Regulatory scrutiny could affect insurtech and other startup news.

April 15, 2024
1 min read



TLDR:

Regulatory scrutiny on insurtech startups is increasing, with IRDAI imposing strict conditions for insurance manufacturing licences. Startups may need to change their corporate structures to qualify. Fintechs are being encouraged for distribution, while core product building is left to traditional companies. This may impact startups like Loop Health, Onsurity, and Kenko. Insurtechs backed by deep-pocketed promoters are more likely to secure licences. Tech companies may face challenges in meeting the regulator’s criteria.

Article:

Regulatory scrutiny on insurtech startups is on the rise, with the Insurance Regulatory and Development Authority of India (IRDAI) tightening its conditions for granting insurance manufacturing licenses. According to sources, the regulator is concerned about the corporate structures of startups and may not favor granting licenses to those with typical venture-funded models.

IRDAI is pushing for startups to eliminate holding company structures, onboard investors directly into the applying entity, and have founders bring in a significant amount of net worth before applying for a license. This shift in approach means that fintech startups may need to make substantial changes to their current setups to meet IRDAI’s requirements.

Policymakers believe that fintechs are better suited for distribution, while traditional companies are considered more capable of core product building. As a result, startups like Galaxy Health and Narayana Health, with strong backing from industry veterans, have managed to secure health insurance licenses quickly. On the other hand, startups like Loop Health, Onsurity, and Kenko have faced challenges in meeting the regulator’s criteria.

The regulatory landscape for insurtech startups is becoming more stringent, mirroring the increased scrutiny faced by the banking sector. The focus appears to be on promoting companies backed by financially robust promoters who can create sustainable businesses. This shift may pose challenges for tech companies seeking insurance licenses, as regulators prioritize stability and risk management in the industry.


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