Insurance Regulation Quarterly Newsletter (April To June 2022)

• Published date: 08 August 2022
• Subject Matter: Corporate/Commercial Law, Insurance, Corporate and Company Law, Contracts and Commercial Law, Insurance Laws and Products
• Law Firm: IndusLaw
• Author: IndusLaw &nbsp

In this newsletter, we look at certain key regulatory and judicial developments, from the recently concluded quarter, for the insurance sector in India, including key regulatory and other measures notified by the Insurance Regulatory and Development Authority of India (IRDAI).

Market bulletin

Key market developments from the preceding quarter included the following:

• Life Insurance Corporation (LIC) completes its USD 2.6 billion initial public offering; the largest in India till date and 11th largest globally for an insurer.
• New IRDAI chairperson, Debasish Panda, promises 'light touch' 'principles-based' regulation and tech-based supervision.
• IRDAI's objection to Piramal's acquisition of Reliance Nippon Life reinforces restriction on cross holdings within the same class of insurance business.
• Mahindra Insurance Brokers and BigHaat, an agridigital platform, announce partnership, to allow the platform's customers to buy health and motor insurance online.

Liberalization of the FDI limit to 74% yet to result in significant inflow of foreign capital

Since the Foreign Direct Investment ("FDI") limit for Indian insurance companies was increased from 49% to 74% with effect from August 19, 2021¹, only two foreign insurers (Generali and Ageas) have agreed to increase their shareholding in their Indian insurance joint ventures to 74%². The liberalization of the FDI limit, together with the removal of the 'Indian ownership and control' requirements in June 2021, was expected to bring in significant inflows of foreign capital and improve insurance penetration levels in India, but lukewarm market conditions, fears of a global recession, uncertainty over valuation and other economic factors appear to have delayed that outcome.

Surety insurance - market awaits the launch of the first surety products

The Surety Insurance Guidelines³, which were issued earlier this year in January and came into effect in April, permit general/ non-life insurers to underwrite specific categories of surety contracts, comprising contract bonds - which can include bid bonds, performance bonds, advance payment bonds and retention money - and customs, tax, and court bonds, but excluding any financial guarantees. The guidelines impose, amongst others, a per-contract cap of 30% and an annual premium cap of 10% of total gross written premium (subject to a maximum of INR 5 billion (or ~ USD 63.05 million)).

These guidelines are expected to help improve risk management for the infrastructure sector in India, but as of date, based on the filed products database available on the IRDAI website, general insurers in India are yet to introduce any surety insurance products in the market. It will be interesting to examine the terms of the first products, since contracts of insurance, by nature, are quite similar to contracts of indemnity, but with some special features, while the Surety Insurance...