Pledge of Shares of an Insurance Company - A discussion on IRDAI clarifications

Introduction

We have in our recent post discussed the clarifications issued by the Insurance Regulatory and Development Authority of India (“IRDAI”)  in relation to Transfer of Shares of an insurance company. These clarifications were notified pursuant to the circular issued to all CMDs and CEOs of insurance and re-insurance companies on July 22, 2020 (“Circular”). However, the Circular also discussed certain critical issues relating to creation of pledge over shares of an insurance company.
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Transfer of Shares of an Insurance Company - The much-needed clarifications

The Insurance Regulatory and Development Authority of India (“IRDAI”) issued a circular (“Circular”) on July 22, 2020 to all CMDs and CEO of insurance and re-insurance companies with a view to bring more clarity on issues relating to the transfer of shares of insurance companies and the creation of pledge over shares of insurance companies Set out below is a brief summary of the clarifications provided by the Circular in relation to transfer of shares of an insurance company:

 A. Clarification on IRDAI’s guidelines for transfer of shares of listed companies
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IRDAI’s Approach to ‘Fit and Proper’ Assessment in light of the Sahara Life Saga

Introduction

An issue of significant relevance to financial regulators world-over is the fitness and propriety of key shareholders of financial entities. The objective of this blog is to analyse IRDAI’s approach to assessment of ‘fit and proper’ status of significant owners of insurers, especially in light of the order passed by the IRDAI in the matter of M/s Sahara India Life Insurance Company Limited (“Sahara Life”) on December 30, 2020 (“IRDAI Order”). Before we delve into IRDAI’s approach in this regard, it is important to trace the chronology of events, leading to the IRDAI Order.
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COVID-19: Absence of Legislative Intervention may impact Commercial Insurance Claims

The onset of the COVID-19 pandemic and the subsequent nationwide lockdown to control its spread has impacted businesses significantly and also led to various entertainment and sporting events being either postponed or cancelled. While one would expect business interruption and event cancellation insurance to cover such losses, such claims are likely to encounter certain issues, which are discussed in this post.

Being Covered under an Insured Peril

Most insurance policies have a list of causes/ events that are covered by the policy. These events/ causes are called insured perils. Only losses/ damages that are caused by insured perils can form the basis of a claim under the said policy. For instance, the policy wording of a standard-form future events insurance covers certain specified losses if any insured event is cancelled due to either (i) loss or damage to the venue due to fire, allied perils, earthquake, flood or cyclone, resulting in cancellation of the event; or (ii) death of current Prime Minister, President of the Republic of India, Chief Minister of the State in which the event is being held, due to which National/ State mourning is declared or any other prominent personality.[1] Claims under such policies are generally triggered when events like sporting tournaments, award functions, etc., are cancelled due to insured perils. It is possible for insurance companies to include epidemic/ pandemic as an insured peril in such policies and charge a higher premium for doing so. For instance, the All England Lawn Tennis Association has been paying a higher premium for the past 15 years for such insurance.[2] In contrast, the cancellation of Indian sporting events like the Indian Premier League are unlikely to have insurance coverage for epidemic/ pandemic since the same are generally not underwritten by insurers in India.[3]
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100% FDI allowed in insurance intermediaries - No more ‘peekaboo’!

The Government of India notified the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2020 (“Non-Debt Rules Second Amendment”) on April 27, 2020, amending the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. With this amendment, foreigners can now look to acquire 100% stake in an insurance intermediary, subject to verification by the Insurance Regulatory and Development Authority of India (IRDAI). This amendment was much awaited by insurance intermediaries[1], which have in the past lobbied to be declassified from the same bracket as insurance companies, in so far as foreign investment was concerned.
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InsurTech Sandbox - IRDAI Releases an Important Update

So far this year,  Indian financial sector regulators have taken steps towards adapting financial sector regulations to encourage the use of new technology. On April 18, 2019, the Reserve Bank of India (RBI) released its Draft Enabling Framework for Regulatory Sandbox for public comments. Following the RBI, the Securities and Exchange Board of India (SEBI) on May 20, 2019, released its Framework for Innovation Sandbox to the public[1].

The Insurance Regulatory & Development Authority of India (IRDAI) has not lagged behind in proposing regulatory changes for encouraging the use of new technology as a part of the insurance sector, especially in the life and health insurance sector. In 2017, the IRDAI initiated discussions intending to refine existing law for allowing the use of telematics in the motor insurance space whilst protecting data and privacy of customers from organisations using telematics. In late 2018, the IRDAI constituted a Working Group (Wearable Technology WG) for considering regulatory reforms for examining innovation in the use of wearable / portable devices in the insurance sector.
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Liberalisation of Foreign Investment in Insurance Brokers - Budget 2019

Around noon on Friday, July 4th, 2019, the Hon’ble Minister of Finance, in her budget speech to the nation, proposed revisions to the existing foreign investment caps applicable to insurance brokers and other insurance intermediaries in order to allow 100% foreign direct investment (“FDI”). This move was long overdue on the government’s part, particularly in relation to insurance brokers. In fact, a proposal for liberalising foreign investment caps for insurance brokers has been on the drafting table of the Government of India for close to two years now. In the past, a number of representations had also been made by market participants to the various departments of the government highlighting the need to differentiate foreign investment norms for insurance brokers and insurance companies, and to not treat insurance brokers in parity with insurance companies, in so far as foreign investment is concerned[1].
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data protection indian insurance regulations

In the first part of this two part series we discussed about the regulatory frameworks governing insurance companies and insurance intermediaries. In this part we will look at the guidelines applicable to both insurance companies and insurance intermediaries which includes cyber security and ecommerce guidelines.

Guidelines Applicable to Both Insurance Companies as well as Insurance Intermediaries

In addition to the previously-mentioned regulations, the IRDAI has also issued certain guidelines pertaining to data security and protection that are applicable to both insurance companies as well as insurance intermediaries. These are the Guidelines on Information and Cyber Security for Insurers[i] (Cyber Security Guidelines) and the Guidelines on Insurance E-Commerce[ii] (E-commerce Guidelines) and have been discussed below.
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 Data Protection in the Indian Insurance Sector – Regulatory Framework Part I

A shift towards digitisation has been the central theme for the insurance industry in recent years. Digitisation lowers the cost of transacting business, helps increase penetration, and brings higher efficiencies. However, the convenience of digitisation brings with it concerns related to data protection.

The Information Technology Act, 2000 (IT Act) and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (SPDI Rules) set out the general framework with respect to data protection in India. However, given the nature of the business of insurance companies and intermediaries, the Insurance Regulatory and Development Authority of India (IRDAI) has prescribed an additional framework for the protection of policyholder information and data, which is required to be followed in addition to the general framework under the IT Act.
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IRDAI clarification Written Mandate under the IRDAI (Insurance Brokers) Regulations, 2018

The Insurance Regulatory and Development Authority of India (IRDAI) notified the IRDAI (Insurance Brokers) Regulations, 2018 (Brokers Regulations) on January 12, 2018, repealing the erstwhile brokers regulations of 2013. This continues what is now considered an eventful financial year for the insurance regulatory space in India.

The Brokers Regulations improved upon the existing framework for the governance and regulation of insurance brokers- who act as significant intermediaries in the insurance sector. IRDAI, under these new Regulations, prescribed that all insurance brokers are required to comply with the code of conduct (Code of Conduct) set out in Schedule I – Form H of the Regulations.
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