With the misery caused by COVID-19, many families are becoming cautious of their health and also looking at mediums to insure their assets. This has led to a surge in the insurance sector. Many new NBFCs with healthy capital are looking to enter the insurance sector through insurance company registration process to take advantage of this booming sector.
Non-Banking Financial Companies (NBFCs) have been trying to enter the markets of insurance business for a long time. In 2000, the Central Bank of Indian Government, i.e. RBI gave a green light to them and the NBFCs since then are operating in the Insurance sector. However, they still have not got permission to work as an independent sector. They have to strictly adhere to the guidelines laid down by the Reserve Bank of India (“RBI”). The guidelines have been issued under Circular DNBS (PD)CC No.13/02.01/99-2000 dated June 30, 2000.
In this blog, we are going to understand the criteria which the NBFCs have to fulfil to enter the markets of the insurance business.
Guidelines Laid down in the Circular
The NBFCs need prior approval of the Insurance Regulatory and Development Authority of India (“IRDAI”) and RBI to enter the business of insurance.
Eligibility Criteria to act as Insurance Agent
Eligibility Criteria to set up Joint Venture (“JV”)
Fulfilling the criteria below will allow the NBFCs to set up a joint venture company for undertaking insurance business with risk participation.
Note: The NBFC is allowed to contribute to the maximum of 50% capital in the JV. The RBI, on a selective basis, may allow an NBFC to go beyond 50%.
Is Legal Help Needed?
The RBI is trying to incorporate as many NBFCs to enter the markets of insurance. If the NBFCs are not big enough, they can still enter the market by acting as agents to the insurance companies. This allows the relatively smaller NBFCs to enter the market risk-free. This protects the smaller NBFCs while at the same time allow them to operate in the insurance markets. On the other hand, the larger NBFCs have pockets deep enough to take such risks and thus, they are allowed to set up JV undertaking insurance business. The RBI here also tries to protect them by limiting the cap of their investment.
All these reasons should prompt any newcomer in the NBFC sector to move towards the insurance sector to take advantage of the booming growth. Therefore, many new companies are looking for ways to start their business through NBFC registration. The process of getting an NBFC license is a bit complex and would require experts to deal with it. Hence, most new ventures are preferring to partner with legal firms who can help them in the process of NBFC registration and subsequently entering into the insurance sector in future. Collaborating with legal firms for new company registration is preferred by an entrepreneur as it saves time and makes the whole process hasslefree.