IRDA

What’s IRDA? 

The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous apex statutory body which regulates and develops the insurance industry in India. The agency operates from its headquarters at Hyderabad, Telangana where it shifted from Delhi in 2001.

The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. It was constituted by a Parliament of India act called Insurance Regulatory and Development Authority Act, 1999 and duly passed by the Government of India.

The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests.

Today there are 28 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in the country. There are currently 5 public sector general insurance companies out of the total of 28:

• New India Assurance Company Ltd.
• National Insurance Company Ltd.
• The Oriental Insurance Co. Ltd.
• United India Insurance Co. Ltd.
• Agriculture Insurance Company of India Ltd.

 

What are the duties and funtions of IRDAI?

Duties, Powers & Functions of Authority (under Section 14 of the Act):

Duties: – The duty of the authority is to control, promote and safeguard orderly growth of the insurance industry and reinsurance business subject to the provisions of any other provisions of the act.

Powers & Functions, to:-

(1) Protect the interest of the policy holders related to surrender value of policy, settlement of insurance claims, insurable interest, nomination by policy holders, other terms & conditions of insurance contract.

(2) In case of General Insurance, who assess the loss of policy holder should be stated the code of conduct.

(3) Promoting proficiency in the conduct of insurance business;

(4) Promoting and regulating professional organizations connected with the insurance and re-insurance business;

(5) Calling for information from, undertaking inspection of, conducting inquiries  including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the Insurance business;

(6) Stating the form and manner in which books of account shall be kept and statement of accounts shall be rendered by insurers and other insurance intermediaries;

(7) Regulating investment of funds by insurance companies;

(8) Regulating maintenance of margin of solvency i.e., having sufficient funds to pay insurance claim amount;

(9) To settle the disputes between insurers and intermediaries or insurance intermediaries

(10) Stating the percentage of life insurance business and general insurance business to be accepted by the insurer in the rural or social sector; and

(11) Exercising such other powers as may be prescribed.

 

With all such powers and duties assigned, what role does the IRDA play?

Role of Insurance Regulatory and Development Authority (IRDA):-

1. To safeguard the interest of  and secure fair treatment to insurance policy holders
2. To bring quick and systematic growth of the insurance industry or sector in order to provide benefits to the common man and also to provide long term funds for accelerating growth of the economy.
3. To set, promote, monitor and apply high standards of integrity, fair dealing, financial viability and capability of those it regulates.
4. To make sure that insurance policy holder receives precise, accurate, clear & correct information about the products & services provided by insurance companies & also make customers aware about their duties & responsibilities in this regard.
5. To ensure quick settlement of genuine claims, to prevent insurance frauds, scams & other malpractices and put in place operative grievance redressal machinery.
6. To boost transparency, fairness, and orderly conduct in financial markets dealing with insurance & build a trustworthy management information system in order to enforce high standards of financial soundness amongst market players.
7. To take appropriate actions where such standards do not prevail or are inadequate & ineffectively enforced.
8. To bring about optimal amount of self-regulation in day-to-day activities of the industry reliable with the requirements of prudential regulation.

 

Has IRDA been successful in its role so far?

Yup. There has been a great impact of IRDA in the Indian Insurance sector:

1. Impact over Regulation of Insurance Sector

In order to keep the proper protection of the policy holder’s interests, Insurance Regulatory and Development Authority (IRDA) has been successfully observing the different activities of insurance sector in India.

2. Impact over Policyholders Interests Protection

The core objective or purpose of the Insurance Regulatory and Development Authority is to protect the interests of policyholders and IRDA is trying its level best in this context.

3. Impact over Awareness to Insurance

IRDA is trying to take different steps in making the activities of insurance sector transparent. The money invested by investors or individuals in various types of insurance products has channelized the funds of a country for a non-economic activities to economic activities.

4. Impact over Development of Insurance Product

The development of ULIPs (Unit-Linked Insurance Plans) is the result of privatization of the insurance sector. (We’ll deal about ULIPs in a separate chapter)

6. Impact over Competition in the Insurance Sector

Due to privatization of insurance sector & inviting private players in the insurance sector, it has given rise to competition in the insurance sector.

7. Impact over Saving and Investment of Individual

IRDA has made insurance so popular & profitable mode of investment and permanent place for saving amongst the individuals of society.

8.Impact over Banks and Post Offices

Insurance has resulted in giving security against any kind of uncertainties or risks, so the insurance sector has become popular medium for savings & investments and thus has diverted the flow of funds from banks & post offices to insurance industry.

That’s all folks!