For many infractions of insurance regulations, insurtech giant Policybazaar was fined INR 5 Cr by the Insurance Regulatory and Development Authority of India (IRDAI). The infractions pertaining to unclear outsourcing contracts with insurers were also listed in the IRDAI order.
Lack of Transparency in Outsourcing Deals Raises Red Flags
Large quantities of money were paid to Policybazaar by insurance firms for outsourcing services in accordance with the directive, but many of the agreements lacked fundamental details, including the extent of the services and the rationale behind the fees.
Payments were frequently provided on a “per seat” basis, according to the regulator, with no connection to the actual services rendered. According to IRDAI, this called into doubt fairness and transparency. The inadequate state of internal record-keeping was another major worry. It is alleged that the corporation neglected to tag thousands of insurance policies to the authorised verifiers who are in charge of selling them.
Despite repeated demands, Policybazaar was unable to provide call recordings or the required paperwork to verify if the right procedures were followed while selling these products, according to IRDAI.
Additionally, IRDAI discovered that the business had postponed sending the insurance premiums that were collected from clients to the appropriate insurers. Policybazaar’s own payment gateway and nodal account were used to process premium payments, and in a few instances, the funds were not moved within the required 24-hour window.
IRDAI found delays of more than 30 days in a sample set of insurance. According to the regulator, this presents a systemic risk and goes against the fundamental rule that insurers can only take on risk when they have received the entire and on-time premium.
Breakdown of IRDAI’s Charges Against Policybazaar
Five of the charges resulted in warnings, advice, or instructions for corrective action, while the remaining six offences included cash penalties of INR 1 Cr apiece. Policybazaar has been instructed to produce an action taken report within ninety days and to transmit the order to its board at its upcoming meeting.
This follows PB Fintech, the parent company of Policybazaar, reporting a consolidated profit after tax (PAT) of INR 84.7 Cr in Q1 FY26, up 41% from INR 60 Cr in the same quarter last year. The remarkable gain of INR 41.1 Cr throughout the quarter was a major factor in this. In the first quarter of FY26, operating revenue increased 34% year over year to INR 1,348 Cr.
One-Time Mandate (OTM) via the Unified Payments Interface (UPI) is now permitted for insurance businesses by the Insurance Regulatory and Development Authority of India (IRDAI). Policyholders will be able to block money in their bank accounts for particular transactions thanks to this function. According to IRDAI, funds are transferred from the prospect to the insurer only after an insurance policy is issued under the Bima Applications Supported by Blocked Amount (Bima-ASBA) program. With this service, insurers can provide a one-time order to block a specific amount in the concerned prospect’s bank account via UPI. It further said that only if the insurer accepts the request will the money for the insurance premium be deducted. The sum will be unblocked and made accessible to the prospect in the event that the insurer rejects the proposal.
Facility is Open for Both Health and Life Insurance
Insurers are required to provide the facility to both life and health insurance policyholders and have been instructed to provide a proposal form to policyholders via a standard declaration in order to block the amount through UPI. To be included in the request for approval, the Life and General Insurance Councils must both release a standard declaration within a week following IRDAI’s circular. Additionally, the regulator stated that policyholders who choose not to use Bima-ASBA will not have their bids denied.
According to the circular, insurance firms must collaborate with several banks, have suitable procedures and systems in place, and have the required contracts with partner banks. According to the relevant statutes and legislation, this is necessary for the creation of the OTM by UPI exclusively in the insurer’s favour and for the prospect’s verification through a one-time mandate. The OTM has a maximum validity duration of 14 days or until the underwriting decision, whichever comes first.
Amount Blocking Cycle
After 14 days have passed after the funds were first stopped, or within one working day of the proposal form’s non-acceptance date, the sum under Bima-ASBA will automatically be unblocked. The insurer must use the facility to change the mandate with the prospect’s one-time approval or authorisation if the premium to be charged exceeds the banned amount. The insurer will automatically unblock the blocked amount through the partner bank if the application is not processed within 14 days. Customers will have access to this facility by March 1, 2025, at the latest.
The Insurance Regulatory and Development Authority of India (IRDAI) was criticised by Aniruddha Sen, co-founder of the health insurtech startup Kenko Health, which closed its doors in August of this year due to financial difficulties, for allegedly engaging in obstructive practices. Sen attributes the company’s demise primarily to regulatory barriers to obtaining an insurance license.
Sen described a two-year struggle to get an insurance licence from IRDAI, pointing to administrative roadblocks that limited their entrepreneurial ambitions and hindered creativity.
Dhiraj and I spent two years chasing down people at the IRDAI in an attempt to obtain an insurance licence. The chairman began the process by publicly urging companies to come forward, raise money, and submit an application for a licence. Sen said in a LinkedIn post, “We did so against better judgement and hindsight of past experience, only to face an onslaught of obstacles that culminated in the destruction of our company, our employees’ livelihoods, and our collective dreams.”
Officials’ Discouraging Behaviour a Major Cause of the Downfall
According to Sen, a senior finance department official publicly mocked entrepreneurs, saying things that were “discouraging” and “detrimental to India’s startup ecosystem.” One of the officials said during one meeting that we “bring shame to the country,” he disclosed, implying that IRDAI officials thought it was shameful for the private sector to succeed and create money.
He further said that the department’s stance appeared to promote a small number of businesses—government-run firms and businesses owned by wealthy elites—while impeding aspirational entrepreneurs. Sen further asserted that the company was not given clear communication regarding the status of the application and that some regulatory requirements increased the burden. He revealed that we had to convert our Compulsorily Convertible Preference Shares (CCPS) into equity, which resulted in a number of issues, such as bonus share issuance and short-term capital gains taxes from secondary sales.
IRDAI’s Lack of Communication Added More Agony to the Pain
Despite fulfilling required conditions, Sen claims the IRDAI never notified Kenko Health that its application would be rejected. We “don’t fit the profile” of promoters for an Indian financial services company, one of the officials told us categorically. He described the chairman’s behaviour as “dismissive and condescending,” recalling that “he dismissed us, saying that only wealthy, well-connected individuals were suited for such roles.”
In light of other authorities like SEBI and RBI welcoming change, he questioned the IRDAI’s dedication to promoting innovation. He claimed that the insurance industry in particular is still stagnant, rife with antiquated procedures, and managed by people who have no idea what modern consumers need and how technology works.
Sen urges government leaders like Vivek Joshi, who served as Secretary to the Government of India, Department of Financial Services, Ministry of Finance, to address regulatory transparency and startup issues, and he believes that a “special team” should overhaul IRDAI and attract investment. Sen said, “They destroyed my company, my livelihood, and the hopes of everyone involved,” as he ended his post with a request for accountability.
On 24 October, Go Digit General Insurance announced that the Insurance Regulatory and Development Authority of India (IRDAI) had sent it a show-cause notice because its expenses for the six months ended September 2024 were higher than allowed.
According to Go Digit’s Q2FY25 financial results notes, the company’s insurance-related expenses for the six months ending September 30, 2024, exceeded the IRDAI (Expenses of Management, including Commission of Insurers) Regulations, 2024 restrictions. The insurer further stated that it has requested forbearance for three years starting on April 1, 2023, as allowed under the regulations. IRDAI is presently reviewing the application.
Who is IRDAI?
The Insurance Regulatory and Development Authority Act, 1999 (IRDA Act, 1999) established the Insurance Regulatory and Development Authority of India (IRDAI), a legislative agency tasked with overseeing and developing the insurance industry in India.
The Insurance Act of 1938 and the IRDA Act of 1999 both specify the Authority’s duties and authority. The main law regulating the insurance industry in India is the Insurance Act of 1938. It gives IRDAI the authority to create regulations that establish the framework for oversight of the organisations involved in the insurance industry. The duties, powers, and functions of the Authority are outlined in Section 14 of the IRDA Act of 1999.
Protection of policyholders’ interests, rapid and orderly expansion of the insurance sector, prompt resolution of legitimate claims, an efficient grievance redressal system, encouraging equity, openness, and orderly behaviour in insurance-related financial markets, and prudential regulation while maintaining the insurance market’s financial stability are among the main goals of the IRDAI.
Go Digit’s Recent Financial Report Card
In Q2 FY25, premiums for the motor insurance market, which continues to be the biggest contributor to Go Digit‘s overall business, totalled INR 1,354.21 crore, up 10.22% from INR 1,228.65 crore in Q2 FY24. Nonetheless, the motor segment’s underwriting losses increased 17.71% year over year to INR 245.11 crore during the quarter. Relatively smaller markets including fire, marine, health, and crop insurance accounted for the majority of Go Digit’s earnings. After losing INR 32.08 crore during the same period last year, corporate group health insurance turned a profit of INR 24.3 crore during the current quarter.
The business did point out that the financial results for the quarter-in-record (QIR) are not necessarily representative of the predicted success for the entire year due to the industry’s seasonality. Crop insurance, meanwhile, made INR 13.18 crore in Q2 FY25 compared to INR 2.46 crore in the same period last year.
The coronavirus outbreak has affected all aspects of human life in the last two months. The deadly COVID-19 has affected around 3 million people worldwide. Many governments have taken steps such as lockdown to contain the spread of Covid-19. A large number of people have turned towards buying insurance from insurance companies for their safety.
Unsurprisingly, the novel coronavirus has left no sector unaffected. And the financial sector and the insurance industry are no exception. In some cases, insurers have started taking action to protect their businesses that left many consumers in dilemma. While others in the insurance industry are being forced into action for the customers’ benefit by the governments’ emergency responses to the virus.
Policybazaarhas revealed that it has seen a growth of nearly 25-30 percent in both health and life insurance sales during the lockdown period. It also expects a 30-40 percentgrowth can be witnessed in the online insurance segment. Edelweiss Tokio Life Insurance says it has seen a 45 percent jump in new online business logins during this period of restrictions.
At the same time, dissatisfaction among customers has increased as businesses and consumers realize that many basic policies do not cover the impacts of a global pandemic and are publicly expressing their worry. This situation is largely due to customers not fully understanding insurance coverage but also partly due to insurers using legalese and long, complicated terms and conditions.
Many businesses, event managers, and restaurants are claiming their insurance due to losses they are going through. But many firms are unwilling to accept their claim. These people buy insurance based on which policy is the cheapest and such low quality policies rarely cover unexpected or unusual events like global pandemics.
As insurers try to deal with an increased volume of claims and customer queries, they face increasing calls in the press and on social media to help individuals and businesses who suddenly find themselves in serious trouble. It is worsening the situation, resulting in long wait times for responses and further customer dissatisfaction.
What is experts’ take on insurance policies?
Industry experts say that the claim settlement process for covid-19 related cases will remain the same as other illnesses. Apart from hospitalization charges, most health insurance policies will also cover post-hospitalization expenses incurred during the recovery period.
Mayank Bathwal, CEO of Aditya Birla Health Insurance, said, “This is not the first time of a virus outbreak. There have been Ebola, Zika, Nipah in the past, and coronavirus is just another one such outbreak. A health insurance policy covers all types of infections and coronavirus will also be included. Anyone who is hospitalized for 24 hours as a result of coronavirus will get coverage.”
Reliance General Insurance stated, “Since COVID-19 is a new disease and does not come under pre-existing disease, it will be covered under your base policy. Hence, the insured will be provided with all the covers, including in-patient treatment, pre and post hospitalization, and other test and diagnosis on coronavirus related coverage.”
Edelweiss General Insurance said, “We have decided to cover hospitalization for not only those who have a confirmed diagnosis but also those who have been quarantined in specific facilities identified by the government. The coverage amount is up to the sum insured under the policy. For the quarantined patients, the health policy ensures coverage for the entire period of quarantine with up to 100% of the claim amount being paid against quarantine and detection charges.”
A global pandemic is considered as the biggest, unfathomable risk to the insurance industry. Thus, most of the insurance companies seem to have taken little action to deal with such outbreaks. Customers may perceive that these firms are large organisations out for themselves but there are enormous risks to insurance businesses, the scale of which we have rarely seen before.
Insurers and re-insurers are losing out on huge exposure as major events across the globe get cancelled. For instance, Munich Re, a German Reinsurance company, is tied to the Olympic games which has already been postponed. It’s a big dent for a huge firm like Munich Re but is manageable given the coffers of such large scale players in the insurance industry. But for smaller firms that specialize in event insurance and offer communicable disease cover, the ongoing cancellation of events of all sizes might lead to permanent closure.
Due to collapse of individual life and health insurance, life insurance companies could be particularly hard hit by the combination of falling stock markets and increasing claims. Paying out on policies will be a huge loss to both insurers and re-insurers. It’s serious, unprecedented losses we’re talking about here.
Additionally,the failure of many global businesses like the airlines industry (one of the earliest casualties) and hospitality chains is likely to follow. Firms of this size are more likely to have comprehensive cover. So having to pay out on policies that include contagious disease cover will add more to the ongoing burden on the insurance industry.
The pandemic is incredibly serious for the insurance industry. Around $3oo million is expected to be paid out in COVID-19 related claims, the majority of which will be for cancellation cover. This might increase depending on the government’s directives and strategies to cope with the testing times.
IRDAI has asked people to read terms carefully before claiming any Insurance
How insurance companies are dealing with the situation
The Insurance Regulatory and Development Authority of India (IRDAI) had issued guidelines for health insurers asking to accelerate coronavirus related claims settlement in case of hospitalization. IRDAI has already asked health insurance companies to offer medical coverage for coronavirus infection in India. The Life Insurance Council also said the clause of ‘force majeure’ will not apply in case of COVID-19 death claims.
The regulator has also instructed insurance companies to design specific health policies covering the treatment cost of COVID-19 which includes the medical expenses needed during the quarantine period. Some insurers have already introduced the same.
On the other hand, seeing business opportunity amid the spread of the coronavirus pandemic, insurance companies have started offering policies specific to COVID-19 and are partnering with digital payment service providers to increase the sales of such plans.
Bharti AXA General Insurance has tied up with Airtel Payments Bank to launch two health insurance plans. One offers a large amount of Rs 25,000 and another with daily benefits starting at Rs 500 per day to provide protection from COVID-19.
Similarly, in partnership with Bajaj Allianz General Insurance, Flipkart Online Services owned PhonePe launched a coronavirus hospitalization insurance policy called “Corona Care”. The policy is priced at Rs 156 with an insurance cover of Rs 50,000 for a person under 55 years of age, and the cover is applicable at any hospital offering coronavirus treatment.
Other insurance companies like Star Health Insurance and Edelweiss General Insurance have also come up with exclusive insurance policies for COVID-19. In fact, Edelweiss General Insurance has extended hospitalization coverage to quarantined cases that have not even been diagnosed positive.
Some insurers are also offering products to cover expenses, including treatment during quarantine period. The terms of claim settlement by these companies vary and a buyer must read the document carefully before purchasing an insurance plan.
During the dengue outbreak, several insurance companies came up with policies to protect from vector-borne diseases. There are many existing health insurance plans in the market which provide protection from the COVID-19 disease.
In fact, most of these insurance companies offering specific polices for coronavirus are not asking their potential customers to go for medical check up. Instead they are making sure that their consumers do not have coronavirus-like symptoms.
Conclusion
Though some insurance policies don’t have the clause of covering pandemics and epidemics, industry experts believe all companies will have to comply to IRDAI’s strict directive. The regulatory directive is so clear that claims reported under Covid-19 should be reviewed thoroughly before rejecting any claim.
This is a worldwide emergency and any claims related to coronavirus should not be rejected. The policies should not have pandemic exclusion. Moreover, it is advised that policyholders check with their insurers about the terms and conditions of the policy to avoid hassles at the time of making claims.
