Legal Requirements to Set Up an Insurance Company in India

Starting an insurance company in India is a big business decision. The insurance sector is highly regulated because it deals with public money and financial security. If you want to enter this industry, you must understand the legal rules, capital requirements, licenses, and approvals involved.

In this blog, we will explain in simple words the legal requirements to set up an insurance company, including details about an insurance company license, insurance broker license, and Insurance Marketing Firm Registration. We will also explain how Corpbiz can help you with complete legal support.

Introduction to the Insurance Industry in India

Insurance is a business where companies collect premiums from customers and provide financial protection against risks like death, illness, accidents, property damage, and more.

In India, the insurance sector is regulated by the Insurance Regulatory and Development Authority of India (IRDAI). No one can start an insurance company without getting approval from IRDAI.

The main law governing insurance companies is:

Insurance Act, 1938
IRDA Act, 1999
Various IRDAI regulations and guidelines

Types of Insurance Businesses in India

Before starting, you must decide what type of insurance business you want to operate.

1. Life Insurance Company

Provides life cover and savings-based policies.

2. General Insurance Company

Covers health, motor, travel, property, and other non-life risks.

3. Reinsurance Company

Provides insurance to insurance companies.

4. Insurance Intermediaries

Instead of starting a full insurance company, you can start:

Insurance broker (requires insurance broker license)
Insurance marketing firm (requires Insurance Marketing Firm Registration)
Insurance agent
Corporate agent

Each category has different legal requirements and capital needs.

Legal Requirements to Set Up an Insurance Company

Let us understand the step-by-step legal process.

1. Company Incorporation Under Companies Act

The first step is to register a company under the Companies Act, 2013.

Requirements:

Must be a public limited company
Only insurance business allowed (no other business)
Minimum 7 shareholders
At least 3 directors
Fit and proper management

The name of the company must be approved by the Ministry of Corporate Affairs (MCA).

2. Minimum Capital Requirement

One of the biggest legal requirements is capital.

As per IRDAI rules:

Life Insurance Company – ₹100 Crore minimum paid-up capital
General Insurance Company – ₹100 Crore minimum paid-up capital
Reinsurance Company – ₹200 Crore minimum paid-up capital

The capital must be in the form of equity shares only.

Foreign investment is allowed as per current FDI rules (up to 74% subject to conditions).

3. Apply for Insurance Company License from IRDAI

To legally operate, you must obtain an insurance company license from IRDAI.

The process is done in two stages:

Stage 1: Requisition for Registration (R1)

In this stage, you submit:

Business plan (5 years)
Details of promoters
Financial strength proof
Background of directors
Capital details
Infrastructure plan

IRDAI checks whether the promoters are financially strong and trustworthy.

Stage 2: Application for Registration (R2)

If R1 is approved, you apply for final registration:

Submit detailed documentation
Deposit required capital
Submit system readiness proof
Submit reinsurance arrangements
Submit organizational structure

After approval, IRDAI grants the insurance company license.

Without this license, you cannot sell insurance products.

4. Promoter and Director Requirements

IRDAI checks promoters carefully.

Requirements:

Clean financial background
No criminal record
No regulatory violations
Strong net worth
Experience in finance preferred

Directors and Key Management Persons must meet “fit and proper” criteria.

5. Business Plan Approval

You must submit a detailed 5-year business plan including:

Expected premium income
Product strategy
Marketing plan
Risk management strategy
IT systems
Investment strategy

IRDAI reviews the plan carefully before issuing the insurance company license.

6. Infrastructure and Technology Setup

Insurance companies must have:

Registered office
Branch office plan
IT infrastructure
Policy administration system
Customer grievance system
Data security measures

IRDAI may inspect the office before approval.

7. Solvency Margin Requirement

Insurance companies must maintain a solvency margin to ensure financial stability.

This means:

The company must have enough funds to pay claims.
IRDAI monitors financial health regularly.

Failure to maintain solvency can lead to license cancellation.

8. Product Approval from IRDAI

Before selling any insurance product:

The policy must be filed with IRDAI.
Approval must be taken under File and Use guidelines.

Without approval, you cannot launch products.

Insurance Broker License – Legal Requirements

If you do not want to start a full insurance company, you can apply for an insurance broker license.

An insurance broker acts as an intermediary between customers and insurance companies.

Types of Insurance Brokers

Direct Broker
Reinsurance Broker
Composite Broker

Minimum Capital Requirement

Direct Broker – ₹75 Lakhs
Reinsurance Broker – ₹4 Crore
Composite Broker – ₹5 Crore

Key Requirements

Company registration
Qualified principal officer
Training certificate
Professional indemnity insurance
Office infrastructure
Application to IRDAI

An insurance broker license allows you to earn commission without taking underwriting risk.

Insurance Marketing Firm Registration

Another option is starting an Insurance Marketing Firm (IMF).

This is suitable for small businesses and entrepreneurs.

Capital Requirement

Minimum net worth: ₹10 Lakhs

Features

Can sell insurance products of multiple companies
Can sell other financial products like mutual funds
Lower compliance compared to insurance company

To operate legally, you must obtain Insurance Marketing Firm Registration from IRDAI.

This is a good option for startups entering the insurance sector.

Compliance Requirements After License

Getting a license is not the end. Continuous compliance is required.

1. Annual Reporting to IRDAI

Financial statements
Solvency reports
Audit reports

2. Appointment of Key Officers

Appointed Actuary
Compliance Officer
Chief Risk Officer
Internal Auditor

3. Corporate Governance Rules

Board meetings
Risk management committee
Investment committee

4. Investment Regulations

Insurance companies must invest funds as per IRDAI investment norms.

Tax and Other Registrations

Apart from IRDAI license, you also need:

GST Registration
PAN & TAN
Shops and Establishment Registration
Professional Tax (if applicable)
Labor law compliance

Common Challenges in Setting Up an Insurance Company

High capital requirement
Strict IRDAI scrutiny
Long approval process
Continuous compliance burden
Heavy documentation

This is why professional assistance is important.

How Corpbiz Helps in Insurance Company Setup

Corpbiz is a trusted legal and compliance consultancy in India. We provide end-to-end assistance for:

Insurance company license application
Insurance broker license
Insurance Marketing Firm Registration
Company incorporation
IRDAI documentation
Business plan drafting
Compliance management

Our expert team ensures smooth and timely approval with complete legal accuracy.

With Corpbiz, you get:

Expert legal support
Proper documentation
Faster processing
Post-license compliance guidance

Why Professional Guidance is Important

Insurance laws are complex. Even small mistakes can lead to rejection of the application.

Professional consultants:

Prepare correct documents
Handle IRDAI communication
Ensure compliance
Reduce delays
Save time and cost

FAQs – Legal Requirements to Set Up an Insurance Company

1. What is the minimum capital required to start an insurance company in India?

Minimum ₹100 Crore for life or general insurance and ₹200 Crore for reinsurance.

2. Who issues the insurance company license?

The Insurance Regulatory and Development Authority of India (IRDAI).

3. Can a private limited company start an insurance company?

No. It must be a public limited company.

4. What is an insurance broker license?

It is a license issued by IRDAI allowing a company to act as an intermediary between insurers and customers.

5. What is Insurance Marketing Firm Registration?

It is a registration issued by IRDAI allowing small firms to sell insurance and financial products.

6. How long does it take to get an insurance company license?

It may take 6 months to 1 year depending on documentation and approval.

7. Is foreign investment allowed in insurance companies?

Yes, up to 74% FDI is allowed subject to conditions.

8. Can I start insurance business with low capital?

Yes, you can apply for an insurance broker license or Insurance Marketing Firm Registration which requires lower capital.

Conclusion

Setting up an insurance company in India is a highly regulated process. You must follow strict legal procedures, meet capital requirements, and obtain approval from IRDAI.

If you want to avoid heavy capital investment, you can choose alternatives like:

Insurance broker license
Insurance Marketing Firm Registration

Understanding the legal requirements is the first step toward building a successful insurance business.

With expert support from Corpbiz, you can complete the process smoothly and legally. Whether you want to start a full insurance company or apply for an insurance broker license, professional guidance makes the journey easier and faster.

Author Profile

Atul Shukla
Legal Consultant & Compliance Expert

Atul Shukla is a legal and regulatory expert associated with Corpbiz. He specializes in financial regulatory approvals, insurance licensing, NBFC registration, and corporate compliance advisory. With years of experience in handling IRDAI registrations and complex regulatory processes, he helps businesses establish legally strong foundations in the financial sector.