In a revealing critique of India’s regulatory landscape, Aniruddha Sen, co-founder of Kenko Health, has attributed his startup’s collapse to insurmountable regulatory obstacles posed by the Insurance Regulatory and Development Authority of India (IRDAI). The health insurtech startup, which ceased operations in August 2023, spent two years navigating bureaucratic challenges in pursuit of an insurance license, ultimately leading to its downfall.
Sen’s public disclosure sheds light on the broader challenges faced by startups in India’s heavily regulated sectors, particularly in the insurance industry. The startup’s journey, which began with optimism following a public invitation from the IRDAI chairman, ended in disappointment and financial difficulties.
Regulatory Roadblocks and Bureaucratic Challenges
The startup’s struggles centered around several key issues:
– A two-year “wild goose chase” for an insurance license
– Mandatory conversion of Compulsorily Convertible Preference Shares (CCPS) into equity
– Complications with bonus shares issuance
– Additional tax burdens from secondary sales
– Lack of clear communication from regulatory authorities
Sen’s experience highlights a disconnect between public encouragement for startup innovation and the practical realities of obtaining regulatory approval. “During one meeting, a senior finance department official said outright that we ‘bring shame to the country,'” Sen revealed, pointing to a cultural bias against private-sector innovation.
Cultural Resistance and Systemic Issues
The startup faced not only procedural obstacles but also encountered what Sen describes as systemic resistance within the regulatory framework. He criticizes the insurance sector for maintaining outdated practices and being run by individuals who “have no understanding of modern consumer needs, let alone technology.”
This cultural resistance manifested in:
– Open hostility towards startup entrepreneurs
– Preference for government-backed entities
– Lack of understanding of technological innovation
– Resistance to modern business models
Call for Regulatory Reform
In response to these challenges, Sen advocates for:
– Establishment of a specialized team within IRDAI focused on startups
– Enhanced regulatory transparency
– Updated frameworks that accommodate technological innovation
– Greater accountability in regulatory decision-making
Impact on Indian Startup Ecosystem
The Kenko Health case serves as a cautionary tale for the Indian startup ecosystem, particularly in regulated sectors. Key implications include:
– Potential deterrence of new entrants in the insurtech space
– Need for better alignment between regulatory bodies and innovation
– Importance of regulatory reform for startup growth
– Recognition of the impact of bureaucratic hurdles on startup viability
Looking Forward
The collapse of Kenko Health highlights the urgent need for regulatory reform in India’s startup ecosystem. As the country aims to become a global hub for innovation, addressing these regulatory challenges becomes crucial for fostering entrepreneurship and supporting startup growth. Sen’s call for accountability and reform could serve as a catalyst for meaningful changes in how regulatory bodies interact with innovative startups.
