The Insurance Regulatory and Development Authority of India (IRDAI) has announced that it will not issue insurance manufacturing licences to VC-backed fintechs. The regulator is instead prioritizing promoter-driven companies with stronger governance and long-term stability.
This move is set to reshape the landscape for India’s growing insurtech sector, where many venture capital-backed startups had pinned their business models on securing licences.
Why No VC-Backed Fintech Insurance Licence?
The IRDAI’s decision comes from multiple concerns:
- Short-Term VC Funding: Venture capital is often seen as short-term, making regulators uneasy about long-term stability.
- Complex Structures: Many startups have offshore holding companies or layered investment models that complicate governance.
- Preference for Promoters: The regulator wants strong promoter ownership, with founders putting in their own capital rather than relying entirely on investors.
In short, the regulator believes that only companies with transparent ownership structures and strong promoter backing can be trusted to manufacture insurance products.
Startups Feeling the Heat
This policy shift impacts several fintech firms:
- Onsurity and Loop Health – Both raised significant VC funding but face stalled applications.
- Kenko Health – Shut down operations after failing to obtain a licence.
- Acko and Digit – Both are exceptions, having secured licences despite VC funding, largely due to strong promoter presence and governance clarity.
What IRDAI Expects Now
To stand a chance at approval, fintechs must:
- Simplify shareholding structures.
- Show significant promoter capital investment.
- Ensure transparency in foreign and domestic ownership.
Essentially, IRDAI wants a clear cap table and long-term skin in the game from founders.
Distribution Over Manufacturing
IRDAI has suggested that VC-backed fintechs should focus on distribution—such as insurance broking and digital sales—rather than manufacturing.
This could reshape India’s insurtech sector, pushing many startups to:
- Pivot towards distribution-first models.
- Partner with traditional insurers.
- Reassess their valuations, which often factored in the possibility of future licences.
Broader Impact on the Market
- Investor Strategy: VC investors may now hesitate to back insurtechs aiming to manufacture policies.
- Startup Pivots: More startups will double down on distribution, embedded insurance, and partnerships.
- Regulatory Clarity: The stance signals that India’s insurance market will prioritize stability over experimentation.
Conclusion
The IRDAI’s refusal to grant VC-backed fintech insurance licences highlights a shift toward governance-first regulation. While startups may see this as a roadblock, it could strengthen India’s insurance sector by ensuring long-term stability and promoter accountability.
