CHAPTER II

The Role of Insurance Regulatory and Development Authority of India

Introduction:

IRDA- the Insurance Regulatory and Development Authority is autonomous and supreme
body that governs and supervises the Insurance industry in India. After the formal
declaration of Insurance Laws (amendment) ordinance 2014 by the president of India Shri
Pranab Mukherjee it was constituted by parliament of India act called Insurance Regulatory
and Development Authority of India (IRDA of India) on December 26 2014.1

Establishment

IRDA Act, 1999 was passed as per the major recommendation of the Malhotra Committee
report (7 January 1994) headed by retired Governor of Reserve Bank of India Shri R.N
Malhotra. The report recommended the establishment of an independent regulatory for
insurance sector in India. It was incorporated as statutory body in April, 2000 with its
headquarters at New Delhi.

The headquarters of the agency were shifted to Hyderabad, Telangana in 2001.

The Malhotra Committee report recommended far-reaching amendments to regulate

the insurance sector to adjust with the economic policies of privatization. The most
important recommendations are as follows:

 Recommendation of the entry of private entities into the insurance sector to

introduce healthy competition between the new private insurers and the
existing monopolistic entities including limited participation of foreign equity,
banking and cooperative sector.
 Recommendation of gradual withdrawal of government capital in the existing
public sector monopolistic entities, the Life Insurance corporation and the
General Insurance Corporation and its subsidiaries and also de-linking of the
subsidiaries making them independent entities.

1 IRDA annual-report 2015-16

33
 Recommendation that the General Insurance would exclusively deal with the
reinsurance business.
 Recommendation to spread the insurance sector to rural areas by taking
assistance of institutions like Panchayats, selected voluntary organizations,
mahila mandals and cooperatives.
 Recommendation to delink the tariff advisory committee from the General
Insurance Corporation and the committee should act as an independent
statutory authority.
 In pursuance of the last but most important recommendation of the Malhotra
Committee the government had taken a decision in 1996 to establish a
Provisional Insurance Regulatory and Development Authority to replace the
erstwhile authority called the Controller of Insurance, constituted under the
Insurance Act 1938, which first worked under the Ministry of Commerce and
was late transferred to the Ministry of Finance.
The IRDA Act, 1999 allows private players to enter the insurance sector in India
besides a maximum foreign equity of 26 percent in a private insurance company
having operations in India. It is considering some of the emerging requirements
of the Indian insurance industry, IRDA was amended in 2002.

Objectives of IRDA (Insurance Regulatory and Development Authority of India)

 To aware and promote the policy holders
 To protect the right of policyholders
 To promote and ensure the growth of Insurance sector in India
 To settle out genuine insurance claims as early as possible and prevent
malpractices and frauds.
 To provide transparency and orderly conduct of companies in financial
markets dealing with insurance business.
 To stop the monopoly of public sector companies and provide healthy
competition.

34
 Figure 2.1 Functioning of Insurance Regulatory and Development authority of India
Finance
Ministry
Governing body of
Insurance Council Life Insurance General Insurance
or Institution of Council Council
Insurance
Ombudsman in
Department of
India
Financial
Services
Tariff Insurance
Advisory Association of
Committee India

Ombudsman

Insurance Regulatory and

Development Authority of
India(IRDAI)

Insurance Operating Insurance

educators business in India

Reinsurer Life Insurer Non-life insurer

Public Sector

Public Sector private sector

Public Sector Private sector

Institute Insurance Institute of Indian Institute Other Institutes

Of Actuaries Institute of India Insurance and of Insurance
Of India (III) Risk Management surveyors and
(IIRM) loss assessors
( IIISLA)

35
 Self regulatory bodies:-

Life Insurance Council and General Insurance Council of association of Insurance in

India envisaged in section 64C of the insurance act with participation of representatives
who are registered insurer in India.2

Life Insurance Council a representative body of the insurers who are dealing in the
business of life insurance in India

General Insurance Council a representative body of insurers who are carrying on business
of general, health and re-insurance in India.

Executive Committees of the Life insurance Council:-3

The Executive Committee of Life insurance Council consists four representatives members
of life insurance council elected in their individual capacity by the members in such manner
as may be laid down in the bye-laws of the Council.

An eminent person not connected with insurance business, nominated by Authority

Three person to represent insurance agents, intermediaries and policy-holders as may be

nominated by the Authority

One representative from self –help groups and one member from Insurance co-operative
societies.

Executive Committees of the General insurance Council:-

Four representative members of General Insurance Council elected in their individual

capacity by the members in such manner as may be laid down in the bye-laws of the
Council

An eminent person not connected with insurance business nominated by the authority

2 Section 64C of The Insurance Laws(Amendment) Act, 2015

3 Section 64F of The Insurance Laws (Amendment) Act, 2015

36
Four persons to represent insurance, agents, third party administrators, surveyors and loss
assessors and policyholders respectively as may be nominated by the authority.

One of the representative members shall be elected as Chairperson of the Executive

committees.

If anybody of persons specified in sub-sections (1) and (2) fails to elect any of the members
of the members of the Executive Committees of the Life insurance Council or the General
Insurance Council the authority may nominate any person to fill the vacancy and any
person so nominated shall be deemed to be a member of the Executive Committee of Life
insurance Council or the General Insurance Council

Executive committees may make bye-laws for the transaction of any business at any
meeting of committee

The life insurance council and General insurance Council may form such other committees
consisting of such persons to discharge the functions as may be delegated thereto.

The Secretary of the Executive committee of Life insurance Council and General Insurance
Council shall in each case may be appointed by the Executive Committee concerned.
Appointed Secretary shall exercise all such powers and do all such acts as may be
authorized in this behalf by the Executive Committee concerned.

IRDA other institutes offering courses:-4

1. University of Delhi, Delhi
2. The college of vocational studies(University of Delhi, sheikh sari
3. Academy of Insurance Management Asia pacific Institute of
Management New Delhi
4. Birla Institute of Management Technology New Delhi
5. Goa university, Goa
4 IRDA Sources

37
 6. Kurukshetra university kurukshetra
7. Department of Humanities and social Sciences Indian Institute of
Technology (IIT), Mumbai
8. University of Bombay, Mumbai
9. University of Pune, Maharashtra
10. Manipur University, Imphal
11. Utkal University Bhubaneshwar
12. Guru Nanak University, Amritsar
13. University of Chennai, Centenary Building, chepauk Chennai
14. Aligarh Muslim university Aligarh
15. University of Kalyni Nadia district
16. National Insurance Academy Pune
17. Centre of Insurance studies and Research, National Law University,
Jodhpur
18. Amity School of Distance learning
19. Centre for Insurance and Risk Mangement
20. Indian Institute of Management Banglore
21. Narsee Monjee Institute of Management studies

List of Institutes approved by IRDA:-

Eastern Zone

1. Assert Institute of Management studies

2. Insurance Training Centre
3. Jalpaiguri Insurance Institute
4. Learning Centre of insurance
5. Centre for insurance studies Calcutta
6. National Centre for Insurance Learning Narendarpur Calcutta

Southern Zone

1. Warrangal Insurance Institute

38
2. Shriram HRD Centre (A unit of Shriram Management services Ltd)
3. Integrated Business School
4. College of Insurance and Financial Planning
5. Indian Institute of sales Technology(A division of India Sales Marketing and
research Technology Ltd)
6. United Indian Learning Centre, Chennai
7. Indian Institute of Sales Technology, Chennai
8. Integrated Business School, Chennai
9. SHRIRAM HRD Centre Chennai
10. Warangal Insurance Institute Warangal
11. College of Insurance and financial Planning Secuderabad
12. National School of Insurance Education and research Banglore
13. Barany Consultancy and Training (P) Ltd. Chennnai
14. Centre for research Education and sales training (CREST) Thiruvanthapuram
15. ALERT Academy Thrissur
16. National School of Insurance Education and research, Banglore
17. People First-Sobby’s solutions Kochi
18. Institute of Career Excellence Trivandrum
19. Pasha Institute of Insurance Management Training, Hyderabad

Western Zone

1. Schoolnet India Limited, Worli Mumbai

2. New India Assurance Co. Ltd. Corporate Training College Mumbai
3. College of Insurance Gresham Assurance House Mumbai
4. Express Insurance Academy private Limited Mumbai
5. NIS Sparta Ltd. Mumbai
6. Institute of insurance and Financial Science Education Research and Training Pune
7. MAEER’s Maharashtra Institute of Technology Pune
8. National Insurance Academy Pune
9. ICICI Training Centre Pune
10. Academy of Insurance Education and Training Jaipur

39
 Northern Zone

1. Amity School of Insurance and Actuarial Science

2. NIS SPARTA Limited
3. UGCE-Insurance Institute for Education and Training, Panchkula
4. Insurance Research and Management Academy Lucknow
5. Knowledge Network India KNI corporate
6. Max New York Life Insurance Co. Ltd.
7. Ritu Nanda insurance services (P) Ltd, New Delhi
8. NIS Sparta Ltd, New Delhi
9. Bajaj Capital Business School, New Delhi
10. India Insurance Business School, Noida
11. Institute of Management Development and Research New Delhi
12. Oriental staff training College Mathura Road Faridabad

Composition of authority-

The Authority shall consist of ten members, namely :-

(a) One Chairman/Chairperson
(b) Not more than five whole time members
(c) Not more than four part-time members
The Central Government of India appoints the Chairman/Chairperson and member of IRDA
from amongst persons of ability, integrity and standing who have knowledge or experience
in life insurance, general insurance, actuarial science, finance, economics, law, accountancy,
administration or any other discipline which would, in the opinion of the Central
Government, be useful to the authority.
It is provided that the Central Government shall, while appointing the Chairperson and the
whole-time members, ensure that at least one person each is a person having knowledge or
experience in life insurance, general insurance and actuarial science, respectively.
The present Chairman of IRDA is Mr. T.S Vijayan.

40
 The present whole time members of IRDA are
(a) Mr. D.D Singh
(b) Poornima Gupte
(c) Mr. V.R. Iyer
(d) Mr. Nilesh |Sate
(e) Joseph Palpalil. J

The present part time members of IRDA are

(a) Mr. Alok Tandon

(b) Mr. C.A M Devraj Reddy
(c) Mr. S.D Mathur
(d) Prof V.K. Gupta

Tenure of Chairman and other member:-

(a) The Chairman and every other whole-time member shall hold office for a term of
five year and are eligible for reappointment. The chairman shall not above 65 years and
other members above 62 years.

(b) A part-time member shall hold office for a term not exceeding five years from the
date on which he enters upon his office. It is notwithstanding anything contained in sub-
section (1) or sub-section (2) a member may-

(a) Relinquish his office by giving in writing to the Central Government notice of not less
than three months; or

(b) Removed from his office in accordance with the provision of section 6 of IRDA.

Removal from office:-

The Central Government may remove from office any member who-

(a) Is or at any time has been, adjudged as an insolvent; or

(b) Has become physically or mentally incapable of acting as a member;or

41
(c) Convicted for any offence which in the opinion of the Central Government, involves
moral turpitude; or
(d) Financial or other interest acquired by member which effect prejudicially
functioning as a member; or
(e) Misuse of his position and his continuation in office detrimental to the public
interest.
Members have been given a reasonable opportunity of being heard in the matter.

Salary and allowances of chairman and members:-

The salary and allowances payable to and other terms and condition of service of,
the members other than part-time members shall be such as may be prescribed.
That part time members shall receive such allowances as may be prescribed.
The salary, allowances and other conditions of service of a member shall not be
varied to his disadvantage after appointment.

Bar on future employment of members:-

The Chairperson/Chairmen and the whole-time members shall not, for a period of
two years from the date on which cease to hold office as such, except with the
previous approval of the Central Government accept:-
(a) Any employment either under the Central Government or under any State
Government; or
(b) Any appointment in any Insurance Company in the Insurance sector.

Administrative powers of Chairperson/Chairmen

The Chairperson shall have the powers of general superintendence and direction
in respect of all insurance administrative matters of the Authority.

Meetings of Authority:-

42
The Authority shall meet at such times and places and shall observe such rules and
procedures in regard to transaction of business as its meetings including quorum at such
meetings as may be determined by regulations.5
The Chairperson if for any reason he is unable to attend a meeting of the authority, any
other member chosen by the members present from amongst themselves at the meeting
shall preside at the meeting.
All questions which come up before any meeting of the Authority shall be decided by a
majority of votes by the members present and voting, and in the event of an equality of
votes, the chairperson, or in his absence, the person presiding shall have a second or
casting vote.6
The authority may make regulations for the transaction of business as its meetings.

Vacancies, etc., not to invalidate proceedings of Authority:-

No act or proceeding of the, authority shall be invalid merely by reason of-

(a) Any vacancy in, or any defect in the constitution of, the authority; or
(b) Any appointment defect in person acting as a member of the authority; or
(c) Any irregularity in the procedure of the authority not affecting the merits of the
case.

Officers and employees of authority

(1) The authority may appoint officers and such other employees as it considers
necessary for the efficient discharge of its functions under this act.
(2) The terms and other conditions of service of officer s and other employees of the
authority appointed under sub-section (1) shall be governed by regulations made under
this act.

Duties, power and functions of authority:-

5 Section 10, IRDA (Meeting) Regulations 2000

6 Section 10

43
Duties:- The IRDA duties is to check, promote, regulate and ensure growth of insurance
sector and reinsurance sector in India.

Power and Function of authority:-

(a) IRDA issue certificate of registration, withdraw, suspend, modify, renew or
cancel such registration.
(b) IRDA save the interests and rights of policy holders matters relating to policy
assignment, policy holders nomination, insurable interest and insurance
claim settlement, surrender value of policy and other terms and conditions of
insurance contract.
(c) IRDA arranges the practical training for intermediary or agents or Insurance
intermediaries.
(d) IRDA specifying requisite qualification of agents and insurance
intermediaries and their code of conduct.
(e) IRDA specifying the code of conduct for surveyors and loss assessors.
(f) IRDA to motivate and promote the efficiency in the conduct of insurance
business.
(g) IRDA to promote and regulate the professional organization connected with
the insurance business and re-insurance business.
(h) IRDA impose fees and charges for carrying out the purposes of registration,
modification and renewal.
(i) IRDA regulates the fund investment of insurance companies.
(j) IRDA supervise the function of Tariff Advisory Committee.
(k) IRDA regulate maintenance of solvency margin.
(l) IRDA adjudicate the dispute between intermediaries or insurance
intermediaries and insurers
(m) IRDA promote and regulate insurance business in rural area of the nation.
(n) IRDA supervise the functioning of the Tariff Advisor committee.
(o) IRDA invest premium income of the insurer to finance scheme for
promoting and regulating professional organization.

44
 (p) IRDA specifying the percentage of life insurance business to be
undertaken by the insurer in the rural or social sector.
Power of the Central Government
The control of Central Government over the IRDA which intends to control the insurance
sector in the nation. The Central Government has power to give direction to Authority on
the question of policy, other than those relating to technical and administrative matters.
The Central Government decision is final on the question as to whether a particular matter
is one of policy or not.
Super cession:- When the Authority does not discharge its duties properly or defies the
directions of the Central Government then the Central Government has power to supersede
the Authority by notification in the official gazette.7 A new authority may constitute after
the supersession notification and chairperson and member should vacate their offices.
There is no restriction for nominating the vacating member as Chairperson of newly
appointed authority.
Parliamentary Control:-
The control is vested with parliament by requiring the notification of supersession and
report laid before each House of Parliament. Authority duty is to furnish annual report of
its activities including the promotion of the development of the insurance business in
previous financial year and copies to be presented before each House of Parliament.
Insurance Advisory Committee:-
The Chairperson and member of IRDA shall be the ex officio members of advisory
committee. The advisory committee consist not more than twenty members and represent
the interests of consumer fora, surveyors, industry, transport, agriculture, agents,
intermediaries, commerce and research bodies engaged in the study of safety and loss.
Rule making power of IRDA
The Insurance Regulatory authority is empowered to make regulation under section 32
and section 114A of the Insurance Act 1938 and under Section 26 of the Insurance
Regulatory and Development Authority Act 1999on matters specified in the respective
matters. Under section 26, the IRDA can make regulations on the advice of the Insurance

7 Section19, IRDA Act 1999

45
Advisory Committee. The Insurance Regulatory and Development Authority is to insurance
law what SEBI is to company law. Both make regulations which by the doctrine of
delegated legislation have the same force as law made by the parliament itself. Both the
Central Government and parliament exercise control over this part of the law.

The update changes in Insurance Regulatory and Development Authority Act, 1999

There are few changes occur after the commencement of IRDA and the main changes
electronic form of Insurance policies and electronic form of record.

In insurance sector direct investment of foreign companies and partnership of foreign

companies through foreign direct investment which was 26 percent but from July 2013 it
increased up to 49 percent.8

Insurance Repository System

The system provides policy holder’s facilities of insurance policies in electronic form and to

Purchase insurance policies.

The five companies are authorized to deal in Insurance Repository System:-

1. Karvy Insurance Repository Limited

2. SHCIL projects Limited
3. NSDL Database Management Limited
4. Central Insurance Repository Limited
5. CAMS Repository services Limited

All of these companies open e-insurance accounts for policy holders.

8 Book Adunik Bhima vidhi

46
In this system policy holder to take the benefit of open e-insurance account and one policy
holder can open only one account and the account open free of cost. After opening one time
account of policy holder all policies whether it is life insurance or any other insurance of
any insurance companies maintain in electronic form and policies before e-insurance
account attach with policy holder account KYC Know your customer is not required for
purchasing new policies by the policy holder or any insurance customer.

Policy holder can change any information including address, enrollment in electronic form
and to avoid policy holder’s fear of lost of policies and insurer gives cheap and best services
to the policy holder’s.

IRDA established Insurance Transaction Exchange (I Trex) from which repository can
interchange the information which is beneficial for account holder’s or policy holder’s.

IRDA issued the Hand book to aware and educate the policy holders electronic form of
Insurance and work system of Insurance Repositories and also issued instruction relating
to insurance repositories and insurance policies in electronic form in which definition and
repository fund or work system is given and to safeguard the right of policy holder special-
provision also mentioned in Instruction

Benefits of e-insurance system

The provisions given by IRDA protect the rights of policy holder and play an important role
in the development of insurance sector. If instruction given by IRDA to any repository
system to solve the complaint of policy holder in specified time and the repository system
failed to do so then penalty of Rs 100000/- (one lakh) per day imposed which was up to
10000000/-(one crore). The penalty also imposed upon insurance companies to delay in
issuing electronic form of insurance policies and other omission and violation of any
instruction of IRDA to the repositories.9

Government of India National-e-Governance plan analog plan Electronics and Information

Technology Department establishes Common Services Centers Ms. CSC e-Governance
services India Limited provides services functioning as special purpose vehicle. IRDA
9 Book Adunik Bhima Vidhi

47
issued instruction to regulate and control the functioning of the common service centre.
IRDA authorize to regulate instruction under section 14(1) in which safeguard the rights of
policy holders and over all development of insurance sector in India.

Benefits of Common Service Centre:-

(a) To aware and educate the people importance of insurance and give the knowledge
of beneficial plans and propagate the importance of insurance in rural areas.
(b) To pay the premium easily and give information of lapse of policies from any
wherein India.
(c) To open e-insurance account and helpful in connecting from different account of any
person and connecting policies of different companies.
(d) To give information of maturity amount and period of maturity or collect the
maturity amount from any centre.
(e) To give the information IRDA rules and regulation to safeguard the protection of
policy holders right.
(f) To give information of penalties imposed by IRDA on repository or insurance
companies for the violation of any instruction given by IRDA.
(g) Policy holder can submit any information which is required by the insurance
companies or repository to the common services centre.
(h) Protect the illiterate or poor people from fraud or cheating and false commitment of
insurance companies or other companies
(i) To give information of the all the registered companies of insurance sector in India.

48
 Table2.1 The position of investment details in Life insurance at the
commencement year of IRDA on 31March 200110.

S.N Name of Other than Social Approved Governme Infra- Government Total
Company approved Investment nt and structure Investment
investment other
approved
1. LIC 1857694 0.00 5036000 5243711 2479189 4711705 19328299
2. OM kotak 233.17 0.00 3288.74 0.00 2466.29 9237.11 15225.31
Life
3. HDFC –Std 0.00 0.00 275342 0.00 2641.97 10236.13 15631.52
life
4. ICICI- 0.00 0.00 840.39 959.02 1866.34 8801.28 12467.03
Prudential
5. Max- 0.00 0.00 500.00 3920.45 1000.00 1806.81 7227.26
Newyork
6. Birla sunlife 455.62 0.00 991.66 3804.45 1522.09 3660.91 10434.73
7. TATA-AIG 0.00 0.00 5854.19 0.00 0.00 5820.51 11674.70
life

Total 1858382.79 0.00 50502280.40 5252394.9 2488685. 4751267.75 19400959.5

2 69

10 IRDA annual report 2001

49
 Table 2.2 IRDA specified Investment pattern of Life insurance in 200111

S.No Type of Investment Percentage

1. Approved investments as specified in Schedule-1
(a) Infrastructure and Social sector Not less than 15%
(b) Other to be governed by exposure norms
(Investment in other than in approved Not exceeding 35%

investments in no case exceeds 15% of the

fund
2. Government Securities 25%
3. Government Securities or other approved Not less than 50%
securities (including ii above)

Present world view of Indian Insurance Sector:-

Total premium of world in life insurance business is 55.6 percent share. In Indian
life insurance share is 79 percent while non-life insurance business share is 21
percent.
Life insurance sector the position of Indian is 10th out of 88 countries world
insurance market the share of India is 2.24% whereas it is 2.08% in 2014. In 2015 in
Indian life insurance premium (Inflation adjust) 7.8% increased which is 4% growth
of world life insurance premium.
Indian non-life insurance field in 2015 8.1% (Inflation adjust) growth and world
non-life insurance premium growth is only 3.6%. In world non-life insurance
premium the share of India is 0.75% and 18th rank in the world out of 88 countries.

11 IRDA annual report 2001

50
 After liberalization in insurance sector in the first decade insurance penetration
relevant growth which in 2.71% in 2001 and 5.20 percent in 2009 at that time
penetration standard reducing but in 2015 it increase minor. In comparison to 2014
it increases 0.14% in 2015. Insurance density level increases in 2001 it was 11.5
American Dollar it increases in 2010 64.4 American Dollar maximum and in 2015
insurance density 54.7 American Dollar.12

Graph 2.1 Insurance penetration in India(percentage)

4.5

3.5

2.5
Life Insurance
2
General insurance
1.5 Total

0.5

12 Source: Swiss Re

51
 Graph 2.2 Insurance Denesity in India

60

50

40

30
Life Insurance
20 General Insurance
10 Total

0
2001
2002
2003
2004
2005
2006

Life Insurance
2007
2008
2009
2010
2011
2012
2013
2014
2015

The density of Insurance business of life in 2001 was 9.1 Dollar and which was increased
up to 55.7 American Dollar which was extreme. The penetration of life insurance in 2001
was 2.15 which were increased up to 4.60 in 2009. In 2015 growth raises to 2.72 percent
comparison to 2014 2.6 percent.

Last ten decades nations non-life insurance penetration stable between the limit of 0.5-0.8
percent. Density of non-life insurance in 2001 was 2.4 American Dollar which is increase to
11.5 Dollar in 2015.

52