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Insurance Company License

Updated on :  

08 min read.

In order to sell insurance products, one must first obtain an insurance company license from the insurance commissioner of that particular state. The introduction of the Insurance Regulatory Development Authority of India (IRDAI) has brought about significant changes to the insurance sector overall. Moreover, it is the IRDAI that grants the permit for different classes of insurance businesses, including life insurance, fire insurance, and marine insurance. If the selling of insurance business is on an interstate basis, a license is required in every state where the business is carried out.

The registration of insurance company and issuance of insurance company license is regulated under the Insurance Regulatory and Development Authority of India (Registration of Indian Insurance Companies) (Seventh Amendment) Regulation, 2016. 

As per a 2020 report, 57 insurance companies exist in India out of which 24 are in the business of life insurance, whereas the remaining 33 are in the business of insurance other than life insurance.

Eligibility Criteria for Insurance Company License

  • Any company among the prescribed class of companies
    • Any company that is recognised by the IRDAI.
    • Any LLP registered under the LLP Act, 2008.
    • Any company that was an insurance provider before the commencement of the Act, provided only a maximum of 26% of the paid-up capital is allowed to be held by a foreign company.
  • In terms of the incorporation of LLPs, the registered name should contain the words “insurance marketing firm”.

Procedure to Obtain Insurance Company License

In order to initiate the procedure, the person who wishes to set up an insurance business has to first make an application using Form IRDA/R1 accompanied by the necessary documents, including:

  • The certificate of incorporation of the company (Companies Act 2013).
  • Certified copies of the charter documents (Memorandum of Association and Articles of Association).
  • A five-year business plan that has been duly approved by the Board of Directors.
  • Details of all the directors, including their names, addresses and occupation-related details duly verified.
  • Certified copy of the document containing the shareholding agreement between Indian promoters and foreign investors.
  • Certified copy of the Annual Report of the Indian promoters and foreign investors for the preceding five years.

The form IRDA/R1 is submitted for the issuance of the registration application.

If all goes according to plan and if the reviewing authority (IRDAI) finds the initial submission of Form IRDA/R1 satisfactory, the candidate may further apply for the issuance of the registration certificate in Form IRDA/R2.

If this application is made for the business of Life Insurance, General Insurance, or Health Insurance, there must be documentary evidence proving that the paid-up capital of the business is at least Rs.100 crore.

If the application is made for the business of Reinsurance, there must be documentary evidence proving that the paid-up capital of the business is at least Rs.200 crore.

The form will have to be submitted along with the following documents:

  • The affidavit provided by the Indian promoters and foreign investors stating that the paid-up capital available is adequate even after the exclusion of the preliminary expenses.
  • Certified copies of the prospectus.
  • Documentary evidence showing proof of payment of a non-refundable fee of Rs. 5 lakh.
  • Document certifying the compliance of FDI Rules, ensuring that the ceiling on capital held by foreign investments stands at 26% and is being adhered to.
  • Practising Chartered Accountant or Company Secretary certification as required.

The reviewing authority shall grant the certificate of registration to the insurance company in Form IRDA/R3 if it is satisfied with all aspects of the application. However, if it is not satisfied with the application, it shall reject the same, and make known the rejection within 30 days of the order or rejection along with the reasons for the same. Within 30 days of the order of rejection being received by the applicant, he/she may prefer an appeal to the Securities Appellate Tribunal regarding the rejection.

Where the applicant has been granted the certificate of registration, he/she is obligated to commence the business within 12 months of receiving the registration certificate. If the applicant fails to do so, the registration shall stand lapsed. However, if the reason for non-commencement is genuine, the authorities may grant an extension of 12 months to the applicant to do the same.

Non-eligibility of the applicant to file IRDA/R1

An applicant will stand ineligible to file IRDA/R1 if:

  • The application for the request of registration has been rejected by IRDAI.
  • The name of the applicant does not contain the words ‘insurance’ or ‘assurance’.
  • For any reason, foreign investors or Indian promoters have exited the project.
  • A time period of two years has not elapsed since the latest rejection of the application by the authorities.

Frequently Asked Questions

Who is responsible for issuing insurance company licenses?

An insurance company license gives a person the authority to seek and sell insurance in India. The IRDAI is responsible to issue the insurance company license for the purpose of seeking and selling the insurance.

What is a reinsurance company?

A reinsurer is an organisation that gives monetary assurance to insurance agencies. The reinsurers handle hazards that are unreasonably huge for insurance agencies to deal with and make it feasible for backup plans to acquire more business.

Can the IRDAI cancel the insurance license?

Yes. The IRDAI can cancel the insurance license for the following reasons: 

  • The insurer fails to comply with the provisions regarding the excess of the value of its asset over the amount of its liabilities.
  • The insurer is in liquidation or is adjudged as an insolvent
  • The business or a class of the business of the insurer has been transferred to any person or amalgamated with the business of any other insurer without the approval of the IRDAI.
  • The insurer defaults in complying with or acts in contravention of any requirement of the Act, Rules, regulation, direction or order issued by the IRDAI 
  • The insurer carries on any business other than the insurance business.
  • The insurer fails to pay the required annual fee.
  • The insurer is convicted for an offence under any law for the time being in force.
What are the reasons for which the IRDAI license can be rejected?

The applicant can be refused of the registration of an insurance company on the following grounds:

  • Inadequate or improper information.
  • Delay in providing information.
  • Non-fulfilment of capital requirements.
  • Improper conduct of the management.
  • Any other as decided by the Authority (IRDAI).

In case, the application for registration is rejected, the applicant can appeal before the  Securities Appellate Tribunal within 30 days from the date on which a copy of the rejection decision from the Authority is received. 

Should the insurance license be renewed?

Yes. The registration is granted for a period of one year. Thus, it needs to be renewed annually and the application for renewal should be made before 31 December of the preceding year following which the renewal is sought for.