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FEMA Compliance for Insurance Companies

Package inclusions for FEMA Compliance for Insurance
  • Advice on FEMA Compliance for insurance companies.
  • Advice on routes for foreign investment under FEMA Compliance.
  • Advice on FEMA compliance for Life Insurance Business and General Insurance Business.
  • Regular follow up with IRDAI on FEMA Compliance.
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FEMA Compliance for Insurance Companies

Foreign investment in India is allowed in many sectors. The amount of foreign investment depends on the specific sector of investment. The Reserve Bank of India (RBI) has brought out guidelines related to foreign investment in India. Investment in India is allowed through the automatic route and the approval route. Under the automatic route, no prior approval is required from the Government of India. Under the approval (government) route prior approval is required from the government regarding the amount of foreign investment in India.

RBI has brought out guidelines related to foreign investment in the insurance sector in India. These guidelines were brought out in 2000 specifying rules related to the amount of foreign investment in India. Insurance companies are allowed to receive 49% of foreign investment. The majority of control over the insurance company must be held by the Indian Company. Foreign Exchange regulations which apply to insurance companies are the Foreign Exchange Management Act (FEMA). An insurance company has to follow procedures related to FEMA Compliance.

FEMA Compliance for Insurance Companies and Intermediaries

  • Insurance Companies- According to the Department for Promotion of Industry and Internal Trade (DPIIT) up only 49% of foreign investment is allowed for an insurance company. Prior permission is required from the authority before receiving the investment.
  • Insurance Intermediaries- DPIIT has allowed 100% foreign investment through the automatic route for insurance intermediaries. Insurance Intermediaries include- Insurance Broker Firms, Corporate Agencies, and Insurance Marketing Firms. For an intermediary, if the foreign investor has majority control then the company has to establish itself as a private limited company under the Companies Act 2013. One of the key management executives of the insurance company must be a resident of India.

Insurance policies taken under FEMA

Insurance policies taken under FEMA

Why is FEMA Compliance for Insurance Required

  • To ensure that significant number of insurance products comply with the Foreign exchange laws.
  • To ensure that there is compliance with relevant laws and regulations related to insurance products.
  • To monitor the amount of foreign investment in the insurance sector under the automatic route and the approval route.

Who Regulates FEMA Compliance for an Insurance Company

The primary authorities for FEMA compliance for an insurance company are the RBI and the Insurance Regulatory and Development Authority of India. The RBI brings out rules related to foreign investment in India. An insurance company and insurance intermediary have to follow the rules laid down by the RBI. Apart from this, prior approval is required from the IRDAI on the amount of foreign investment in an insurance company. The law that regulates FEMA compliance for an insurance company is the Foreign Exchange Management (Insurance) Regulations, 2015.

The company’s act 2013 also regulates the formation of an insurance company and an insurance intermediaries.

DPIIT- Department for Promotion of Industry and Internal Trade updates the rules related to the amount of foreign investment allowed in an insurance company and insurance intermediary.

Eligibility criteria for FEMA Compliance

  • Foreign investment is allowed in insurance companies. However, only up to 49% foreign investment is allowed for Insurance Company.  Approval from the IRDAI is required for foreign investment for an insurance company.
  • Insurance Companies having business in Life Insurance and General Insurance are permitted to receive foreign investment.
  • Insurance Intermediaries (Insurance Brokers, Insurance Agencies and Insurance Marketing Firms are allowed up to 100% of foreign investment through the automatic route.

FEMA Compliance for an Insurance Firm

For General Insurance

  • An individual (resident in India) is allowed to take insurance from a foreign insurer. However the amount of investment that is made for the premium should not exceed the amount under the Liberalized Remittance Scheme (LRS).
  • An individual is allowed remittance of USD 250000 per annum under the Liberalized Remittance Scheme (LRS).
  • When an individual (resident in India) is taking out insurance for a property, ship, aircraft registered in India prior permission is required from the IRDAI, if the insurance is taken out with a foreign insurer.
  • A general insurance policy can be taken or held by an individual (resident in India) with the specific permission from the central government.
  • A person (resident in India) can continue to use the insurance taken outside India. However, the insurance must be taken when the individual was a resident outside India.

1) If the premium due on the policy was remitted from India, the funds have to be sent back (Repatriated ) to India through normal banking channels within 7 days; and

2) This would also apply to the maturity proceeds.

For Life Insurance

  • An individual (resident in India) is allowed to hold a life insurance policy from a foreign insurer.
  • However specific permission is required from the central government regarding this.
  • A person (resident in India) can continue to use the life insurance taken outside India. However, the insurance must be taken when the individual was a resident outside India.

1) If the premium due on the policy was remitted from India, the funds have to be sent back (Repatriated ) to India through normal banking channels within 7 days; and

2) This would also apply to maturity proceeds.

Resident outside India- FEMA Compliance

  • For Settlement of claims for Individuals (resident outside India) the payment of foreign currency would only be based on the amount of premium on foreign currency.
  • Residents outside India are allowed to credit the same amount of the NRE or FCNR Account.

a) Beneficiaries that settle insurance claims in foreign currency are allowed to open and credit the proceeds to the Resident Foreign Currency Account (RFC).

b) The Policy holder Indian residents who were outside India, and are the beneficiaries of insurance claims/maturity or surrender value settled in foreign currency in respect of policies issued by Insurer in India may be permitted to credit to their RFC account on becoming residents.

  • Claims related to life insurance policies issued to Indians residents outside India for which premium have been collected in non-repatriable rupees may be paid only in rupees by credit to the NRO account of the beneficiary.
  • Claims/maturity proceeds/ surrender value in respect of rupee policies issued to foreign nationals not permanently resident in India may be paid in rupees or may be allowed to be remitted abroad.                                                                                        

FEMA compliance for General and Life Insurance

  • Claims outside India are allowed to be settled in Foreign Currency. These claims can be taken from an Indian Insurer with the permission from the authority.
  • Individual (residents outside India) are allowed to take general and health insurance policies from an Indian insurer. If the payment of premium is in Indian Rupees then the policy can be settled in Indian Rupees.
  • Authorised Banks allow foreign remittance for claims under IRDAI. This is allowed for general and health insurance companies subject to the following conditions:

1) Claim has been admitted by the authority;

2) Claim has been settled as per the report of the surveyor;

3) Claims related to reinsurance are present with reinsurers as per the reinsurance agreement; and

4) Remittance is made to the beneficiary (individual outside India).

  • For Settlement of insurance claims for Import of goods into India-

1) The remittance must not be made by the importer; and

2) Import is made on the import licence then the insurance premium must be endorsed on the licence.

  • For any claim to be settled outside India regarding the Assets, prior permission from the RBI is required.
  • Policies which are taken related to Marine Hull and Shipping equipment cannot be taken outside India. It has to be taken in India.

Investments Abroad- FEMA Compliance

  • Insurance Companies can invest their funds outside India. The following conditions have to be maintained by the Insurance company:

1) Compliances of the host country have to be followed by an insurance company.

2) The IRDAI guidelines related to FEMA compliance must be adhered to at all times.

Foreign Currency Account- FEMA Compliance

An Indian insurer is allowed to open foreign currency accounts with a foreign bank to conduct transactions on behalf of beneficiaries related to Insurance.

Utilization of Foreign Funds by Insurance Company

An insurance company is allowed to utilize foreign currency funds for the running of the insurance firm. No prior approval is required from the authority regarding this.

Reinsurance Companies

Reinsurance agreements have to be decided on an annual basis. This will be approved by the Board of the insurance company with the IRDAI permission.

Documents required for FEMA Compliance for Insurance Company

Individual Insurance Claim Remittances Documents

  • PAN Card.
  • KYC documentation.
  • Application Form for Investing Declaration of Insurance.
  • Remittance form Form -A2.
  • TDS documents for Income-tax Purposes.
  • Insurance Documents such as policy documents and any other document to support the insurance claims.

For Marine Insurance Claims for Exports

  • Form A2- Remittances of Claim.
  • Statement of claim duly certified by an official authorized by the insurance company registered with IRDA for this purpose.
  • Insurance policy.
  • Survey report or other customary proof of loss.
  • Bill of lading/airway bill.
  • Certified copy of the invoice.
  • Any other documents ordinarily required to support the claim.

How can Enterslice help

  • We will help you comply with the relevant foreign exchange regulations for your insurance business.
  • We will also help you with the foreign compliance with your insurance business.
  • We value your time and money.
  • We also offer post compliance services for FEMA compliance related to Insurance.

Frequently Asked Questions

Yes. Foreign investment in Insurance Companies is allowed. However, the amount of investment that is allowed is only 49%. A foreign investor is allowed only to invest up to 49% in Insurance companies.

The following businesses related to Insurance are allowed to have more than 49% of foreign investment:

• Insurance Brokers;

• Corporate Agents; and

• Insurance Marketing Firms.

However, if the percentage of control by a foreign company is more than an Indian company then, the company has to be set up as a private limited company.

No. An insurance company has to comply with the relevant regulations related to FEMA before receiving foreign investment. Insurance intermediaries do not require prior permission from the government. 100% foreign direct investment is allowed for insurance intermediaries. Therefore intermediaries do not need to take prior permission from the RBI.

No, insurance companies do not need to submit a quarterly report on the settlement of claims of polices issued with the permission of RBI. Quarterly reports were required to be submitted earlier which is repealed now.

Yes an individual (resident of India) is allowed to take health insurance abroad.

A resident Indian who is going abroad for employment is allowed to take a health insurance policy on the payment of premium in Indian Rupees. Claims can be settled under the cashless international health insurance policies to hospitals providing treatment. This is through third-party administrators.

Payment of Foreign currency is allowed for health insurance and general insurance companies for insurance policies. No prior permission is required from the RBI.

Yes, insurance companies are allowed to utilize foreign currency for meeting their business requirements. The expenses can be used for maintenance of building, payment of employees, settlement of provident fund and gratuity.

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