Managing Regulatory Oversight in Insurance Technology: A Delicate Dance for New Entities
The insurance technology sector, or insurtech, in India is undergoing a significant transformation due to increased regulatory scrutiny by the Insurance Regulatory and Development Authority of India (IRDAI). This regulatory shift, which gained momentum in 2025, is aimed at fostering innovation within controlled environments, enhancing grievance redressal mechanisms, and strengthening data governance.
The core objectives remain constant: fostering innovation, ensuring public trust, and building sustainable business models. The journey of aligning innovation with regulation is intricate, demanding ongoing dialogue, adaptability, and a deep understanding of both technological potentials and regulatory imperatives.
One of the key regulatory changes introduced by IRDAI is the Regulatory Sandbox Regulations, 2025. This framework allows insurtech firms to pilot innovations while ensuring consumer protection and compliance, fostering a balance between growth and regulatory oversight.
To improve customer grievance management, IRDAI now mandates insurers (with more than three years of operation) to appoint internal insurance ombudsmen who will independently address unresolved claims and complaints up to Rs. 50 lakh. This move enhances transparency and builds consumer trust in the insurance ecosystem.
The "Maintenance of Information by the Regulated Entities and Sharing of Information by the Authority Regulations, 2025" require insurers and insurtech players to maintain secure digital record-keeping and implement robust internal controls. This regulation aims to strengthen data security and audit readiness as digital underwriting and investment-linked insurance products expand.
IRDAI capped premium increases for senior citizens at 10% annually for health insurance products, ensuring greater affordability for vulnerable groups. Regulation now requires consultation before withdrawing senior-specific products or exceeding this cap, reflecting a consumer-centric regulatory stance.
For Unit Linked Insurance Plans (ULIPs), IRDAI aligned product compliance with evolving tax norms by limiting exemption eligibility, impacting product design and customer advisories on insurance taxation—a notable shift influencing insurtech product strategies.
The focus this week is on IRDAI intensifying oversight on insurtech startups seeking an insurance manufacturing license. The regulatory shift could change the future trajectory of insurtech companies, providing opportunities for mature, financially robust entities like Galaxy Health and Narayana Health to lead.
Seasoned industry figures are navigating the regulatory maze successfully. However, the evolving regulatory landscape presents a complex challenge and opportunity for the insurtech sector. Stringent regulations could safeguard the sector against instability and mismanagement, as highlighted by corporate governance issues in startups like BharatPe, Byju's, and Paytm.
These regulatory updates have reshaped the insurtech landscape in India by simultaneously promoting innovation through sandboxes and enforcing stronger consumer protection, transparency, grievance redressal, and data governance standards. This regulatory direction encourages insurtech firms to innovate responsibly, invest in compliant digital infrastructure, and bolster policyholder trust.
In a domain like insurance, where public trust is paramount, this move might signal a more cautious approach towards innovation at the expense of traditional stability. However, the overarching goal remains to ensure technological advancements protect and serve the public interest and maintain sectoral integrity. As we move forward, it will be intriguing to observe how startups and regulators collaborate to shape the future of the insurtech space.
[1] IRDAI (2025). Notification No. IRDAI/Regulation/Regulatory Sandbox/01/2025. [2] IRDAI (2025). Circular No. IRDAI/Regulation/Internal Insurance Ombudsman/01/2025. [3] IRDAI (2025). Notification No. IRDAI/Regulation/Data Governance/01/2025.
- Businesses in the insurance technology sector, led by insurtech startups, are being encouraged to invest in compliant cloud solutions that prioritize data security and consumers' best interests, as per the guidelines set by the "Maintenance of Information by the Regulated Entities and Sharing of Information by the Authority Regulations, 2025" and the Regulatory Sandbox Regulations, 2025.
- To maintain a strong financial footing and remain competitive in the transformed insurtech landscape, firms must foster innovation, ensure regulatory compliance, and demonstrate their commitment to transparency, consumer protection, and grievance redressal, following the regulatory updates and stipulations made by the Insurance Regulatory and Development Authority of India (IRDAI).
