The motor insurance market in India is projected to grow at a CAGR of 10.25% in the next 5 years, to reach a total market cap of 19.46bn$ by 2029. While the market size presents a great opportunity for startups, we also need to carefully look and understand the motor insurance regulations in India that govern the sector.
The IRDAI has laid down regulations around licensing, distribution, product tariffs, pricing for the motor insurance sector in India. Let’s look at them one by one below:
Types of Licenses
There are 2 major kinds of licenses granted by the IRDAI: one is a carrier or an insurance manufacturing license, the other is a distribution license.
Carrier or Insurance Manufacturing license
- allows the licensee to underwrite the risk of the insurance product/ manufacture/create the insurance product. The product so designed by the Carrier is distributed either through its own channels (app, website, agents) or through intermediaries
- the applicant will need a general insurance license to manufacture & sell motor insurance. The approvals are not easy to come by though. We only have 34 general insurance manufacturers in India (out of a total of 58 insurers), compared to 237 insurance manufacturers in China!
- the last general insurance manufacturing license was issued to a specialised insurer in 2022 – Kshema
- a tentative list of application requirements is given below:
- minimum paid up capital raised: 13mn$ (100Cr INR)
- net owned funds: 600mn$ (5000Cr INR)
- application process is in 2 stages: R1 & R2, with requirements as to promoter shareholding, equity structure, corporate governance, solvency etc. The complete process with forms is available under the IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations, 2024
Intermediaries/ Distribution License
There are multiple types of insurance distribution licenses. The capital requirement is much lower, and hence the compliances as well are relaxed as compared to a manufacturing licenses. The intermediaries with the distribution license enter into a written agreement with the Insurer, to distribute its products, through intermediaries own app, website, personnel or POSPs (examples, Policybazaar).
The major kinds of arrangements seen in motor insurance segment are:
- Brokers license, a breakdown is provided here – the licensing requirements make it a little onerous and time-taking to obtain as a first-go for entities. Also, please note that brokers license requires you to exclusively carry on business of insurance broking, meaning as a fintech with any kind of RBI registration (banks, NBFCs, PGs), you will not be able to get a broking registration for the same entity.
- Web Aggregators license, requirements are similar to that of brokers license, however the distribution of insurance is restricted to online mode only. (Policybazaar was a web aggregator before it obtained a license for broking business)
- Corporate agency (CA) license, every bank/NBFC selling insurance has a CA license. Its easier to obtain as the regulations permit you to carry on distribution of insurance as an ancillary activity to your principal business (that is banking, payment gateways etc). However, the license is restrictive in case you want to grow bigger as a distributor
FDI in Motor Insurance
- Insurance Companies/Carriers/Manufacturers: 74% (increased from 49% in 2015)
- Insurance intermediaries/brokers/CAs: 100%
FDI was first permitted in insurance sector in 2001, with the maximum shareholding of 26%. Almost all insurers in India were incorporated as a JV between the foreign insurer and an Indian party (ICICI Lombard, Max Bupa, PNB Metlife, ICICI Prudential etc)
Note: Foreign investment in India’s insurance sector presents a lucrative opportunity for investors, and foreign (re)insurers. Capital infusion, technology transfer, and product innovation are key drivers of growth and expansion in this dynamic market. Foreign insurers are in process of investing/increasing their stake in General Insurers in India.
Conclusion
The motor insurance market in India presents a lucrative opportunity for investors and foreign insurers. Understanding the regulatory framework and licensing requirements is crucial for success. With the right approach, companies can capitalize on this growing market and drive growth and expansion.
