Insurance | October – December 2023

Regulatory Updates

Amendment of Arbitration Clause in General Insurance Policies

The Insurance Regulatory and Development Authority of India (“IRDAI”), has by way of acircular dated 27 October 2023, amended the arbitration clause in general insurance policies. The IRDAI has stated that all retail insurance policies shall not have an arbitration clause.

For insurance policies issued under the commercial lines of business, the IRDAI has stipulated an arbitration clause, which allows the parties to the contract to mutually agree and enter into a separate arbitration agreement to settle disputes in relation to the policy. Such agreement must be in compliance with the Arbitration and Conciliation Act, 1996. The circular also states that for all the existing policies, the existing arbitration clause shall be valid until a policy is renewed but provides the policyholder with the option to have it replaced with a new arbitration as set out in the circular.

Amendment to Master Guidelines on Anti-Money Laundering/Counter Financing of Terrorism, 2022

The IRDAI has by way of a circular dated 10 October 2023 amended the ‘Master Guidelines on Anti-Money Laundering/Counter Financing of Terrorism, 2022 (“Guidelines on AML/CFT 2022”). The amendments provide the following:

In case there is a variance in client due diligence (“CDD”) or Anti-Money Laundering/Counter Financing of Terrorism (“AML/CFT”) standards specified by the IRDAI and the standards specified by regulators of the host country (of foreign branches/ majority-owned subsidiaries), foreign branches/ majority-owned subsidiaries of the regulated entities shall adopt the more stringent requirements of the two (i.e., the standards specified by the IRDAI or the standards specified by the regulators of the host country).
Financial groups should implement group-wide programmes against money laundering/terrorism financing (“ML/TF”) for all branches and majority owned subsidiaries of the financial group including: (a) policies and procedures for sharing information required for risk management; (b) the provision, at group-level compliance, audit, and/or AML/CFT functions, of customer, account, and transaction information from branches and subsidiaries when necessary; and (c) adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off.
Insurers should conduct necessary CDD, including enhanced due diligence (“EDD”), if required, on policyholders, beneficiaries, legal heirs, and assignees.
In the event that the insurer forms a suspicion of money laundering or terrorist financing and believes that conducting the CDD will tip-off the customer, they are directed not to pursue the CDD process. Instead, they must promptly file a suspicious transaction report (STR) with the Financial Intelligence Unit – India (FIU-IND).
Insurers should establish ongoing risk management procedures for identifying and applying EDD measures on an on-going basis to Politically Exposed Persons (PEPs) and their close relatives/associates.
Insurers should undertake ML/TF risk assessment prior to the launch or use of products, practices and technologies and take appropriate measures to manage and mitigate the risks.
Insurers should apply EDD measures, proportionate to the risks, to business relationships and transactions with natural and legal persons (including financial institutions) from countries for which this is called for by the Financial Action Task Force (FATF).

Participation in the Account Aggregator Framework as a Financial Information User

IRDAI has in the past issued several directions to insurers participating in the account aggregator framework (“AA Framework”). By way of a circular dated 3 November 2023, the IRDAI has now mandated Financial Information Users (as defined in the ‘Master Direction- Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions, 2016’ (“Master Directions on NBFC-AA”)) (“FIU”)[1] to comply with the technical specifications (Financial Information Type Schemas) published by Reserve Bank Information Technology Private Limited (“ReBIT”), as updated from time to time.

The circular provides that the FIUs shall not use or disclose the Financial Information[2] (as defined in the Master Directions on NBFC-AA) provided by the ‘Financial Information Provider’ (as defined in the Master Directions on NBFC-AA) (“FIP”)[3], except as specified in the consent artefact. FIUs in the insurance sector will now also have to prominently disclose the names of the account aggregators through which the information is obtained on their respective websites.

In addition to these measures, FIUs in the insurance sector are directed to ensure that their account aggregator-related applications are multi-lingual, adhere to specified codes of conduct, establish grievance redressal mechanisms for customers, and maintain compliance with the Insurance Act, 1938, the Insurance Regulatory and Development Act, 1999, along with the associated rules and regulations.

Circular on Discontinuation of filing of certain returns by Insurers and Insurance Brokers

The IRDAI has by way of circular dated 24 November 2023, clarified that pursuant to the notification of the IRDAI (Payment of Commission) Regulations, 2023 (“Payment of Commission Regulations”), the insurers and insurance brokers are not required to furnish the following returns and certificates:

Returns by Insurance Brokers: Returns as per Clause 39(1)(d) of the IRDAI (Insurance Brokers) Regulations, 2018 (“Insurance Brokers Regulations”) with a certificate as per Annexure I-D of the Insurance Brokers Regulations confirming that the insurance broker has received the remuneration for direct insurance business as per the prescribed limits;

Certification by Insurance Brokers: Certificate as per Schedule II – Form W of the Insurance Brokers Regulations endorsed by Principal Officer and CFO (or equivalent), related to the confirmation that the remuneration and other payments received from the insurer are within the specified limits as per Regulation 34(9) of the Insurance Brokers Regulations; and

Certificate by Insurers engaging Insurance Brokers: Certificate as per Schedule II – Form W of the Insurance Brokers Regulations signed by the CEO and CFO of the insurer, separately for each broker, if the remuneration and other payments made to the broker exceed the stipulated limits as per Regulation 34(9) of the Insurance Brokers Regulations.

Exposure Draft on IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2023

The IRDAI has by way of a circular dated 14 November 2023, released the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2023 (“Draft EoM Regulations”). The Draft EoM Regulations, once finalized and notified shall replace IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2023, IRDAI (Expenses of Management of Insurers transacting Life Insurance Business) Regulations, 2023, and IRDAI (Payment of Commission) Regulations, 2023.

The Draft EoM Regulations maintain the proposed limits the expenses of management (“EoM“) to 30% of gross premium written in India for general insurers and 35% of gross premium written in India for standalone health insurers. Additionally, life insurers are limited to allocating no more than 5% of all single premiums received annually for policies offering immediate or deferred annuity towards EoM. Moreover, their spending on group pure risk policies is capped at 10% of total single premiums received during each year.

Also, the allowance for the group fund-based policies would be based on the average of assets under management (“AUM”) of the policies at the beginning and at the end of the financial year. For AUM up to Rs 10,000 crore, the allowable EoM will be 1%, whereas, for amounts more than Rs 10,000 crore, the allowable EoM will be 0.80%.

Exposure Draft on IRDAI (Registration and Operations of Foreign Reinsurers Branches & Lloyd’s India) Regulations, 2024

The IRDAI has, by way of a circular dated 12 December 2023 issued Draft IRDAI (Registration and Operations of Foreign Reinsurers Branches & Lloyd’s India) Regulations, 2024 (“Draft Foreign Reinsurers and Lloyd’s India Regulations”), which consolidate the IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015 and IRDAI (Lloyd’s India) Regulations, 2016.

The salient features of the Draft Foreign Reinsurers and Lloyd’s Regulations include: (i) unification of common provisions applicable to both branch offices of foreign reinsurers other than Lloyd’s and applicable to Lloyd’s India in a single set of regulations; (ii) provisions in relation to amalgamation, merger and acquisition of parent entities of foreign reinsurance branches have been introduced, which, inter alia, provide: (a) a detailed list of the contents of the report to be submitted by the parent of the applicant entities, (b) the requirement for furnishing a notice of an intention to merge or amalgamate within 15 days of submission of the same to the home country regulator of the parent entity, (c) implementation of such amalgamation, merger and acquisition shall be only after final approval of the IRDAI; and (iii) substantive provisions such as eligibility, registrations, procedure for such registrations and the conditions relating to grant of approval have been retained in the Draft Foreign Reinsurers and Lloyd’s India Regulations.

Exposure Drafts for IRDAI (Insurance Products) Regulations, 2023

The IRDAI has by way of a circular dated 12 December 2023 issued Draft IRDAI (Insurance Products) Regulations, 2023 (“Draft Insurance Products Regulations”), which consolidate the following regulations: (i) IRDAI (Micro Insurance) Regulations, 2015; (ii) IRDAI (Minimum Limits for Annuities and other benefits) Regulations, 2015; (iii) IRDAI (Acquisition of Surrender and Paid up values) Regulations, 2015; (iv) IRDAI (Health Insurance) Regulations, 2016; (v) IRDAI (Unit Linked Insurance Products) Regulations, 2019; and (vi) IRDAI (Non-Linked Insurance Products) Regulations, 2019.

The main objective of the Draft Insurance Products Regulations is to facilitate insurers to respond faster to the emerging market needs, promote ease of doing business, improve insurance penetration and protect the policyholders’ interest by enabling insurers to adopt good governance while designing and pricing the products.

[1] Para 3(1)(xii) of the Master Directions on NBFC-AA, a “Financial Information User” means an entity registered with and regulated by any financial sector regulator.

[2] Para 3(1)(ix) of the Master Directions on NBFC-AA, “Financial Information” means information in respect of the following with financial information providers: (a) bank deposits including fixed deposit accounts, savings deposit accounts, recurring deposit accounts and current deposit accounts, (b) Deposits with NBFCs, (c) Structured Investment Product (SIP), (d) Commercial Paper (CP), (e) Certificates of Deposit (CD), (f) Government Securities (Tradable), (g) Equity Shares, (h) Bonds, (i) Debentures, (j) Mutual Fund Units, (k) Exchange Traded Funds, (l) Indian Depository Receipts, (m) CIS (Collective Investment Schemes) units, (n) Alternate Investment Funds (AIF) units, (o) Insurance Policies, (p) Balances under the National Pension System (NPS), (q) Units of Infrastructure Investment Trusts, (r) Units of Real Estate Investment Trusts, (s) Goods and Services Tax (GST) Returns, viz. Form GSTR-1 and Form GSTR-3B, (t) Any other information as may be specified by the Bank for the purposes of these directions, from time to time.

[3] Para 3(1)(xi) of the Master Directions on NBFC-AA, a “Financial Information Provider” means bank, banking company, non-banking financial company, asset management company, depository, depository participant, insurance company, insurance repository, Central Recordkeeping Agency¹, Goods and Services Tax Network (GSTN) and such other entity as may be identified by the Bank for the purposes of these directions, from time to time.

For more information contact:

Shubhangi Pathak
Practice Head – Insurance
shubhangi.pathak@veritaslegal.in

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