Irdai may introduce new rules for consolidated insurance investments

The Insurance Regulatory and Development Authority of India (Irdai) has been granted enhanced flexibility in regulating insurers’ investment activities following recent amendments to the Insurance Act. The legislative changes consolidate multiple investment-related provisions into a single, streamlined section, while operational specifics are now delegated to regulations issued by the regulator.

Sections 27A, 27B, 27C, and 27D of the Act have been merged into a unified Section 27, significantly simplifying the statutory framework governing insurers’ investments. Under the revised framework, investments in central and state government securities will continue to be governed directly by the Act. All other investment categories and operational parameters will now be defined and updated through regulatory notifications, enabling faster adaptation to market developments.

The amendments also clarify that the existing prohibition on creating encumbrances or charges on assets backing policyholders’ liabilities does not apply to repo, reverse repo, and securities lending transactions. This provides insurers with greater operational flexibility in managing liquidity. Additionally, the Act has removed the blanket ban on investments in private limited companies, thereby expanding the universe of permissible investments, albeit with appropriate regulatory safeguards in place.

A senior insurance industry executive commented:
“Previously, many investment requirements were hard-coded in the Act. Now, apart from government securities, the framework is largely regulation-driven. This allows Irdai to respond more swiftly to market changes without needing frequent amendments to legislation.”

The size of the insurance sector’s Assets Under Management (AUM) reached ₹74.4 lakh crore as of 31 March 2025. According to a report by the Reserve Bank of India (RBI) released this Wednesday, insurers continue to maintain a heavy allocation in sovereign debt. While this approach ensures safety, the RBI noted that such a conservative asset mix can make it challenging to consistently deliver policyholders’ expected returns. Consequently, long-term insurance savings may appear less attractive compared with alternative investment products offering higher risk-adjusted returns.

The table below summarises the key investment regulations under the revised framework:

With these changes, Irdai is poised to play a more proactive role in shaping insurers’ investment strategies, striking a balance between risk management, policyholder protection, and market responsiveness.