corporate law

Amendments to the Insurance Act for Special Economic Zones and IFSCs Explained

Introduction

The Ministry of Finance has issued a notification regarding significant amendments to the Insurance Act, 1938, specifically concerning Special Economic Zones (SEZ) and International Financial Services Centres (IFSC). This notification supersedes earlier communications and outlines the sections of the Act that are exempt, those that remain applicable, and the modifications to their application.

Key Provisions

Exemptions in Special Economic Zones

Pursuant to the authority granted by section 2CA of the Insurance Act, the following sections are exempt for insurers—including Indian Insurance Companies, insurance cooperative societies, and other corporate entities involved in insurance operations—within a Special Economic Zone as defined by the Special Economic Zones Act, 2005:

  • Sections 29
  • Sections 32B, 32C, 32D
  • Sections 64C through 64H, 64J through 64O, and Section 64R
  • Sub-section (2) of section 64 ULA
  • Sections 101A, 101B, 105B, 110F, 118, and 120

These exemptions are designed to minimize regulatory overlap, for instance, the exemption under Section 101A helps avoid conflicting reinsurance requirements. However, insurers in SEZs must adhere to the corporate governance and risk management standards laid out by the Insurance Regulatory and Development Authority of India (IRDAI).

Applicable Provisions with Adaptations in International Financial Services Centre

The following sections of the Insurance Act will apply to insurers operating within an International Financial Services Centre, subject to the adaptations listed below:

  1. Section 2A Adaptation:

    • The term "defined in" now includes references to "the International Financial Services Centres Authority Act, 2019."

  2. Investment of Assets (Section 27):

    • Modified to state:
      • Insurers must allocate assets equal to or exceeding the value of their liabilities.
      • A maximum of 5% of these assets may be invested in companies controlled by promoters, under certain conditions.
      • All investments must be unencumbered and comply with the Authority’s regulations.

  3. Definition and Clarifications:

    • Liabilities pertain to the net liabilities of policyholders within the IFSC.
    • "Owned" indicates a holding of over 50% of paid-up share capital.
    • "Controlled" signifies the capacity to appoint or influence management decisions.
    • The term Promoter covers a range of roles and authorities across different operational contexts.

  4. Risk Assumption and Premium Payments (Section 64VB):

    • Insurers are prohibited from assuming risks unless:
      • The premium is collected, guaranteed, or pre-deposited.
    • Refunds to insured parties must be executed via secure methods as outlined.

  5. Investment Regulations (Section 114A):

    • Investment conditions must comply with new sub-clauses that specify time frames, acceptable premium payment methods, and refund processes.

Conclusion

This article clarifies the regulatory framework for insurers in Special Economic Zones and International Financial Services Centres, promoting compliance while enhancing growth and investment in these vital economic areas. The aim is to establish a strong regulatory environment conducive to developing the insurance sector in designated regions.