The IRDAI Policyholders Protection Fund is now a legal reality: on June 30, 2026, the Insurance Regulatory and Development Authority of India formally constituted the Policyholders’ Education and Protection Fund (PEPF) by transferring Rs 800 crore to the fund. Seven days earlier, on June 23, 2026, IRDAI had published an exposure draft of the proposed PEPF Regulations 2026, inviting public comments until July 13, 2026. For the 74 registered insurers and reinsurers operating in India as of March 2025, the framework introduces new compliance obligations around unclaimed amounts, penalty routing, and consumer education — all at a moment when the sector is absorbing the sweeping changes brought by the Sabka Bima Sabki Raksha reform.
Where Rs 29,305 Crore in Unclaimed Funds Enters the Compliance Picture
The PEPF does not exist in a vacuum. Its creation is directly tied to a persistent problem in Indian insurance: an enormous pool of money that policyholders have never collected. At the start of FY2025, insurers held over Rs 29,305 crore in unclaimed amounts, including maturity proceeds, death claims, and surrender values. That figure represents real people — beneficiaries who never filed, policyholders who forgot policies, heirs who did not know they existed.
The problem is not new. As of March 2023, approximately Rs 2,850 crore in unclaimed insurance funds had already been transferred cumulatively to the Senior Citizens’ Welfare Fund (SCWF). The SCWF transfer route, while well-intentioned, has not resolved the core issue: policyholders and beneficiaries are often simply unaware of their entitlements. IRDAI’s answer is to redirect the policy education effort — and fund it sustainably.
Insurers will need to review their unclaimed amounts identification and outreach processes in light of the PEPF framework. The fund is designed to finance exactly those consumer-facing activities — grievance redressal, education campaigns, and beneficiary tracing — that reduce the unclaimed pool over time. Non-life carriers are equally exposed: non-life and health insurers collected Rs 3,07,611 crore in total direct premium in FY2024-25, up 6.19% year-on-year, and the scale of unclaimed amounts in the segment, though smaller per policy, is growing proportionally.
How Penalties Now Fund Policyholder Protection
One of the structural innovations in the PEPF design is its funding model. Under the statutory framework created by the Sabka Bima Sabki Raksha Act, all sums realised by way of penalties under the Insurance Act or the IRDAI Act — including rules, regulations, and subsidiary instructions — must be credited to the PEPF. This creates a direct financial link between insurer non-compliance and the fund that protects policyholders.
The stakes have risen materially. The same reform that created the PEPF also overhauled the penalty structure: daily penalties for non-compliance were raised to up to Rs 1 lakh per day, subject to a maximum cap of Rs 10 crore, up from the previous ceiling of Rs 1 crore. That is a tenfold increase in the maximum sanction. The practical effect is that penalty income flowing into the PEPF could be substantial in years when IRDAI enforcement is active.
For expenditure, IRDAI has chosen a conservative model: the exposure draft proposes that all spending from the PEPF be financed exclusively through the investment income generated from the Rs 800 crore corpus, leaving the principal intact. This endowment-style approach means the fund’s purchasing power depends on investment returns — likely in the range of government securities yields — rather than on annual penalty windfalls. Insurers should track this mechanism closely: high enforcement years will grow the corpus, amplifying future spending capacity on consumer outreach and ombudsman infrastructure. You can consult the official IRDAI press releases portal for the exposure draft and related circulars.
The Sabka Bima Sabki Raksha Foundation: What the 2025 Reform Changed
The PEPF is best understood as the consumer-protection pillar of a broader legislative overhaul. The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act 2025 moved at exceptional speed: introduced in Lok Sabha on December 16, 2025, passed by both houses by December 17, 2025, and receiving presidential assent on December 20, 2025. The legislation inserted Section 16A into the IRDA Act 1999, which is the direct statutory basis for the PEPF.
The Act’s headline measure was market liberalisation: the FDI limit in Indian insurance companies was raised from 74% to 100% of paid-up equity capital. This has already triggered the first major test of the raised the FDI ceiling to full foreign ownershipLife stake, and the broader implications for India’s full foreign ownership route in the insurance sector are still unfolding. The same Act also reduced net owned fund requirements for foreign reinsurers from Rs 5,000 crore to Rs 1,000 crore, lowering the barrier for international reinsurance capacity to enter India — a dynamic already visible in the GIFT City hub expansions by players such as Saudi Re.
The consumer-protection piece — the PEPF — is the counterweight to this liberalisation. As foreign capital enters and product complexity grows, the regulator is simultaneously building the infrastructure to ensure policyholders can navigate claims, access grievance redressal, and understand what they have bought. The legislative tracking of the Sabka Bima Sabki Raksha Bill 2025 confirms that the PEPF mandate was explicitly paired with the market-opening provisions from the outset.
Governance Architecture: Who Runs the Fund and What It Means for Insurers
The PEPF Regulations 2026 draft establishes a Fund Management Committee (FMC) with a specific composition. The FMC will be chaired by IRDAI’s Whole-Time Member responsible for the PP&GR Department, and will include one additional WTM nominated by the IRDAI Chairperson, two independent members drawn from consumer advocacy, financial inclusion, or insurance academia, and one representative each from the Life Insurance Council, the General Insurance Council, and the Council for Insurance Ombudsman. The inclusion of industry council representatives is significant: it gives life and non-life carriers a formal seat in fund governance without giving them control over spending decisions.
For compliance officers, the FMC structure has practical implications. Reporting obligations, data submissions on policyholder grievances, and contributions linked to unclaimed amounts will flow through this governance architecture. Insurers should expect the FMC to set annual work plans that define priority spending areas — likely policyholder awareness, ombudsman capacity, and digital grievance tools — and then request insurer cooperation in implementation. The growing role of distribution partnerships in India, such as Lloyd’s naming ICICI Lombard as local fronting partner, suggests that consumer touchpoints will multiply, making policyholder education infrastructure more — not less — important over the next cycle.
The Penetration Gap: Why Rs 800 Crore Is a Start, Not a Solution
The PEPF’s Rs 800 crore corpus must be viewed against India’s structural insurance challenge. India’s total insurance penetration stood at 3.7% of GDP in FY2024-25, against a global average of 7.3% — a gap of nearly half. Life insurance penetration specifically fell from 2.8% to 2.7% of GDP between FY2023-24 and FY2024-25, even as the life insurance industry collected Rs 8.86 lakh crore in total premium in FY25, a 6.73% year-on-year increase. Premium growth and penetration are moving in opposite directions, which means the industry is capturing more from existing customers rather than expanding the insured base.
India’s overall insurance density reached USD 97 per capita in FY2024-25, up from USD 95 the prior year; life insurance density rose from USD 70 to USD 72. Against a global benchmark of USD 874 per capita (life) in advanced markets, the gap is vast. The PEPF’s investment-income-only expenditure model — calibrated to preserve the Rs 800 crore principal — will generate tens of crores annually for policyholder education. That is meaningful but modest relative to the scale of the awareness deficit across a population of more than a billion. Total industry assets under management crossed Rs 74.43 lakh crore as of March 2025, up 10% year-on-year — the sector has capital; what the PEPF provides is a dedicated governance mechanism to direct a portion of the returns from that capital toward the uninsured and underinsured.
