What if life insurerfails? BJP MP demands safety net

By Sohail Khan 1 October 2026, 5:46 pm

Synopsis

In a recent appeal, BJP Rajya Sabha MP Ajeet Madhavrao Gopchade urged Prime Minister Narendra Modi to implement a robust protective system for insurance policyholders. He suggested creating a statutory policyholders' protection scheme as a safeguard against potential insolvencies and bankruptcies among insurers. Drawing from successful international examples, Gopchade recommended comprehensive research into these protective mechanisms.

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Ajeet Madhavrao Gopchade, a Bharatiya Janata Party Member of Parliament in the Rajya Sabha, has asked Prime Minister Narendra Modi to create a statutory protection mechanism for individual insurance policyholders so that if a life insurance company goes bankrupt or faces insolvency, policyholders have protection to fall back on.

In a letter dated September 25, 2026, to the PM, Gopchade has suggested creating a statutory policyholders' protection scheme with separate arrangements for life and long-term and general insurance.

The MP has also suggested creating a mechanism that can ensure the continuity of life insurance policies through the timely transfer of viable portfolios to another insurer. Or in cases, where necessary, to establish an orderly run-off mechanism, supported by appropriate resolution and liquidity arrangements.

“For millions of families, a life insurance policy is not merely a financial product but represents long-term savings, family protection and retirement security; consequently, ensuring continuity of cover and safeguarding legitimate policyholder benefits in the event of insurer failure deserves careful consideration,” Gopchade writes in the letter.

In his letter, the BJP Rajya Sabha MP has also given examples of countries such as the UK, USA, Canada, Australia and Hong Kong to illustrate how they have brought resolutions to protect the rights of insurance policyholders and how the Department of Financial Services can examine their suitability in India’s context.

BJP MP also raised issue in Rajya Sabha in February 2025

Gopchade said that he had also raised the issue regarding ‘safeguarding the investments of policyholders’ in a starred question in the Rajya Sabha on February 11, 2025.

The question sought information regarding the steps taken to safeguard policyholders' investments if a life insurance company faces bankruptcy, whether the government had assessed international regulatory practices, the supervisory role of the Insurance Regulatory and Development Authority (IRDAI) and the regulatory directions and corrective measures issued to life insurance companies during the preceding three years, the MP writes.

What government said in Rajya Sabha

Gopchade said that the government's response highlighted important safeguards already provided under the Insurance Act, 1938, and IRDAI regulations, including the separation of policyholders' and shareholders' funds.

The MP says that the government’s reply also highlighted prescribed solvency requirements, investment norms, regular risk assessment and compliance audits, periodic returns and public disclosures, as well as IRDAI's off-site and on-site supervisory framework.

The response also stated that the applicable controlled level of solvency is presently 150% of the required solvency margin, the MP writes.

What is Gopchade’s concern despite policyholder-related safeguards in place

Gopchade says the important policy question is whether these prudential safeguards should be complemented by a dedicated policyholder protection and orderly-resolution mechanism that would operate if, despite regulatory supervision, an insurer were to become financially distressed or insolvent.

BJP MP highlights global practices for policyholders’ safeguards

Gopchade says a review of international experience demonstrates that several major insurance markets have established dedicated mechanisms, generally described as Policyholders' Protection Schemes, Insurance Guarantee Schemes or Guaranty Associations, to provide an additional layer of protection in the event of insurer failure.

“The comparative material identifies the United States, United Kingdom, Singapore, Australia and Canada among jurisdictions with such arrangements. Common features include insurer-funded mechanisms, defined coverage, differentiated treatment of long-term and general insurance, and the arrangements for the continuation or the transfer of long-term policies,” writes Gopchade in his letter to the PM.

What Gopchade wants government to do for insurance policyholders

Gopchade says the government should consider examining the feasibility of a comprehensive policyholders' protection and insurer resolution framework for India. His suggestions include-

·Establish a statutory policyholders' protection scheme/fund with separate arrangements for life/long-term and general insurance, funded through an appropriate industry levy.

·Ensure the continuity of life insurance policies through the timely transfer of viable portfolios to another insurer or, where necessary, an orderly run-off mechanism, supported by appropriate resolution and liquidity arrangements.

·Strengthen the legal framework for insurer insolvency through early intervention, clearly defined policyholder protection/compensation, and appropriate recovery mechanisms, including a review of the Insurance Act, 1938, and related insolvency provisions.

“I therefore humbly request that the Department of Financial Services, in consultation with the IRDAI and other relevant stakeholders, may kindly undertake a detailed country-wise and legislative study of policyholder protection mechanisms in the United States, United Kingdom, Singapore, Australia, Canada and Hong Kong, and examine their suitability for India,” Gopchade suggests in his letter.