s India Regulations).
Indian residents may purchase life insurance policies issued by an insurer outside India provided the policy is held under specific or general permission of the Reserve Bank of India. Indian residents are prohibited from purchasing insurance in respect of any property in India or any ship, vessel or aircraft registered in India with an insurer outside India without the permission of the IRDAI. Indian residents can, however, purchase health insurance policies from an insurer outside India subject to satisfaction of certain conditions.
iii Position of brokers
Only insurance brokers that are registered with the IRDAI as direct brokers, reinsurance brokers or composite brokers in accordance with the IRDA (Insurance Brokers) Regulations 2013 can operate as insurance brokers in India.
iv Requirements for authorisation
The general rule is that only licensed insurance agents and insurance intermediaries can distribute insurance products for Indian insurers. Unlicensed persons are prohibited from soliciting and procuring insurance business or providing introductions or leads.
v Regulation of 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 accordance with the IRDAI (Appointment of Insurance Agents) Regulations 2016 for the distribution of insurance products.
vi The distribution of products
Only licensed insurance agents and insurance intermediaries can solicit and procure insurance business for insurers. Insurers are also permitted to engage licensed telemarketers and licensed web aggregators for the solicitation and procurement of insurance business, and to purchase access to the database of licensed referral companies.
vii Compulsory insurance (e.g., employers’ liability)
The following are examples of insurance covers that are compulsory by central law:
- a under the Public Liability Insurance Act 1991: accidental cover for persons handling hazardous substances and environmental issues;
- b under the Motor Vehicles Act 1988: compulsory third-party liability insurance;
- c under the Deposit Insurance and Credit Guarantee Corporation Act 1961: insurance to be taken by the banks functioning in India;
- d under the IRDA (Insurance Brokers) Regulations 2013, IRDAI (Registration of Corporate Agents) Regulations 2015, IRDAI (Web Aggregators) Regulations 2013, IRDAI (Guidelines on Repositories and Electronic Issue of Insurance Policies) of 29 May 2015 and IRDAI (Registration of Insurance Marketing Firm) Regulations 2015: professional indemnity insurance covering errors and omission, dishonesty and fraudulent acts by employees, and liability arising from loss of documents or property;
- e the Carriage by Air Act 1972 requires parties to maintain adequate insurance covering any liabilities that may arise;
- f under the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act 1995: an insurance scheme for employees with disabilities;
- g under the Personal Injuries (Compensation Insurance) Act 1963: employers’ liability for workers sustaining injuries;
- h under the Employees State Insurance Act 1948: insurance for employees in the case of sickness, maternity and employment injury;
- i under the Payment of Gratuity Act 1972: insurance for gratuity payments to employees;
- j under the War Injuries (Compensation Insurance) Act 1943: for workers sustaining injury in war;
- k under the Marine Insurance Act 1963: insurance for marine adventures;
- l under the Merchant Shipping Act 1958: insurance on the lives of crew members;
- m under the Inland Vessels Act 1917: insurance of mechanically propelled vessels; and
- n under the Companies Act 2013: insurance of deposits accepted by companies.
viii Compensation and dispute resolution regimes (within the financial services context)
Dispute resolution in India is broadly divided into three mechanisms: (1) civil courts; (2) consumer fora; and (3) arbitration and alternate dispute resolution.
The government has recently introduced the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act 2015 (the Commercial Courts Act), which provides for the establishment of specialised courts to adjudicate on disputes pertaining to transactions of merchants, bankers, financiers and traders.
Amendments have also been made to the Arbitration and Conciliation Act 1996 (ACA) to ensure that commercial arbitrations are completed within a specified timeline and an attempt has been made to do away with the archaic system of awarding costs followed in India, and to make the costs more realistic.
Further detail on these regimes is provided in Section IV, infra.
ix Taxation of premiums
Premiums received on account of insurance and reinsurance business attract service tax. Income tax laws provide deductions to the policyholder on life and health insurance premiums paid.
x Proposed changes to the regulatory system
The IRDAI has proposed draft regulations governing outsourcing of activities by Indian insurers to third parties. These regulations set out the category of activities that may be outsourced, and the terms, conditions and safeguards that may be incorporated in such outsourcing arrangements. The IRDAI has also released draft regulations that replace the previous framework for protection of policyholders and are more comprehensive in terms of the specific matters to be listed in insurance policies, and the duties to be placed on insurers and surveyors at the claims stage. In addition, the IRDAI has also issued a draft Stewardship Code that sets out the principles to be adopted by Indian insurers as institutional investors.
xi Other notable regulated aspects of the industry (e.g., ownership, mergers, capital requirements)
The minimum paid-up equity capital for an insurer is 1 billion rupees. Any direct or indirect foreign investment in an insurer is restricted to 49 per cent; the previous requirement to obtain an approval from the government of India to increase the foreign investment in an insurer from 26 per cent to 49 per cent has now been removed. In terms of M&A activity in the insurance space, press reports indicate that there is an ongoing merger between Max Life and HDFC Life, which is presently being considered by regulators. In addition, several investors in insurance joint ventures (including insurance companies and intermediaries) have entered and exited such ventures through a transfer of shares.
III INSURANCE AND REINSURANCE LAW
i Sources of law
The Insurance Act 1938, the Insurance Regulatory and Development Authority Act 1999, the Marine Insurance Act 1963 and the regulations, guidelines, circulars and notifications issued by the IRDAI, govern insurance and reinsurance business in India.
Indian courts may refer to common law if there are no judicial precedents available under Indian law. Common law is, however, not binding on Indian courts.
ii Making the contract
The terms and conditions of property and engineering insurance covers are currently governed by the policy wordings specified by the former Tariff Advisory Committee. Very few modifications to these policy wordings have been permitted. On all other lines of insurance business (except mega risks, which are written on a special contingency basis), insurers are permitted to issue only those policy terms and conditions, endorsements and other ancillary documentation that have been approved by the IRDAI in advance. No changes are permitted to be made unless the prior consent of the IRDAI is obtained. In addition, for health insurance policies, the IRDAI has specified a standard set of definitions, standard nomenclature for critical illness, a standard list of excluded expenses, and standards and benchmarks for hospitals in the insurance network. The IRDAI has also specified a number of other conditions for health insurance policies, making these policies highly regulated.
The IRDA (Protection of Policyholders’ Interests) Regulations 2002 require general insurance contracts to state several matters, including:
- a full description of the property or interest insured with locations and insured values;
- b period of insurance;
- c sums insured;
- d perils covered and excluded;
- e premium payable;
- f policy terms, conditions and warranties;
- g action to be taken by an insured for claims and circumstances that may give rise to a claim;
- h insured’s obligations in relation to the subject matter of insurance upon occurrence of an event giving rise to a claim and the insurer’s rights in the circumstances;
- i any special conditions;
- j provisions for cancellation;
- k insurer’s address;
- l details of endorsements; and
- m grievance redressal mechanism.
All condition precedents and warranties are required to be stated in express terms in the policy documentation.
In addition, all product literature is required to be in ‘simple language’ and ‘easily understandable to the public at large’, and all technical terms used in the policy wording are to be clarified to the insured. To the extent possible, insurers are also required to use similar wording for describing the same insurance cover or the same requirements across all their products, particularly in relation to clauses on renewal, basis of insurance, due diligence, cancellation and arbitration.
Under Indian law, an insurance contract is one of utmost good faith, and insurers are entitled to a fair presentation of the risk prior to inception. The Indian Marine Insurance Act 1963 obliges an insured to make a full and frank disclosure prior to inception, and the Supreme Court has stated that this includes by way of the proposal. There is an argument that an insurer may limit the insured’s duty by limiting the questions asked in the proposal form unless the proposal form contains a statement that has the effect of negating any restriction of the disclosure obligation by reference to the questions asked. The IRDA (Protection of Policyholders’ Interests) Regulations 2002 also impose an obligation on the insured to disclose all material information.
If there has been a misrepresentation or non-disclosure of a material fact, then an insurer may avoid the policy ab initio. Unless the misrepresentation or non-disclosure was fraudulent, the premium must be returned to the policyholder.
iii Interpreting the contract
In general terms, the statutory framework may be said to favour insurers more than insureds, but the regulatory framework and the interpretation of applicable law is perhaps more favourable to insureds. For example:
- a the Indian courts and consumer fora have held that if there is any ambiguity in the terms and conditions, then these shall be construed in favour of the insured;
- b the Insurance Act 1938 restricts the ability of insurers to call a life insurance policy into question after three years from inception on any grounds, including fraud;
- c the IRDA (Protection of Policyholders’ Interests) Regulations 2002 provide, among other obligations, that insurers follow certain practices at the point of sale of the policy as well as at the processing or claims stage so that:
- the insured can understand its terms properly;
- insurers have proper procedures and mechanisms to hear any grievances of the insured;
- the policy terms are clearly stated (warranties, conditions, insured’s obligations, cancellation provisions, conditions precedent, etc.);
- certain claims procedures are followed to expeditiously process claims; and
- insurers pay interest at a rate of 2 per cent above the prevalent bank rate in cases of delayed payment, etc.;
- d following the IRDAI (Health Insurance) Regulations 2016 (Health Regulations) general insurers and health insurers are ordinarily required to renew a health insurance policy except on grounds of fraud, moral hazard, misrepresentation or non-cooperation by the insured. Renewal cannot be denied on grounds such as an adverse claims history. Moreover, per the Product Filing Guidelines for general insurance products issued by the IRDAI in February 2016, in a general insurance policy, the insurer can cancel the policy mid-term only on grounds of fraud, misrepresentation and moral hazard;
- e the IRDAI has also directed that all health insurance policies offer portability benefits whereby policyholders are given credit for the waiting periods already served under previous health insurance policies with that insurer or any other Indian insurer; and
- f pursuant to the Health Regulations, the IRDAI is also monitoring wellness benefits provided to policyholders under health insurance policies by mandating that such policies clearly stipulate the manner of calculation, accrual, redemption and carrying forward of such benefits.
There is one other feature of the Indian insurance sector that is worth mentioning. It concerns government-owned insurers, which are considered instruments of the state and are thus expected to act justly and reasonably.
iv Intermediaries and the role of the broker
Insurance brokers, corporate agents, web aggregators, referral companies, insurance marketing firms and insurance agents are granted a licence for a fixed period of three years, following which the licence may be renewed for a further three years at the discretion of the IRDAI.
Insurance brokers and web aggregators are required to exclusively carry on the distribution of insurance products, while corporate agents may have a main business other than the distribution of insurance products and newly introduced insurance marketing firms are allowed to sell or service other financial products. However, if a corporate agent has a main business other than insurance distribution, then the corporate agent is not permitted to make the sale of its products contingent on the sale of an insurance product or vice versa. Corporate agents were previously restricted to acting for a maximum of one life insurer and one general insurer; however, following the notification of the IRDAI (Registration of Corporate Agents) Regulations 2015, corporate agents are permitted to adopt an open architecture under which they can act for up to three life insurers, three general insurers and three health insurers.
The IRDAI’s regulations specify separate codes of conduct for each insurance intermediary that governs the conduct expected of each intermediary while performing their functions. Breach of the respective code of conduct could lead to suspension or cancellation of their licence.
The regulatory limits on the commission or remuneration payable to insurance agents and insurance intermediaries for the solicitation and procurement of insurance business continue to remain under the recently issued IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations 2016 (the Commission Regulations). However, insurers are now permitted to make other payments in the form of rewards to insurance agents or insurance intermediaries.
Insurance agents and insurance intermediaries are also prohibited from offering rebates to customers on the premium or commission receivable.
All insurance brokers are required to be part of the Insurance Brokers Association of India.
Insurance policy terms and conditions are meant to specify the requirements for notification of claims or circumstances that may give rise to a claim. Although it is common for these clauses to be expressed as conditions precedent to the insurer’s liability to make payment of the claim, the IRDAI’s Circular of 20 September 2011 said that insurers cannot reject claims on the basis of delayed notification if the delay was unavoidable unless the insurer is satisfied that the claim would have been rejected in any event. However, judicial decisions have taken a different approach in that the rejections of claims on the ground of delayed notification have been upheld. The position is not settled, however, as it will depend on the facts and circumstances of each case.
Insurance policy terms and conditions are also meant to expressly state the insurer’s grievance redressal procedure and the applicable dispute resolution provisions for differences or disputes arising under the policy. While there are no specific regulatory requirements in this regard, it is common for retail policies to give exclusive jurisdiction to the Indian courts and commercial lines policies to contain express arbitration provisions.
At present, general insurance policies are usually annually renewable policies with the entire premium being paid in advance, and it is not common to offer these policies on a long-term basis or to provide for premium payments in instalments. Life insurance policies usually have policy terms of at least 10 years and, unless a single premium is payable in advance, it would usually be payable at regular intervals during the policy terms. All life insurance policies are required to contain express provisions and conditions for reinstatement of the policy in the event of discontinuance of premium payments.
IV DISPUTE RESOLUTION
i Jurisdiction, choice of law and arbitration clauses
Policyholders have a statutory right to sue for relief under an insurance policy in Indian courts, and Indian law shall be applicable. This right cannot be abridged by the terms of the insurance policy or otherwise.
It is common for retail policies to be subject to the exclusive jurisdiction of Indian courts and for commercial lines policies to contain arbitration clauses.
An insured can approach a civil court or (if the dispute qualifies) a consumer court. An insurer can only approach a civil court. Both civil and consumer courts have territorial and pecuniary jurisdiction, so actions before them need to be brought keeping in mind the geographical location pertaining to the cause of action or the place where defendant resides and the value of the claim.
The consumer courts follow a three-tier hierarchy, which, in ascending order, is the District Forum, followed by state consumer dispute redressal commissions (state commissions), then the National Consumer Dispute Redressal Commission (NCDRC). There are 626 district fora, which can accept claims up to a value of approximately US$29,500. There are 36 state commissions, which can accept claims of between approximately US$29,500 and US$148,000, and appeals against the decisions of the district fora. At the apex lies the NCDRC, which accepts matters with a value of over US$148,000 and appeals against the decisions of the state commissions. A decision of the NCDRC on matters with a minimum value of US$147,275.51 can be challenged before the Supreme Court of India (India’s highest court). Similarly, the broad ascending hierarchy of the civil courts comprises around 600 district courts, 24 high courts and the Supreme Court of India, which only hears appeals and cases from the lower courts that involve breaches of fundamental rights. Four of the 24 high courts (Delhi, Bombay, Madras and Calcutta) have original jurisdiction to hear matters of a civil nature over a certain pecuniary value. One of the high courts (Delhi) has jurisdiction to hear matters involving pecuniary values of US$294,551.03 and above. The district courts under them do not hear matters involving values higher than that limit. The remaining district courts have an unlimited pecuniary jurisdiction, and are the competent courts of first instance to hear any insurance dispute falling within their territorial jurisdiction. Recently, the Commercial Courts Act has led to the establishment of commercial courts at the district level and commercial division, and commercial appellate division benches within the High Courts. These commercial courts, among other disputes, are specially assigned to hear insurance and reinsurance matters. The pecuniary jurisdiction of these courts is disputes that have a value of US$148,000 and above. There is no right to a hearing before a jury, and cases are decided by judges.
Unless otherwise expressly provided in law, an appeal lies from every decree passed by a court exercising original jurisdiction to the court authorised to hear appeals from the decisions of such court, unless such decree has been passed with the consent of the parties.
As a general rule, an appeal will lie if there is a substantial question of law involved. Facts established at the lower court are not normally disturbed.
In civil disputes, the usual sequence is that the decision of a district court is appealable before a single judge of the High Court. The single judge’s decision can be appealed before a division bench of the High Court. The final stage of appeal is before the Supreme Court of India.
The limitation period for filing an appeal ranges from 30 to 90 days depending on the stage of appeal, and delays can be condoned at the court’s discretion for sufficient cause shown and reasonable reasons resulting in such delay.
The Code of Civil Procedure 1908 (CPC) governs the method of instituting and trying civil suits. The recently enacted Commercial Courts Act for the first time provides for summary judgment in a suit. Under the Commercial Courts Act, plaintiffs can apply for summary judgment in a suit after summons have been served upon a defendant. If it is convinced that the defendant has no real prospect of succeeding in a claim, the court may grant a summary judgment. In other circumstances, the court may pass conditional orders allowing a defendant to defend the suit after payment of a deposit or on such other terms as the court may deem fit.
The CPC allows either party to the action to apply to the court for an order directing the other to make discovery. The court will consider the relevance of the documents requested for the dispute to be determined, and direct the discovery of a particular document or type of document accordingly. The CPC also allows a party to give notice to the other party in whose pleadings or affidavits a reference is made to any document to produce such document for inspection. Non-compliance with a discovery order can lead to the dismissal of the action or defence, as the case may be. The CPC also allows a court to summon any person, even if such person is not a party to the proceedings, and direct it to produce any document, material or testimony regarding the dispute, and to do so in person at the court.
Indian courts have held that the position under Indian law relating to privilege is similar to that under English law. In this regard, the Bombay High Court has effectively recognised privilege over documents created in contemplation of litigation. As regards documents prepared in the course of settlement negotiations or attempts, it is common for parties to mark them ‘without prejudice’, but they are not expressly protected as privileged documents under the Evidence Act, and as a matter of practice are commonly produced before courts.
A court has the power to require witnesses who are within its jurisdiction to give evidence and to issue an arrest warrant if a witness refuses to comply. A court cannot compel the attendance of a witness outside its jurisdiction, and thus cannot impose any penal consequences for non-attendance. The CPC allows a court to issue a commission for the examination of a witness outside its jurisdiction and allows it to issue a commission for the examination of a person resident outside India. If the person whose attendance as a witness is deemed necessary by the court is a party to the action and such person fails to attend or give evidence, the court may, in considering the absence of such person, dismiss the plaint or the defence, as the case may be.
Courts may award the successful party its costs, but the award is at the court’s discretion. It is common for costs awards to be made in favour of a successful party, but the level of costs awarded is rarely sufficient to cover the actual costs incurred. The Supreme Court has recently commented that costs awards are too low, and therefore do not serve as a deterrent to discourage vexatious litigation. Referring to a statutory upper limit of US$44.18 for costs awards in the case of vexatious litigation, the Supreme Court suggested that the Parliament should consider raising the limit to US$1,472.76. The recently enacted Commercial Courts Act attempts to rectify the situation, as it amends the CPC to permit courts to grant actual costs to a successful party. In view of the low level of costs awarded, there are, as yet, no material advantages in making a pretrial offer in civil litigation. However, with the recent changes in the law, this situation may change.
In addition, Section 89 of the CPC embraces a provision for the settlement of disputes outside court. All cases that are filed in court need not necessarily be decided by the court itself. Keeping in mind the time involved in legal proceedings and the limited number of judges available, it has now become imperative to resort to an alternative dispute resolution (ADR) mechanism with a view to end litigation between parties at an early date. The ADR mechanism as contemplated by Section 89 is arbitration, conciliation or judicial settlement, including settlement through a Lok Adalat (a mode of ADR) or mediation. There is usually a mediation cell associated with each court.
The ACA 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 and number of arbitrators (provided this is not an even number), the place of arbitration and the procedure to be followed by the tribunal. The principle of party autonomy has recently been confirmed by the Supreme Court of India in cases such as Bharat Aluminium Co v. Kaiser (2012) and World Sport Group (Mauritius) v. MSM Satellite (2014). The decisions restrict the scope of the Indian courts to intervene in respect of those arbitrations where the seat is non-Indian.
The Arbitration and Conciliation (Amendment) Act 2015 has amended the ACA. This Act makes the ACA a preferred reference for settlement of commercial disputes, as it not only sets out strict timelines for completion of the arbitral proceedings but also permits parties to 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.
The ACA expressly bars the courts from intervening in an arbitral proceeding except to the extent this is provided for in the Act itself. For example:
- a where a party files an action before a court in spite of an arbitration agreement, the other party can apply to that court to refer the dispute to arbitration instead;
- b a party can apply to a court for interim remedies;
- c a party can seek the court’s assistance for the appointment of an arbitrator if the other party refuses to cooperate in the process;
- d a party can seek the court’s assistance for recording evidence; and
- e the court can set aside an award in an arbitral proceeding where it has been passed following material errors of jurisdiction or in prejudice of the public interest. The court’s power is limited in this regard, and it cannot interfere in the reasoning given for arriving at the award.
The ACA recognises arbitration and conciliation as valid forms of ADR.
The courts may direct the parties to refer their disputes to ADR with the parties’ consent. There are a number of mediation cells associated with the courts, but the consent of the parties is a condition precedent to mediation. The mediator is either selected by the parties or by the court. The mediator acts as a facilitator to encourage parties to settle their disputes. However, unlike arbitration, the mediation process is not binding on either party.
V YEAR IN REVIEW
The Indian insurance sector has witnessed significant developments over the past year. The regulations governing reinsurance arrangements of insurers were released pursuant to which the IRDAI recently brought into effect the order of preference for cessions, which describes the hierarchy between various entities with which an insurer can place its reinsurance business.
The IRDAI also issued the Commission Regulations that place limits on the commission or remuneration payable to insurance agents and intermediaries for the solicitation and procurement of insurance business, but also introduces the payment of rewards to such agents and intermediaries. Insurers and insurance intermediaries are expected to revisit their existing arrangements given the flexibility in the amount of commission or remuneration (including rewards) now payable to such intermediaries for soliciting insurance business.
In addition, the IRDAI issued detailed corporate governance guidelines for insurers consolidating all its previous instructions. New regulations governing health insurance policies were issued that have brought about standardisation in the definitions and terms used in such policies. Moreover, the IRDAI has also recognised issuance of e-insurance policies.
Furthermore, the IRDAI released the product filing guidelines for both general insurance products and health insurance products where certain types of products are subject to the ‘use-and-file’ process (i.e., such products can be marketed subject to approval from the insurer’s internal committee; prior IRDAI approval is not a prerequisite).
VI OUTLOOK AND CONCLUSIONS
The Indian insurance industry has seen significant growth and development in recent years. The removal of the requirement to seek an approval from the government of India to increase the foreign investment cap from 26 per cent to 49 per cent in insurers and insurance intermediaries is one of the factors that has led to an increase in the quantum of economic investments in existing Indian players, along with various foreign players exploring options of setting up insurance joint ventures in India. Moreover, there has been a noteworthy increase in the number of players in the reinsurance space, where several foreign reinsurers have recently been permitted to set up branches in India. Lloyd’s of London is also currently in the process of forming a branch in India and there are various other foreign reinsurers that are also looking to underwrite reinsurance business through service companies set up in India under the Lloyd’s India Regulations. It is also relevant to note that with insurers being permitted to issue products under the ‘use-and-file’ process, there is an increase in product development and innovation in India.
However, these significant yet frequent changes in the regulatory environment have led to a state of flux in the insurance industry. For instance, while 49 per cent of foreign investment is permitted in insurers and insurance intermediaries, the regulatory requirement of such entities being ‘Indian owned and controlled’ has led to implementation concerns between the Indian and foreign shareholders of such entities. Further, with the order of preference for cession of insurance risks by Indian insurers being brought into effect, insurers are expected to revise their reinsurance programmes and file such programmes with the IRDAI within the prescribed time frames. The Indian insurance sector is currently grappling with the implementation of these regulatory changes, which are expected to continue for a few more years. Consequently, players in the Indian insurance sector will be required to put in place systems and resources to keep pace with such regulatory developments.
1 Neeraj Tuli is the senior partner and Celia Jenkins is a partner at Tuli & Co.