Foreign investors will bite the bait that the Modi government has cast by permitting 100 per cent FDI in the insurance sector only when it trims the weighty burden of compliance.

Just how bad is it?

A study by TeamLease Regtech reveals that a typical single-entity insurance company with a corporate office in a single state needs to deal with around 2,236 unique compliances.

The certifications and other paperwork covers a wide swathe that stem from labour laws, finance and tax laws, secretarial laws, environment, health and safety laws, state-specific legislations, and industry specific laws.

That burden can easily sap the enthusiasm to invest in India’s insurance sector where profitability margins remain wafer thin.

One of the most daunting tasks for any investor is the compliance with the industry-specific laws framed by the insurance regulator IRDAI itself. There are about 1949 unique obligations under 146 regulations/circulars, including obligations to maintain accurate and comprehensive records, corporate governance, risk management, retention of communications, grievances and claims of policyholders for a period of five years, and the rigour of “investing in a prescribed manner”.

The annual obligations go up to 4,638 once the frequency of compliances is factored in.

“Every new entrant has to obtain around 38 certificates, licences, permissions, and approvals at various stages of business from central and state authorities. A single window clearance system would allow insurers and intermediaries to obtain all necessary approvals through one streamlined process. This would drastically reduce waiting times,” the report said.

“For example, instead of applying separately for product approval and FDI clearance, an insurer could submit a single application and get all necessary permits quickly, speeding up market entry or expansion,” the report said.

“There were 294 regulatory updates that affected the insurance industry in the last financial year (FY23-24). The IRDAI alone released 77 notifications, circulars, guidelines, orders, notices, and exposure drafts. A centralized digital repository for all circulars, regulations, and compliance templates would make it easier for insurers to access up-to-date information,” the report said.

“The government’s allowance of 100 per cent foreign direct investment in the insurance sector would further accelerate growth, attracting significant foreign capital and boosting innovation. However, it is crucial to understand the complexities of compliance management that companies face in this space. Insurers operate within an exceptionally complex compliance framework, with a typical general insurer managing over 4,500 regulatory obligations annually, including critical requirements on solvency margins, anti-money laundering, and policyholder protection,” said Sandeep Agrawal, co-founder and director, TeamLease Regtech.