The Insurance Regulatory and Development Authority of India (IRDAI) has tightened its stance on granting insurance manufacturing licences, limiting access for venture capital-backed fintech firms, according to an Economic Times report. The regulator is focusing on promoter-driven entities and has made it clear that VC-funded startups will face challenges if they seek to enter the insurance manufacturing space.
Citing anonymous sources, the Economic Times reported that IRDAI will not allow start-ups backed by venture capital if they are not promoter-driven to secure insurance manufacturing licenses. The regulator has further emphasised that fintech firms with venture capital backing may participate in distribution but will not be permitted to underwrite products.
An insurance manufacturer is an entity that can underwrite and design insurance products, which places it in the role of an insurer. By contrast, an insurance licence for distribution enables firms to sell and distribute policies created by insurers without taking on underwriting risks. Therefore, this distinction means that fintech startups may still participate in the sector as distributors or brokers, but they will not receive approval to operate as manufacturers of insurance products.
What Are the Concerns Flagged by IRDAI?
The IRDAI has flagged several concerns with venture capital-backed fintech startups seeking insurance manufacturing licences. The regulator has highlighted that the investment structures commonly used by such firms, including convertible instruments and offshore funding routes, obscure the clarity of ownership. Furthermore, anonymous sources told The Economic Times that IRDAI views this lack of transparency as a significant risk when evaluating licence applications.
Additionally, the regulator has expressed reservations about business models that rely heavily on external capital rather than promoter-led ownership. IRDAI considers clear and stable control a priority in the insurance sector, and it regards promoter-driven entities as more suitable for underwriting responsibilities.Â
As the report notes, these concerns have led the regulator to direct venture capital-funded fintechs towards insurance distribution activities, rather than permitting them to operate as manufacturers of insurance products.
What IRDAI Has Said Earlier
In 2023, only a few firms, such as Acko Life Insurance, Go Digit Life Insurance, and Credit Access received licence approvals, while Onsurity and Loop Health’s applications remained pending. However, last year, the IRDAI tightened norms for fintech firms pursuing insurance manufacturing licences.Â
In April 2024, IRDAI demanded that applicants eliminate holding-company structures, accept funding directly into the applying entity, and ensure promoters and founders had substantial net worth, preferably backed by a domestic investor. Moreover, IRDAI required liquidation of complex ownership paths,…
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