Insurance Company License: A Detailed Guide
- Bhavika Rajput
- 2 hours ago
- 8 min read
Obtaining an insurance firm license from the state's insurance commissioner is a prerequisite for selling insurance products. The entire insurance industry has changed significantly with the establishment of the Insurance Regulatory Development Authority of India (IRDAI). Furthermore, permits for several insurance company classes, including life, fire, and marine insurance, are granted by the IRDAI. A license is needed in each state where the insurance business is conducted if it is sold across state lines. The Insurance Regulation and Development Authority of India (Registration of Indian Insurance Companies) (Seventh Amendment) Regulation, 2016, governs the registration of insurance companies and the granting of insurance company licenses. According to a 2020 report, there are 57 insurance companies in India, 24 of which specialise in life insurance, while the other 33 offer other types of insurance. In this guide, we will explain the process of obtaining insurance company license in India in detail.
Table of Contents
What is IRDA in Insurance?
The highest body in charge of monitoring and controlling the insurance sector in India is the Insurance Regulatory and Development Authority of India, or IRDAI. Numerous regulations addressing the operation and functioning of the insurance industry have been implemented by the IRDA Act. This act formed the regulator for the insurance sector in India in 1999. These provisions and rules are listed in Section 114A of the 1938 Insurance Act. Companies were permitted to invest up to 26% of their capital in the market when the IRDA accepted registration requests in August 2000. The IRDA alerts insurance companies to changes in laws and regulations. The Insurance Regulatory Authority of India oversees and regulates life and general insurance companies operating in India.
Scope of IRDA
The Insurance Regulatory and Development Authority of India (IRDAI), a central organisation, oversees the insurance industry in India. The organisation also keeps an eye on the regulations governing the insurance sector in India. A proper balance between insurance companies and policyholders is guaranteed by this oversight organisation. Having an insurance license is essential because your company will deal with financial products. Insurance contracts guarantee the policyholder's financial stability in the case of a specific occurrence. As a result, these locations are usually restricted. Therefore, an IRDA license is necessary prior to launching an insurance business.
The steps involved in applying for an insurance license from IRDA
Getting insurance products approved by IRDA
Selecting an insurance intermediary.
Eligibility Criteria for Insurance Company License
Any company that falls under the specified category of companies
Any business that has IRDAI recognition.
Any LLP that is registered under the 2008 LLP Act.
Any business that offered insurance before the Act's implementation, as long as a foreign entity only owns a maximum of 26% of the paid-up capital.
The phrase "insurance marketing firm" shall appear in the registered name of LLPs upon incorporation.
Non-eligibility to File IRDA/R1
An applicant will not be permitted to submit an IRDA/R1 if
IRDAI has denied the application for the registration request.
The terms "assurance" and "insurance" are not present in the applicant's name.
Indian promoters or international investors have left the project for any reason.
Two years have not passed since the authorities' most recent denial of the application.
Documentation Required to Obtain an Insurance Company License
Those who wish to open an insurance business must first apply using Form IRDA/R1 and the necessary documentation, which consists of:
The business's certificate of incorporation (Companies Act 2013).
Certified copies of the articles of association and memorandum of association, which are the charter documents.
A properly approved five-year business plan from the Board of Directors.
All directors' information, including names, residences, and properly validated information on their occupations.
A certified copy of the agreement between foreign investors and Indian promoters regarding shareholding.
An official copy of the Indian promoters' and foreign investors' annual reports for the previous five years.
Steps to Obtain an Insurance Company License
Step 1: After the IRDA/R1 form is submitted, the registration application is released.
Step 2: The candidate may then request the issuing of the registration certificate in Form IRDA/R2, if everything proceeds as planned and the reviewing authority (IRDAI) deems the first submission of Form IRDA/R1 satisfactory.
Documentary proof demonstrating that the business's paid-up capital is at least Rs. 100 crore is required if the application is for a life, general, or health insurance business.
Documentary proof that the company's paid-up capital is at least Rs. 200 crore is required if the application is for a reinsurance business.
Step 3: The form itself needs to be submitted with the following documents:
The declaration made by the international investors and Indian promoters is that the paid-up capital available is sufficient even after the initial costs are subtracted.
Prospectus copies that have been certified.
Documentation attesting to the payment of a Rs. 5 lakh non-refundable fee.
A document attesting to the FDI Rules' compliance, which confirms that the 26% cap on capital owned by foreign investments is being met.
Holding the necessary accreditation as a company secretary or practicing chartered accountant.
Step 4: If the examining body is pleased with every part of the application, it will issue the insurance firm a certificate of registration in Form IRDA/R3. It will, however, reject the application if it is not satisfied and notify the applicant of the decision within 30 days of the order or rejection, along with the grounds for the denial. The applicant has 30 days from the date of receipt of the judgment of rejection to file an appeal with the Securities Appellate Tribunal.
The applicant must start their business within a year of obtaining the certificate of registration, assuming they have been given one. The registration will be considered lapsed if the applicant doesn't comply. However, if the applicant has a legitimate cause for not starting, the authorities may give them a 12-month delay to start.
Renewal of the IRDA Insurance Company License in India
Form IRDA/R5 is used by applicants who hold insurance licenses to submit their applications. You have till the end of the year to submit this application. A renewal application must include the following documents as proof of renewal:
Each type of insurance costs Rs. 50,000.
Rs 5 crore, or one-fifth of one percent of the total gross premiums collected by the insurance company in the fiscal year before the year the certificate needs to be renewed.
You can also choose Rs 5 crore, whichever is smaller.
Failure to renew before December 31 of each year will result in the application being accepted by the authority. However, if the applicant fails to make payments on time, they will be penalised 10% of the total amount due. The charge will be credited to the Insurance Regulatory and Development Authority of India's account with the Reserve Bank of India. A duplicate certificate-The insurance company may also ask the IRDAI for a duplicate certificate. The applicant must submit an IRDA/R4 application along with a Rs 5000 application fee.
Suspension of Certificate of Insurance Company License
The following list includes some of the behaviours that could lead to the suspension of the insurance company's license certificate:
Inability to adhere to the plans for the tasks involved in determining the benefits and liabilities.
The insurance is in liquidation or has been declared wiped out.
The Guarantor's firm or a portion of it has been transferred to another individual, transferred to another safety net provider, or merged with it without the Authority's approval.
The Guarantor's company has not complied with the requirements of an Act, a rule or regulation, or an authority directive or order.
Any case that is not paid for more than three months after the court's decision.
The insurer transmits business that is not related to insurance or counselled.
The failure to give your consent as mandated by the Prevention of Money Laundering Act of 2002, the Companies Act of 2013, the General Insurance Business Act of 1972, or the Foreign Exchange Management Act of 1999.
Unable to fulfil the Act's annual payment requirements.
Conclusion
Licensing an insurance company is a complicated process that takes into account operational, financial, and regulatory aspects. Regulatory oversight and compliance are essential for safeguarding policyholder interests, maintaining market stability, and fostering trust in the insurance industry. Insurers must prioritise integrity, transparency, and consumer protection in order to thrive in a competitive and regulated market while juggling the intricacies of licensing requirements and meeting evolving regulatory standards.
Frequently Asked Questions
What is an insurance company license?
A license from an insurance company gives one the authority to search for and offer insurance products. Obtaining a license to solicit and sell insurance is the responsibility of the state insurance commissioner.
Who is responsible for issuing insurance company licenses?
The ability to purchase and sell insurance in India is granted by an insurance business license. The IRDAI is in charge of granting licenses to insurance companies so they can look for and sell insurance.
What is required to open an insurance company?
A new business must have a minimum paid-up capital of Rs. 100 crores before it may be formed if it plans to function as an insurance provider. If the business is reinsurance, it must have Rs. 200 crores in paid-up capital.
Can I start an insurance company in India?
To issue a demand for the registration application, a candidate wishing to license an insurance company must submit an application to the IRDAI in the form IRDAI/R1.
What is the duration of the insurance license?
Legality of the Certificate of Registration for Insurance Brokers. A certificate granted by the IRDA is
valid for three years after it is issued.
What is an IRDA qualification?
The IRDA exam requires candidates to have a bachelor's degree, meaning they must have completed graduation with at least 60% of the possible points. Exam Age Limit for IRDA: Candidates must be at least 21 years old to sit for the IRDA exam for the position of assistant manager, and they must be at least 30 years old.
Which insurance license makes the most money?
Life insurance salespeople make the most money in the insurance industry. This is even though there are many different types of insurance, from health insurance to auto insurance.
What is a reinsurance company?
An entity that provides insurance providers with financial certainty is known as a reinsurer. Reinsurers manage risks too big for insurance firms to handle, allowing backup plans to expand their clientele.
Should the insurance license be renewed?
Yes. A one-year timeframe is allotted for registration. As a result, it must be renewed every year, and the application must be submitted by December 31 of the year prior to the renewal being requested.
Can the IRDAI cancel the insurance license?
Yes. The following circumstances provide the IRDAI the authority to revoke an insurance license:
The insurer disregards the clause stating that the value of its assets exceeds the amount of its liabilities.
The insurance is either in liquidation or has been deemed insolvent.
The insurer fails to comply with or violates any requirement of the Act, Rules, regulation, direction, or order issued by the IRDAI.
The insurer's business, or a class of its business, has been transferred to a third party or combined with the business of another insurer without the IRDAI's approval.
The insurer does not pay the required yearly fee.
The insurer engages in any business other than the insurance business.
The insurer has been convicted of breaking any laws that are now in effect.
What are the reasons for the potential rejection of the IRDAI license?
The following reasons may result in the applicant's insurance company registration being denied:
Inaccurate or inadequate information.
A delay in information delivery.
Failure to meet capital needs.
Inappropriate management behaviour.
Anything else that the Authority (IRDAI) decides.
The applicant has 30 days from the date they get a copy of the Authority's decision to reject their registration application to file an appeal with the Securities Appellate Tribunal.
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