Mumbai: The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a Rs 1 crore penalty on ICICI Lombard General Insurance over certain lapses related to outsourcing activities, vendor management and corporate governance requirements.
The regulatory order, dated September 7, 2026, follows an onsite inspection conducted by IRDAI in September 2019. The insurer received the order on September 7, 2026, nearly seven years after the inspection.
IRDAI subsequently issued a show-cause notice to ICICI Lombard in July 2024 and a supplementary notice in December 2024. The insurer was given an opportunity to submit its response and appear for a personal hearing before the regulator. After considering the company’s submissions and the hearing, IRDAI decided to impose the monetary penalty.
Why IRDAI penalised ICICI Lombard
The penalty relates to certain outsourcing activities undertaken by ICICI Lombard under the IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017, read with the regulator’s Corporate Governance Guidelines for insurers.
According to details reported from the regulatory order, the concerns included the classification and reporting of outsourced activities, vendor selection and due diligence, record maintenance, internal controls and compliance with applicable regulatory requirements.
One specific issue highlighted in reports was related to event management services involving agents of other insurance companies. IRDAI found that these activities were not appropriately classified as outsourced activities and were therefore not reported in the insurer’s outsourcing returns.
The regulator said the failure to classify the activities appropriately meant the related expenses were not reported through the prescribed outsourcing-return mechanism, limiting regulatory scrutiny at the relevant time.
Rs 709.57 crore spent under sales and marketing
The regulatory action relates to expenditure reported under the “Sales Marketing and Business Support” head during FY2019.
According to The Economic Times, ICICI Lombard incurred around Rs 709.57 crore under this category during FY2018-19. Of this, approximately Rs 35–37 crore was reportedly paid to individual agents of other insurers for event management-related activities.
IRDAI’s concern was not simply about the amount spent, but about whether the activities and associated payments were being handled and reported according to the outsourcing framework applicable to insurers.
The case illustrates the importance regulators place on proper vendor due diligence, documentation and reporting, particularly when third-party service providers or individuals associated with other insurers are involved.
Regulatory proceedings continued for years
The inspection that eventually resulted in the penalty took place between September 16 and September 27, 2019. The inspection report was subsequently shared with ICICI Lombard, and the company submitted its response.
The enforcement process continued over the following years. IRDAI issued the first show-cause notice on July 8, 2024, followed by a supplementary show-cause notice on December 17, 2024. The insurer was then given an opportunity for a personal hearing and to make additional submissions.
After assessing the inspection findings, the company’s submissions and the hearing, the regulator concluded that certain violations had been established.
The penalty was imposed under Section 102 of the Insurance Act, 1938, according to the regulatory action reported by Bussiness.
IRDAI issues additional directions
Along with the Rs 1 crore monetary penalty, IRDAI has issued additional directions and advisories to ICICI Lombard.
The insurer has been instructed to comply with these directions within the timelines specified by the regulator. The company has disclosed that the financial impact of the order is restricted to the Rs 1 crore penalty and that no impact is expected on its other operations or activities.
The action therefore represents a regulatory compliance matter rather than an indication that ICICI Lombard’s insurance operations have been suspended or materially restricted.
ICICI Lombard’s Q1FY27 performance
The regulatory action comes as ICICI Lombard continues to operate a sizeable general insurance business in India.
For the first quarter of FY27, the insurer reported a 46% year-on-year decline in standalone net profit to Rs 403 crore. At the same time, net premium earned increased 16% year-on-year to Rs 5,950 crore from Rs 5,136 crore in the corresponding period a year earlier.
Gross direct premium income rose 7.5% to Rs 8,318 crore. However, this growth was below the 10.9% expansion recorded by the overall general insurance industry during the period.
The company’s solvency ratio stood at 2.71 times as of June 30, 2026, compared with 2.67 times in March. The figure remained comfortably above the regulatory minimum of 1.50 times.
Combined ratio worsens
ICICI Lombard’s combined ratio increased to 107.2% in Q1FY27 from 102.9% a year earlier.
The insurer attributed part of the deterioration to two large fire claims worth Rs 63 crore and an additional Rs 165 crore provision for Motor Third-Party claims following a Supreme Court judgment.
Investment income also declined to Rs 1,174 crore from Rs 1,288 crore, while net capital gains fell to Rs 183 crore from Rs 380 crore.
The return on average equity (RoAE) declined to 9.6% from 20.5%. ICICI Lombard said that excluding the impact of the large fire losses and Motor Third-Party provisions, RoAE would have been 13.6%.
What the penalty means for ICICI Lombard
The IRDAI order highlights the importance of robust outsourcing and vendor-management systems within India’s insurance industry. Insurers frequently rely on third-party service providers for activities ranging from technology and administration to marketing and other support functions, but outsourcing does not remove the insurer’s regulatory responsibilities.
The ICICI Lombard case also demonstrates why proper classification of outsourced activities, adequate documentation and reporting are important for regulatory oversight.
For ICICI Lombard, the immediate financial impact of the order is limited to the Rs 1 crore penalty, according to the company’s disclosure. The insurer is also required to comply with IRDAI’s additional directions and advisories within the specified timelines.
The order is linked to an inspection from 2019, while the company’s current financial performance and solvency position continue to be monitored separately. The regulatory action does not indicate any suspension of ICICI Lombard’s insurance business.