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How to start an insurance company in India?

India is among those countries that have very strict laws when it comes to giving out permissions for financial institutions, funds and insurance companies. This is why it becomes crucial for an aspiring insurance-entrepreneur to to understand the insurance related regulations and rules of India.

This is one of those businesses where you have to first think about all the legal requirements and thoroughly analyze every regulation that is there for starting an insurance company. You also need to consult a lawyer or an expert in this aspect.

Here, we are going to tell you about the steps that you need to follow that will answer your question ‘how to start an insurance company in India?’.

Steps to start an insurance company in India

1. Permission from IRDA

The insurance regulatory and development authority (IRDA) is the supreme authority from whom you have to obtain the certificate of authority to become eligible for applying for insurance. The point to be noted here is that you need to have a different certificate for each category of businesses and you can at no point join other businesses with the insurance business. All the entities have to remain separated from this business.

2. Documentation

An entity that wants to apply for an insurance license needs to apply to IRDA through IRDAI and IRDA/R1. This is the first step towards obtaining the insurance license. The documents that you need to furnish for this are-

  • Show proof that you are a valid company under the Companies Act 2013.
  • Details of directors, board members and investors.
  • A five-year business plan that has been approved by the board.
  • Memorandum of Association and Articles of association. Both need to be drafted as per the regulation of the government and IRDA.
  • Physical copy of the partnership agreement between partners/investors/board members. It should be certified, notarized and registered.
  • Annual report of financial accounting of all the members.

3. Application for registration

After the application under IRDA/1, if the authority gives a go-ahead for you to apply for an insurance license, then you have to fill an application under IRDA/2. This is the first formidable step for applying for a license. The previous two are just preliminary steps. They are just preparation for application.

There are many more documents that you will need to produce in front of the authority while completing the application. Recognition of your IRDA/1 is sent to you and then you are given a list of documents and proofs that you need to produce in front of the authority to obtain your license. Some of the prominent ones are-

  • Your capital proofs. The point to be noted here is that there are different thresholds for each category of insurance type when it comes to business capital. For example- You need to have at least ₹100 crores as capital for being eligible for life insurance.
  • Affidavits of Indian and foreign promoters, shareholding percentages, executive positions, letters of appointment, FIPB and FDI regulations completion proof and many other documents.

This is the step where you need to understand that the process can take some time since it is very elaborate. Well, starting an insurance company in India is not easy as it seems.

IRDA owns all the rights regarding the acceptance and rejection of your license. It may reject your application for non-compliance on any grounds. It reserves the right to do so. Their intimidation regarding acceptance or rejection will be communicated to you in 30 days.

4. Commencing your business

If you are able to get your license then the guideline laid down by IRDA says that you have to commence your business within 12 months of obtaining the insurance company license. This is a very strict guideline and is given a lot of importance by the authorities. Several businesses were ineligible to compete and don’t own a license because of non-compliance with this guideline.

Also, even after granting you a license to commence as an insurance company; IRDA can ask you for additional information. It can also conduct a proper inquiry if it wishes to. This isn’t done with the purpose of finding frauds but can be done as a precautionary measure. They cannot leave anything for a chance.

What you need to do is to create a proper plan way beforehand and you should always be in a position to start your insurance business as soon as you get the green light. Also, you need to keep in mind that you cannot start advertising and attaining clients before getting your license. This is a criminal offence that can land the promoters in jail and face fraud charges.

Eligibility criteria

There are proper eligibility criteria laid down by the authorities which have to be adhered to before even applying under IRDA/1. There are multiple grounds on which the application can be rejected in the initial step. You need to properly and thoroughly research the guidelines of the authorities to understand your eligibility.

In order to function, an insurance company is required to obtain a license. The registration and license issuance of an insurance company is regulated under the Insurance Regulatory and Development Authority Regulation, 2016. Following factors standards are used to define the eligibility for an Insurance company license:

  • The company must be recognized by IRDAI.
  • The company must be registered under the LLP Act of 2008.
  • The minimum net worth of the firm must be 10 lakhs [INR].
  • Under the LLP Act, the company registration name must have the words “Insurance Marketing Firm”.

The Bottom Line

With the help of the above points, you can have a basic understanding of how to start an insurance company in India. Some special corporate lawyers just operate in this segment and are highly specialized in making an application. Apart from that the chartered accountants are also trained professionals who are familiar with the guidelines of the IRDA. Consulting with them can also help you acquire better knowledge.
Another thing that needs to be understood as well is that these guidelines keep changing continuously. The above-mentioned steps are not completely exhaustive and are subject to changes and development. The best thing for you is to always be updated through the websites of the authorities and governments.

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