The Insurance Regulatory and Development Authority of India (IRDAI) has tightened its stance on granting insurance manufacturing licences, limiting access for venture capital-backed fintech firms, according to an Economic Times report. The regulator is focusing on promoter-driven entities and has made it clear that VC-funded startups will face challenges if they seek to enter the insurance manufacturing space.
Citing anonymous sources, the Economic Times reported that IRDAI will not allow start-ups backed by venture capital if they are not promoter-driven to secure insurance manufacturing licenses. The regulator has further emphasised that fintech firms with venture capital backing may participate in distribution but will not be permitted to underwrite products.
An insurance manufacturer is an entity that can underwrite and design insurance products, which places it in the role of an insurer. By contrast, an insurance licence for distribution enables firms to sell and distribute policies created by insurers without taking on underwriting risks. Therefore, this distinction means that fintech startups may still participate in the sector as distributors or brokers, but they will not receive approval to operate as manufacturers of insurance products.
What Are the Concerns Flagged by IRDAI?
The IRDAI has flagged several concerns with venture capital-backed fintech startups seeking insurance manufacturing licences. The regulator has highlighted that the investment structures commonly used by such firms, including convertible instruments and offshore funding routes, obscure the clarity of ownership. Furthermore, anonymous sources told The Economic Times that IRDAI views this lack of transparency as a significant risk when evaluating licence applications.
Additionally, the regulator has expressed reservations about business models that rely heavily on external capital rather than promoter-led ownership. IRDAI considers clear and stable control a priority in the insurance sector, and it regards promoter-driven entities as more suitable for underwriting responsibilities.
As the report notes, these concerns have led the regulator to direct venture capital-funded fintechs towards insurance distribution activities, rather than permitting them to operate as manufacturers of insurance products.
What IRDAI Has Said Earlier
In 2023, only a few firms, such as Acko Life Insurance, Go Digit Life Insurance, and Credit Access received licence approvals, while Onsurity and Loop Health’s applications remained pending. However, last year, the IRDAI tightened norms for fintech firms pursuing insurance manufacturing licences.
In April 2024, IRDAI demanded that applicants eliminate holding-company structures, accept funding directly into the applying entity, and ensure promoters and founders had substantial net worth, preferably backed by a domestic investor. Moreover, IRDAI required liquidation of complex ownership paths, reflecting heightened scrutiny of governance models.
In September 2025, Ajay Seth, a former secretary of the Department of Economic Affairs, was appointed the new IRDAI chairman. However, the latest update signals that IRDAI’s policy on insurance manufacturing licensing for new entrants will continue to remain the same.
Impact on Fintech Start-Ups
India’s insurtech startups encountered a significant regulatory shift following the IRDAI’s narrowing of access to insurance manufacturing licences, particularly for VC-backed fintech firms. Onsurity and Loop Health applied for health insurance licences recently, intending to underwrite policies directly.
However, despite their filings between 2022 and 2023, the regulator withheld approval, citing concerns over opaque ownership structures and reliance on convertible instruments and offshore funding channels. Meanwhile, incumbent new-age players such as Acko and Digit have obtained licences.
Moreover, Paytm General Insurance withdrew its application in May 2024, opting to concentrate on a distribution-only model. This strategic withdrawal reinforced the sector’s growing trend where fintechs pivot to broking and distribution rather than insurance manufacturing.
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Consequently, startups like Onsurity and Loop Health may now face prolonged delays or dead ends in securing underwriting rights. The shift likely compels them to reinvent their strategies by deepening partnerships with licensed insurers or focusing on distribution channels. In contrast, promoter-led firms maintain a clearer regulatory path.
Furthermore, this development reshapes the competitive landscape, favouring companies with straightforward ownership and capital structures, and signalling a new regulatory era in India’s insurance innovation space.
Why This Matters
This regulatory shift from the IRDAI marks a new era for India’s insurtech sector. The decision to limit insurance manufacturing licenses for venture capital-backed fintechs and favour promoter-driven entities reshapes the competitive landscape.
As a result, companies such as Onsurity and Loop Health, which had secured significant funding with the aim of becoming insurers, must now reconsider their business models. Instead of underwriting policies, they may be forced to focus on distribution and brokerage, a trend already seen with Paytm General Insurance withdrawing its application to pursue a distribution-only model.
Furthermore, the IRDAI’s concerns over opaque ownership structures, often linked to convertible instruments and offshore funding, highlight a focus on governance and clear control within the insurance industry. The regulator believes that promoter-led firms offer more stable control, which is a priority for underwriting responsibilities.
This move not only affects the aspirations of many startups but also signals a preference for straightforward ownership and capital structures in India’s future insurance innovation space. Consequently, this new regulatory environment may compel fintechs to pivot their strategies, either by deepening partnerships with licensed insurers or by concentrating on distribution.
Questions for Loop Health & Onsurity
MediaNama has sent the following questions to Loop Health and Onsurity to understand the perspective of VC-backed fintech start-ups looking to become insurers. The copy will be updated when responses are received.
- How has IRDAI’s decision to restrict insurance manufacturing licences for VC-backed fintechs affected your original plans to underwrite policies?
- Given the current regulatory framework, what adjustments have you made or are planning to make in your business model, particularly regarding distribution versus manufacturing in insurance?
- How has the regulator’s stance influenced your funding strategy and discussions with existing or potential investors?
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