Go Digit Insurance Questions New IRDAI Rules Amid Desire for Public Listing

• ByStartupStory     |    April 20, 2023

Insurtech firm Go Digit has reportedly written a letter to the Insurance Regulatory and Development Authority (IRDAI), seeking clarity on new insurance rules that may impact its planned IPO. The rules include an extended lock-in period for stakeholders, potentially posing challenges for Go Digit Insurance’s promoters and stock option holders. According to sources, these new regulations could complicate the company’s market debut. The insurtech giant’s move highlights the impact of regulatory changes on companies and their stakeholders, especially those planning to go public.

Go Digit Insurance has reportedly raised concerns over new insurance regulations that may impact its planned IPO. These rules could impose a two-year “staggered lock-in” period on existing investors in the event of a major change in a company’s capital structure, potentially complicating Go Digit Insurance’s IPO plans. While the previous regulations did not have such requirements, the insurtech firm argues that it should be exempt from the new criteria since it received approval from the IRDAI before the rules were notified. It’s worth noting that the Fairfax-backed startup received the IRDAI’s approval to go public in November 2021, prior to the new regulations coming into effect in December of the same year. The case highlights how regulatory changes can impact companies and their stakeholders, particularly those planning to go public.

According to sources, insurtech giant Go Digit has sought clarity from the Insurance Regulatory and Development Authority (IRDAI) on new insurance rules that could pose challenges for its stakeholders if it goes ahead with its planned IPO. The rules require existing investors to adhere to a two-year long ‘staggered lock-in’ period in case there is a major change in the company’s capital structure. However, Go Digit Insurance believes that it is exempt from the new criteria since it received IRDAI nod prior to the notification of the new norms. The insurtech giant is yet to receive any clarification from regulatory authorities, which is also bogging down the IPO plans of at least three other insurance companies. There are concerns over the new rules owing to the hectic capital market activities undertaken by multiple insurance companies last year.

The absence of a grandfathering clause in the new insurance rules of December 2022 has caused a stir, as it has affected ongoing IPO transactions of insurance firms. The lack of exemption for old transactions and the absence of such rules may have prompted Go Digit Insurance to seek clarity from regulatory authorities. The new rules aim to prevent misuse by raising the threshold for promoters to those who own a 25% stake in a company, compared to the previous 10%. The increased lock-in requirements were introduced to balance this relaxation and prevent any misuse. The industry expects a clarification soon from the regulator.

Go Digit Insurance’s IPO plans have encountered another obstacle, as the Securities and Exchange Board of India (SEBI) put its IPO on hold and returned the offer documents earlier this year. Although it received approval from the IRDAI for a public listing in November 2022, the process was delayed. Following extensive negotiations, the company has resolved all issues in its draft red herring prospectus (DRHP) and resubmitted the documents earlier this month.

Go Digit Insurance has filed a Draft Red Herring Prospectus (DRHP) that outlines its proposed Initial Public Offering (IPO), including a fresh issue worth INR 1,250 crore and an offer for sale (OFS) component of 10.94 crore equity shares. The funds raised from the IPO will be used to expand the startup’s operations and increase its capital base, according to the DRHP. Since 2017, Go Digit has provided insurance policies in several segments, including vehicles, health, and travel, and is supported by notable investors like Sequoia, A91, TVS Shriram, and Canadian investor Fairfax.

Go Digit Insurance is a player in the insurance industry, which faces challenges due to low penetration and inadequate access to insurance services. Although the pandemic resulted in increased insurance penetration in India, which rose to 4.2% in FY21 from 3.76% in FY20, there is still a large segment of the Indian population that is underserved. Reports suggest that insurtech is expected to be the second-largest sub-sector within fintech, with a potential market size of $307 billion by 2030.

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