A comprehensive and detail analysis of IRDAI

In this article we made a comprehensive and detail analysis of Insurance Regulatory and Development Authority of India (IRDAI) embodying its establishments, objectives, duties and functions, powers and significance.

 

1. Introduction

 

The insurance industry plays a crucial role in safeguarding the financial well-being of individuals and businesses against unforeseen risks. To maintain transparency, stability, and sustainable growth in this sector, regulatory bodies are essential. In India, the Insurance Regulatory and Development Authority of India (IRDAI) is the primary regulatory authority responsible for overseeing and promoting the insurance industry.

 

2. Establishment of IRDA

 

The Life Insurance Corporation came into existence by an Act of Parliament viz., Life India Corporation Act, 1956. Later on, the General Insurance business in India was also nationalized with the enactment of General Insurance Business (Nationalization) Act in the year 1972. With the passage of these two Acts, the role of Controller of Insurance was diminished over a period of time.

 

With a view to examine the structure of the insurance industry and to propose recommendations for reform in insurance sector in order to make it more competitive and efficient, a committee was set up by Government of India in the year 1993 under the chairmanship of Sh. R.N. Malhotra, the former Governor of Reserve Bank of India. The committee submitted its report in 1994 wherein, among other things, it recommended setting up of an independent insurance regulatory authority on the lines of Securities and Exchange Board of India (SEBI).

 

The Government of India, accepting the recommendations of the Malhotra Committee report, established an interim Insurance Regulatory Authority. After a short while, Insurance Regulatory and Development Authority Act (IRDA) was passed by the Parliament in the year 1999 (Act 41 of 1999) along with amending the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalization) Act, 1972 for the sake of proper control at highest level. The IRDA Act, 1999 provides for the establishment of an Authority to protect the interests of holder of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.

 

3. Objectives of IRDA

 

Following are the objectives of the IRDA:

 

1. Protecting the interests of policyholders;
2. Regulating, promoting and ensuring orderly growth of insurance industry;
3. Considering the matters which may be connected or incidental to the above-mentioned provisions;
4. Amending certain provisions of the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalization) Act, 1972.

 

4. Duties and Functions of IRDA

 

After going through the Statement of Objects and Reasons of the IRDA Act, 1999, to regulate, promote and ensure orderly growth of the insurance business and re-insurance business, the duties, powers and functions of Authority, inter alia, under Section 14 shall include the following:

 

1. issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;
2. protection of the interests of the policyholders in matters concerning assigning of policy, nomination by policyholders, surrender value of policy and other terms and conditions of contracts of insurance;
3. specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;
4. specifying the code of conduct for loss assessors; (e) promoting efficiency in the conduct of insurance business;
5. promoting and regulating professional organizations connected with the insurance and re-insurance business;
6. levying fees and other charges for carrying out the purposes of this Act;
7. calling for information, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business;
8. control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under Section 64-U of the Insurance Act, 1938 (4 of 1938);
9. specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries;
10. regulating investment of funds by insurance companies;
11. regulating maintenance of margin of solvency;
12. adjudication of disputes between insurers and intermediaries or insurance intermediaries;
13. supervising the functioning of the Tariff Advisory Committee;
14. specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause (f);
15. specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and
16. exercising such other powers as may be prescribed.

 

5. Powers of IRDA

 

Power to make regulations (Section 26)

 

1) The Authority may, in consultation with the Insurance Advisory Committee, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act.

 

2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters, namely

 

(a) the time and places of meetings of the Authority and the procedure to be followed at such meetings including the quorum necessary for the transaction of business under sub-section (1) of Section 10;

 

(b) the transaction of business at its meetings under sub-section (4) of Section 10;

 

(c) the terms and other conditions of service of officers and other

 

employees of the Authority under sub-section (2) of Section 12; (d) the powers and functions which may be delegated to Committees of the members under sub-section (2) of Section 23; and

 

(e) any other matter which is required to be, or may be, specified by regulations or in respect of which provision is to be or may be made by regulations.

 

6. Significance of IRDA

 

The Insurance Regulatory and Development Authority of India (IRDAI) holds immense significance in the Indian insurance sector. Its establishment in 1999 marked a critical turning point in the industry, leading to several positive impacts and contributing to the overall growth and stability of insurance in the country. Here are some key aspects highlighting the significance of IRDAI:

 

1. Regulation and Oversight: IRDAI plays a crucial role in regulating and overseeing the insurance industry in India. It ensures that insurance companies operate in compliance with the established rules and guidelines, promoting fair practices, transparency, and accountability. The regulatory framework set by IRDAI fosters a competitive market while safeguarding the interests of policyholders.
2. Consumer Protection: One of the primary objectives of IRDAI is to protect the interests of policyholders. It enforces strict norms on claim settlements, ensuring that policyholders receive fair treatment and timely payment of their claims. The authority also sets guidelines on product disclosures, making it easier for consumers to understand policy terms and make informed choices.
3. Market Development: IRDAI actively promotes the development of the insurance market in India. It encourages the entry of private players, leading to increased competition. This has resulted in a diverse range of insurance products and services being made available to customers, catering to their varied needs.
4. Financial Stability: The authority keeps a close watch on the financial health of insurance companies. It sets solvency margins and capital requirements to ensure that insurers maintain adequate financial reserves to meet their obligations towards policyholders. This oversight helps in maintaining stability and confidence in the insurance sector.
5. Encouragement of Innovation: IRDAI fosters innovation in the insurance industry. It encourages insurers to develop and introduce new products that address emerging risks and cater to changing customer demands. This has led to the emergence of innovative insurance solutions, such as microinsurance and cyber insurance.
6. Digitization and Technology Adoption: IRDAI actively promotes the use of technology in the insurance sector. It has facilitated the digitization of processes, making it easier for customers to purchase policies online, renew them, and make claims digitally. The adoption of technology has improved operational efficiency and customer experience.
7. Financial Inclusion: IRDAI is committed to promoting financial inclusion in India. It encourages insurance companies to reach out to underserved and rural areas, ensuring that a larger section of the population has access to insurance products and services.
8. Risk Mitigation: With its proactive approach, IRDAI ensures that insurance companies take necessary steps to mitigate risks effectively. This includes monitoring investment patterns and guiding insurers on prudent investment strategies to protect policyholders' interests.
9. International Collaboration: IRDAI collaborates with international regulatory bodies and organizations to learn from global best practices and to keep abreast of international insurance trends. This helps in strengthening the Indian insurance industry's competitiveness and resilience.

 

7. Conclusion

 

The Insurance Regulatory and Development Authority of India (IRDAI) has been instrumental in transforming the Indian insurance sector from a state-controlled monopoly to a competitive and customer-centric market. With its robust regulatory framework and consumer protection initiatives, IRDAI continues to play a pivotal role in ensuring the stability and growth of the insurance industry. As the sector evolves, IRDAI must remain agile in adapting to emerging challenges and fostering innovation to maintain the industry's upward trajectory while safeguarding the interests of policyholders.