Protect policyholders’ life savings: BJP MP writes to PM Modi, moots backup plan for insurer bankruptcy
Bharatiya Janata Party (BJP) Rajya Sabha MP Ajeet Madhavrao Gopchade has urged Prime Minister Narendra Modi to introduce a statutory protection mechanism for individual insurance policyholders in case a life insurance company becomes financially distressed, insolvent or bankrupt.
In a letter dated September 25, 2026, Gopchade proposed establishing a dedicated policyholders’ protection framework, with separate arrangements for life and long-term insurance as well as general insurance.
“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.
Proposal to protect policyholders if insurer fails
The MP has suggested creating a mechanism that would help ensure continuity of life insurance policies by allowing viable portfolios to be transferred to another insurer in a timely manner.
Where such a transfer is not feasible, he proposed an orderly run-off arrangement backed by appropriate resolution and liquidity mechanisms.
Gopchade said the issue merits consideration alongside existing prudential safeguards and regulatory supervision. He raised the question of whether additional measures are needed to protect policyholders if an insurer nevertheless becomes financially distressed or insolvent.
MP cites international models
In his letter, Gopchade referred to insurance-sector mechanisms adopted in countries including the UK, the US, Canada, Australia and Hong Kong.
He suggested that the Department of Financial Services examine these international frameworks and assess whether elements of them could be adapted to India’s regulatory and insurance-market requirements.
According to Gopchade, several major insurance markets have established dedicated arrangements commonly known as Policyholders’ Protection Schemes, Insurance Guarantee Schemes or Guaranty Associations.
These mechanisms are designed to provide an additional layer of protection to policyholders in the event of an insurer’s 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.
Proposed policyholders’ protection fund
Gopchade has proposed that the government examine the feasibility of establishing a comprehensive framework covering both policyholder protection and insurer resolution.
Among his recommendations is the creation of a statutory policyholders’ protection scheme or fund, with separate arrangements for life and long-term insurance and general insurance. The mechanism could be financed through an appropriate levy on the insurance industry.
He also called for measures to ensure that viable life insurance portfolios can be transferred to another insurer when required, while providing for an orderly run-off mechanism in cases where transfer is not possible.
Review of insurer insolvency framework
The BJP MP has also called for strengthening the legal framework governing insurer insolvency.
His proposals include provisions for early intervention, clearly defined policyholder protection and compensation, and appropriate recovery mechanisms.
Gopchade further suggested reviewing the Insurance Act, 1938, along with related insolvency provisions, to assess whether the existing legal framework provides adequate safeguards in the event of an insurer’s financial failure.
The proposed framework, he said, would provide policyholders with an additional layer of protection while also creating a structured process for dealing with financially distressed insurers.
