The Insurance Act, 1938, mandates insurers to allocate a portion of their business towards individuals in rural areas, workers in the informal sector, and economically disadvantaged groups.
The Insurance Act, 1938, mandates insurers to allocate a portion of their business towards individuals in rural areas, workers in the informal sector, and economically disadvantaged groups. Additionally, insurers must underwrite a minimum percentage of third-party motor insurance policies, as prescribed under both the Insurance Act and the Motor Vehicles Act, 1988. Previously, these requirements were governed by two separate sets of regulations issued by the Insurance Regulatory and Development Authority of India (IRDAI):
In line with its objective of streamlining insurance regulations and adopting a principle-based approach, IRDAI has consolidated these two frameworks into a unified regulatory structure—the IRDAI (Rural, Social Sector and Motor Third-Party Obligations) Regulations, 2024 (hereinafter referred to as the Consolidated Regulations). The new regulations, introduced on March 20, 2024, were supplemented by a Master Circular issued on May 10, 2024.
After six months of implementation, we examine the key modifications, their impact on insurer obligations, and the broader implications of these changes.
Earlier, the definition of the rural sector was aligned with Census classifications. Under the new regulations, rural areas are defined as those administered by Gram Panchayats, facilitating better governance and last-mile insurance penetration. Insurers are now expected to collaborate closely with Gram Sarpanchs and Gram Sachivs to ensure compliance with rural insurance mandates.
The definition of the social sector has been broadened by revising the classification of the unorganised sector in accordance with the Unorganised Workers Social Security Act, 2008. Notably, enterprises owned by individuals employing fewer than 10 workers are now included. Additionally, the definition of “persons with disability” has been aligned with the Rights of Persons with Disabilities Act, 2016.
A crucial change is the revised interpretation of "lives insured," which now includes both newly insured individuals and those who continue to be insured in subsequent years.
Insurers can now meet their rural and social sector obligations through participation in government social security schemes, even when the government fully or partially covers the premium. Previously, such schemes were excluded unless beneficiaries contributed to the premium. Now, policies issued under schemes like PM Kisan Samman Nidhi Yojana and eShram Cardholder initiatives are considered towards an insurer’s social sector obligations.
Insurers are encouraged to achieve full coverage of gram panchayats by providing insurance for lives, dwellings, shops, and vehicles under life, fire, and motor insurance categories. They will receive incentives for surpassing prescribed minimum obligations, with rewards determined by the regulatory authority.
The Life Insurance Council and the General Insurance Council now play a more active role in ensuring adequate insurance coverage across all states and Union Territories. Additionally, they are responsible for identifying uninsured vehicles in collaboration with the Insurance Information Bureau and state transport authorities to enhance third-party motor insurance compliance.
Individuals from the social sector can now self-certify their employment status using supporting documents (such as photographs), even if they lack formal government-backed identity cards. However, insurers can rely on self-certification for only up to 20% of their total social sector obligations per financial year.
For the first year of implementation (FY 2024-25), obligations under the Consolidated Regulations have been revised as follows:
Insurers must now collectively insure at least 25,000 Gram Panchayats across India. The Life Insurance and General Insurance Councils will allocate specific Panchayats to each insurer to prevent overlap and ensure uniform coverage.
Under the previous framework, obligations were measured based on policy numbers or premium percentages in rural areas. Now, the focus has shifted towards ensuring widespread geographic coverage rather than concentrated compliance in specific rural regions.
Given that India has approximately 2,50,000 Gram Panchayats, the current annual target suggests full coverage could be achieved within the next decade.
The earlier regulations required insurers to fulfill their social sector commitments based on the total business procured in the preceding financial year. Now, they must insure a minimum of 10% of total insured lives under social sector policies.
The Councils are responsible for gathering and sharing data on the social sector population with insurers to facilitate compliance.
Previously, third-party motor insurance obligations were based on a formula considering market share and premium income. The new approach requires insurers to increase their coverage of commercial and agricultural vehicles based on their market share from the previous financial year.
Additionally, all general insurers must underwrite a minimum threshold of:
Unlike before, new insurers underwriting motor insurance are not exempt from these requirements.
The Consolidated Regulations are designed to enhance insurance penetration across India by:
For quick updates follow: click here
To check our Compliances service vist click here
