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31 July 2018
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 such restructuring generally involves a complicated process in itself, the approval requirements stipulated by the Insurance Regulatory and Development Authority of India (IRDAI) further lengthen this process.
In terms of insurers, the Insurance Act 1938 provides for the manner in which insurers may carry out amalgamations and transfers of insurance business. Sections 35, 36 and 37 of the Insurance Act prescribe the procedure for obtaining IRDAI approval for amalgamations and transfers of insurance business as set out below.
Frist, the parties must prepare a scheme which:
Two months before applying to the IRDAI for approval, a notice of intention must be sent to the IRDAI, along with:
The approval process is as follows:
In brief, the Insurance Act sets out the manner by which IRDAI approval may be sought, the documents required and the pre and post-approval actions which the parties must take.
In addition, pursuant to the powers conferred under Section 37A of the Insurance Act, the IRDAI can prepare a scheme of amalgamation for insurers where it believes that such an amalgamation is:
Notably, a transfer or amalgamation done without IRDAI approval is grounds for suspension of the insurer's IRDAI-issued certificate.
While an organised procedure for regulating the amalgamation or transfer of an insurer's business has been set out, the regulations governing the amalgamation or transfer of an insurance intermediary's business remain scattered and, in some cases, non-existent.
For instance, although Regulation 8(d) of the IRDAI (Insurance Web Aggregators) Regulations 2017 is titled "Transfer of Ownership", the regulations do not envisage exhaustive provisions governing the amalgamation or transfer of an undertaking. Rather, they merely stipulate the conditions for approval of a transfer of ownership of a web aggregator's shares to another individual or entity, particularly in relation to:
Notably, the IRDAI (Registration of Corporate Agents) Regulations 2015 and the IRDAI (Insurance Surveyors and Loss Assessors) Regulations 2015 (as amended) have no express provisions governing share transfers. As a result of the fragmented regulatory framework governing insurance intermediaries, there is no uniform guidance for insurance intermediaries on the process of amalgamating or transferring business.
However, a welcome change in this regard has been introduced under Regulation 41 of the IRDAI (Insurance Brokers) Regulations 2018 (Brokers Regulations), titled "Amalgamation and Transfer of Business". This regulation prescribes that IRDAI approval must be obtained for every amalgamation or transfer of business scheme of an insurance broker before it can be implemented. In this regard, Regulation 41 of the Brokers Regulations further clarifies that such approval is required irrespective of whether:
The process for obtaining IRDAI approval is stipulated under Schedule II, Form Y of the Brokers Regulations in the following terms:
The Brokers Regulations prescribe the manner in which IRDAI approval may be sought, including the documents needed. These regulations also confer discretionary power on the IRDAI to issue directions with respect to the amalgamation process based on:
However, the Brokers Regulations do not specify the post-approval actions or the manner in which an insurance broker may contest an IRDAI decision regarding its application for approval. Nevertheless, while the stipulations in the Brokers Regulations may not be exhaustive, they clarify the process of amalgamating and transferring insurance brokers' business.
Even with the amendments introduced to the Brokers Regulations, the ambiguity regarding the process of amalgamation and transfer of business with respect to other insurance intermediaries persists. Therefore, there is a growing need for the extant regulations governing the specific forms of insurance intermediaries to be amended and for the norms on amalgamation to be spelled out, thereby dispelling uncertainty and providing a defined process for market players.
For further information on this topic please contact Shubhangi Pathak or Priya Misra at Tuli & Co by telephone (+91 11 2464 0906) or email (firstname.lastname@example.org or email@example.com). The Tuli & Co website can be accessed at www.tuli.co.in.
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