Committee on Regulatory Sandbox for Inviting Applications and Guidelines on Operational Issues pertaining to the Regulatory Sandbox
The Insurance Regulatory and Development Authority of India (“IRDAI“) has vide notification dated 31 March 2023, made the process of filing applications perpetual. The IRDAI has also increased the experimentation period from 6 months to 36 months and included a provision to review rejected applications. A Committee on Regulatory Sandbox has been established with participation from business and academia to screen proposals, assess test design for the hypothesis, and suggest applications for testing.
The IRDAI has also issued guidelines regarding operational issues pertaining to the regulatory sandbox on 31 March 2023. These guidelines on operational issues pertaining to the Regulatory Sandbox lay down the process to be followed for implementing any innovation in the insurance program through regulatory sandbox and, inter alia, provide that any application for innovation has to be filed by the applicant in association with an insurer and the applicant has to demonstrate to the IRDAI that his application will help in increasing insurance penetration or provide enhanced services to policyholders. The applicant also needs to take a prior written consent of the customer, regarding their willingness to willingness to participate in the proposal, despite the outcome being uncertain. The decision of the chairperson of the IRDAI will be final on whether the said proposal is innovative.
The proposal will come to an end if within the given time limit it achieves the parameters prescribed by the IRDAI. An applicant will not offer the services or products post the completion of the experiment period if the necessary amendments to the regulation/guideline/circulars are not in place.
Guidance Note on Board Policy of the Insurer on the Commission Structure
Given the crucial role of insurance agents and intermediaries, the IRDAI has stated that it is imperative to have a clear and transparent board policy on their commission structure to ensure fairness. Thus, via a circular dated 31 March 2023, the IRDAI has issued a guidance note on the board policy of the insurer with respect to the commission structure for intermediaries, wherein the board policy is required to include the following key elements: (i) clear objective and principles that underpin the commission structure, (ii) address fairness and reasonableness, such that the intermediaries are compensated fairly for their work, regardless of their size or bargaining power, (iii) incorporate good distribution practice of intermediaries, (iv) establish a standard review process for the commission structure, (v) outline the governance and oversight mechanism for market conduct, such that the intermediaries adhere to high standards of behaviour and ethical practices, and (vi) regular reporting to the board of directors and senior management on the performance and compliance of the commission structure.
Payment of Commission Regulations
With effect from 1 April 2023, the IRDAI has notified the IRDAI (Payment of Commission) Regulations, 2023.
Every insurer is required to have a written policy for payment of commission that needs to be approved by the board and reviewed periodically. The commission paid under life insurance and general insurance products, including health insurance products cannot exceed their respective ‘Expense of Management’ limits as specified.
Expenses of Management of Insurers Transacting General or Health Insurance Business Regulations
With effect from 1 April 2023, the IRDAI has notified the IRDAI (Expenses of Management of Insurers transacting General or Health Insurance business) Regulations, 2023.
It is mandated that (i) no general insurer shall incur expenses of management of more than 30% and (ii) no health insurer shall incur expenses of management expenses in excess of 35%; of the gross premium written in India in a financial year. An additional allowance of 10% of the gross premium income written outside India will be given to an insurer having their principal place in India with branch offices outside India, or having an international financial service centre (IFSC) insurance office (IIO). If an insurer reports gross direct premium sourced directly from the rural sector, Pradhan Mantri Jan Arogya Yojana (PMJAY), Pradhan Mantri Fasal Bim Yojana (PMFBY) or any such scheme further notified, they will be allowed an additional allowance that will not exceed 15% of the incremental premium over the previous year, sourced from the rural sector, PMJAY, PMFBY, or any other such schemes notified by IRDAI. Additional allowance towards insurtech and insurance awareness will be allowed to the extent of 5% of the allowable expenses of management.
Every insurer also needs to have a board approved policy and a board approved business plan on an annual basis in relation to expenses of management.
At the end of each financial year the insurers have to prepare a return of expenses of management.
Expenses of Management of Insurers Transacting Life Insurance Business Regulations
With effect from 1 April 2023, the IRDAI has notified the IRDAI (Expenses of Management of Insurers transacting life insurance business) Regulations, 2023.
It is mandated that no life insurer shall spend more than (i) the amount of commission paid to insurance agents, intermediaries, or insurance intermediaries in respect of their business transacted in the financial year as permitted by IRDAI, (ii) commission and expenses reimbursed on inward reinsurance and (iii) operating expenses of life insurance business. A detailed categorisation of the cap of expenses of management for different types of amounts has been provided.
An insurer with their principal place of business in India and branch offices outside of India or having an international service centre insurance (IFSC) insurance office (IIO) will receive an additional allowance of 5% of the gross premium income written outside of India, during the year. An additional allowance, not exceeding 15% of the incremental premium over the previous financial year, will be given to an insurer if they report gross direct premium that was obtained directly from the rural sector, the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), or any other further-notified scheme by the IRDAI. Additional funding for insurance awareness and insurtech will be permitted up to 5% of the allowable expenses of management. Every insurer also needs to have a board approved policy and a board approved business plan on an annual basis in relation to expenses of management. Further, at the end of each financial year the insurers have to prepare a return of expenses of management.
Master Circular on Registration of Indian Insurance Company, 2023
The IRDAI (Registration of Indian Insurance Companies) Regulations, 2022 were notified on 8 December 2022 (“Registration Regulations”) with the object of simplifying the process of registration and providing share transfer requirements of Indian insurance companies. On 24 April 2023 IRDAI issued the Master Circular on Registration of Indian Insurance Company 2023 (“Master Circular”) which repealed the IRDAI (Investment by Private Equity Funds in Indian Insurance Companies) Guidelines, 2017, IRDAI (Listed Indian Insurance Companies) Guidelines, 2016, Circular dated 22 July 2020 on ‘Transfer of Shares of the Insurance Companies’ and the Circular dated 27 September 2018 on ‘Details of Equity Holding Pattern of Insurance Companies’ while also introducing various forms under the Registration Regulations and providing certain clarifications. The Master Circular introduced Form IRDAI/R1 (No Objection Certificate), Form IRDAI/R2 (Application for Registration), Form IRDAI/R4 (Issuance of Duplicate Certificate) and Form IRDAI/ToS (Application seeking Approval for Transfer of Shares) and also clarified provisions pertaining to registration of insurer, transfer of shares and lock-in period and directorship.
Exposure Draft on IRDAI (Insurance Advertisements and Disclosure) (First Amendment) Regulations, 2023
Vide draft IRDAI (Insurance Advertisements and Disclosure) (First Amendment) Regulations, 2023 and draft circular on ‘Procedure for approving and maintaining Advertisements’ (“Draft Circular”), the IRDAI has proposed to amend the IRDAI (Insurance Advertisements and Disclosure) Regulations, 2021 in line with the principle-based approach in order to assign higher responsibility on senior management while designing and approving the advertisements for the consumption of the customers. The procedure of approval of advertisements is currently based on the approved ‘File and Use’ applications as well as by compliance with the relevant advertisement regulations and circulars issued by IRDAI. The Draft Circular modifies the existing procedure of filing advertisements. It lays out that each insurer shall form an advertisement committee which will be responsible for reviewing and reporting to the product management committee and further empowers the product management committee to examine, approve and have the final authority to approve or reject advertisements after examining recommendations of the advertisement committee.
Guidelines on Remuneration of Directors and Key Managerial Persons of Insurers
IRDAI has issued the IRDAI (Remuneration of Non-Executive Directors of Insurers) Guidelines, 2023 which provide that Insurers are required to have a remuneration policy for non-executive directors. These guidelines provide the maximum remuneration for each non-executive director, the sitting fees payable to non-executive directors and the age limit and tenure for non-executive directors.
The IRDAI has also issued the IRDAI (Remuneration of Key Managerial Persons of Insurers) Guidelines, 2023 which, inter alia, provide the parameters to be taken into account for determination of performance assessment of KMPs, manner of determining the fixed pay and variable pay, the claw back mechanism and age and tenure of the managing director/chief executive officer/whole time director. Appointment/ reappointment/ modification in remuneration of the managing director/chief executive officer/whole time director requires prior approval of the IRDAI.
Surrogacy Act, 2012 and ART Act, 2021 and the relevant Rules thereunder
Vide circular dated 10 May 2023 on Surrogacy Act, 2012 and Assisted Reproductive Technology Act, 2021 and the relevant rules thereunder (“ART Act“) (“Surrogacy and ART Circular”), reference was drawn by IRDAI to the Surrogacy Act, 2012 and ART Act, wherein all insurers were directed to comply with certain provisions of the said acts with immediate effect and ensure suitable products are made available. Pursuant to this Surrogacy and ART Circular, all insurers are required to provide insurance coverage and design their insurance policies to provide financial protection to surrogate mothers and oocyte doners for the periods prescribed under the said acts and rules. Further, by way of a circular dated 26 June 2023 the IRDAI has also clarified what “insurance” would constitute for the purposes of the Surrogacy Act, 2012 and ART Act.
IRDAI Information and Cyber Security Guidelines, 2023 and Circular on Reporting of Cyber Security Incident
IRDAI guidelines of 7 April 2017 on Information and Cyber Security for Insurers were revised to include applicability of the same to all insurance intermediaries on 2 September 2022. IRDAI Information and Cyber Security Guidelines, 2023 (“Cyber Security Guidelines”) have been revised to enable the insurance industry to strengthen cyber security defenses as well as related governance mechanisms to deal with such emerging cyber threats. All brokers, corporate agents, web aggregators, TPAs, IMFs, Insurance Repositories, ISNPs, Corporate Surveyors, MISPs, CSCs and Insurance Information Bureau of India (IIB) shall adhere to the Cyber Security Guidelines. It has also been clarified that all entities that have completed their security audit for the financial year 2022-2023 shall ensure compliance with the Cyber Security Guidelines from the next financial year.
The Cyber Security Guidelines have mandated regulated entities to report cyber incidents to CERT-In within six hours of the same coming to their notice with a copy to IRDAI and other connected regulators. All entities regulated by the IRDAI are required to submit available details of the cyber security incident to the IRDAI in the prescribed format within 24 hours of intimation of the incident.
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