IRDAI New Guidelines for Insurance Marketing Firms

Swetha Dhinesh

13 Jun, 2024

The number of tie-ups between Corporate Agents (CA) and Insurance Marketing Firms (IMF) has been raised by the Insurance Regulatory and Development Authority of India (IRDAI). With more options and access to insurance policies, policyholders will now have more choices.

The regulator stated, “The maximum number of tie-ups for Corporate Agents (CA) and Insurance Marketing Firms (IMF) have been increased in order to enable the policyholders/prospects to have a wider choice and access to insurance through various distribution channels and facilitate the reach of insurance to the last mile. For the distribution of their insurance products, a CA can now partner with nine insurers (up from 3 insurers), and the IMF can partner with six insurers (up from 2 insurers) in each business line of life, general, and health. The entire state in which they are registered is now included in IMF’s operational region. In this blog, we’ll discuss the new guidelines, the increase in the distribution channel and the key highlights.

What are Insurance Marketing Firms?

IMF is an opportunity for financial entrepreneurs who want to offer financial protection through professionally managed businesses. Insurance Marketing Firms (“IMF”) can be a company, LLP, cooperative society, or any other type of organisation that the Authority may choose to recognise. An entity that has permission to engage in insurance service operations is referred to as an IMF or Insurance marketing firm in the legal terminology set forth by the IRDA.

Key highlights of the IRDA guidelines

Increased Tie-Up Limitations for Intermediaries: The maximum number of partnerships between corporate agents and insurance marketing firms have been increased in an effort to provide policyholders with more access to insurance through multiple insurance channels and to make it easier for insurance to reach the last mile. Corporate agents and insurance marketing firms can now partner with nine and six insurers, respectively, as opposed to just three and two insurers previously, for the distribution of goods in the life, general, and health insurance sectors. The geographic scope of the insurance marketing firms has also been increased to include the entire state in which they are registered.

Regulatory Sandbox: The regulatory sandbox is a framework that gives businesses a regulated testing environment in which they can evaluate new products and technology. It encourages technological advancements and innovation in the sector. The Regulatory Sandbox Rules have been changed in a few ways to permit insurers and intermediaries to experiment continuously. These changes include extending the experimentation period from six months to 36 months and switching from batch-wise clearances to continuous clearances. A new clause for reviewing applications that were turned down under the sandbox has also been added as part of the changes.

Investment Standards: Special Purpose Vehicle (SPV) investments are now optional for Private Equity (PE) Funds, giving them more flexibility to make direct investments in insurance businesses. Subsidiary companies can also promote insurance companies (subject to certain conditions).

In the future, investments up to 25% of a single investor’s paid-up capital (or 50% for all investors combined) will be recognised as “investors.” In contrast, investments above that will only be treated as “promoters.” [In the past, the requirement for individual investors was 10%, and for all investors together, it was 25%.]

The insurer must have a positive solvency history for the previous five years and be a listed firm in order for the promoters to dilute their interest up to 26% under a new clause. The indicative standards for determining the ‘Fit and Proper’ status of investors and promoters are included. According to IRDAI, the lock-in term for investments for investors and promoters has been set based on the insurer’s age.

Appointed Actuary: Appointed Actuaries (AA) are essential to the operations of insurance. The experience and qualification criteria have been made flexible to ensure a sufficient supply of Actuaries in the field. A crucial component of an insurer’s health is the insurer’s ability to sustain solvency, and AA plays a vital part in doing so. By adding clauses for risk identification, monitoring, reporting, and action recommendation for risks affecting the company’s solvency situation, AA has increased its responsibilities. Additionally, insurers have a duty to guarantee that the AA can carry out his duties in a professional manner.

Solvency standards for general insurers: The period for taking into account State/Central Government premium dues for calculating solvency position has been extended from 180 days to 365 days to help insurers more effectively use their capital and resources and to increase insurance penetration in Crop Insurance. Also, the solvency ratios for crop insurance have been lowered from 0.70 to 0.50, which will release the requirements for insurers by around Rs. 1460 crore in capital.

Solvency standards for life insurers: The variables for calculating solvency specified in regulations have been altered in the following ways to enable life insurers to utilise capital efficiently:

1. From 0.80% to 0.60% for Unit Linked Business (Without Guarantees).
2. Reduced from 0.10% to 0.05% for PMJJBY.

As a result, capital requirements will be reduced by around Rs. 2000 crore.

Other forms of capital: The requirement of previous approval from IRDAI is removed in order to enhance the ease of raising other forms of capital, such as subordinated debt and preference shares. The threshold restrictions for obtaining such capital have been increased by changes from 25% to 50% of paid-up capital & premium, subject to 50% of the company’s net worth. This will make it possible for businesses to raise the necessary financing quickly. According to IRDAI, changes have been made to the board’s oversight of such capital raising.

Registration of Insurance Companies: The amendment pertaining to the registration of insurance firms aims to promote “ease of doing business” and streamline the process of establishing an insurance company in India.

Benefits of guideline

• The regulator is taking another step towards achieving its goal of 100% insurance penetration by 2047 by raising the maximum number of insurers that can join forces with Corporate Agents and Insurance Marketing Firms.

• While this move will give customers more options for insurers and products, it is also anticipated to spur innovation in product development, improved technology use, and data analytics that will result in a seamless customer experience, increasing the level of financial protection for corporate agent/IMF customers.

• As a result, the bancassurance channel, which has emerged in recent years as the second-largest distribution channel for insurers after the agency channel, would get a considerable boost.

• Also, they have suggested removing the limit on the amount insured and allowing corporate agents to put commercial lines general insurance covers. In addition to distribution, the regulator has suggested significant revisions to the investment standards for insurers, including new requirements for debt securities investments.

Conclusion

These revolutionary changes will make conducting business easier, free up distribution models, promote customer-centred innovations, and increase the sector’s investment. With a single action, the regulator has resolved a number of long-standing industry difficulties. These improvements will significantly advance attaining the regulator’s inspiring goal of ensuring insurance for everyone.

Also Read:
Guide to starting an IRDA Insurance Marketing Firm
Registration Renewal Process of Insurance Marketing Firm