Insurance Regulatory & Development Authority of India (IRDAI)

Like all other financial institutions, insurance is an activity that needs to be regulated as health of
the insurance sector reflects a country’s economy. This sector not only generates long terms funds
for infrastructural development but also increase a country’s risk taking capacity.1 The basic
rationale to regulate this sector is to maintain the confidence of the financial system and to
provide appropriate degree of consumer protection. Moreover, the smooth functioning of a
business depends on the trust and confidence reposed by the customers in the solvency of the
financial institutions. A proper regulatory mechanism is therefore the sine qua non of success and
growth of insurance industry as it inspires the confidence of all stakeholders. The Indian
Insurance Sector went through a full circle of phases from being unregulated to completely
regulate and then currently being partly regulated. And the law relating to insurance has also
gradually developed, undergoing several phases from nationalization of the insurance industry to
the recent reforms permitting entry of private players and foreign investment in the insurance
industry.
To study the liberalization process in Insurance sector in India, Malhotra Committee was formed
under the Chairmanship of Late Shri R.N. Malhotra. The Malhotra committee submitted its report
in 1994 which recommended that private companies be allowed to operate in India. The
Government accepted the Committee’s recommendation and Insurance Regulatory Authority
(IRA) was set up in 1996 to show the path for privatization of insurance Industry. The main aim
was the development of Insurance covering all strata of society (to not only rich but poor, folks
from rural, tribal, unorganized sector, social sector, disabled community, daily wagers, women at
large, etc.) gained importance through concerns put forth by political leaders, trade unionists,
social organisations, cooperatives and policy makers; which amended the name IRA to IRDA
(Insurance Regulatory & Development Authority). Again some amendments were made in the
Insurance Act 1938 for smooth functioning of IRDA.

INSURANCE REGULATORY DEVELOPMENT AUTHORITY ACT (IRDA) 1999

This Act was passed by Parliament in Dec.1999 & it received presidential assent in January 2000.
The aim of the Authority is “to protect the interest of holders of Insurance policies, to
regulate, promote and ensure orderly growth of Insurance industry & for matters
connected therewith or incidental thereto.” Under this Act, an authority called IRDA is
established which replaces Controller of Insurance under Insurance Act 1938.
Features of Authority:
 Corporate body by the aforesaid name which means it will act as group of persons, called
members, who will work jointly not as an individual person like Controller of Insurance.
 Having perpetual succession which means any member may resign or die but the
Authority will work.
 A common seal with power to enter into a contract by affixing a stamp on the documents.
 Sue or be sued means the Authority can file a case against any person or organization and
vice versa.
Composition of Authority:
The Authority shall consist of nine persons as per details given below:
 Chairperson.
 Not more than 5 whole time members.
 Not more than 4 part time members.
These persons shall be appointed by the Central Govt. from amongst persons of ability, integrity
& standing who have knowledge or experience in life Insurance, general Insurance, actuarial
science, finance, economics, law accountancy, administration or other discipline which would in
the opinion of the Central Govt. be useful to the Authority. (Section 4)
Tenure (Section 5)
 The Chairman tenure will be for 5 years and eligible for reappointment till he attains the
age of 65 years.
 The appointment of members will be for 5 years and eligible for reappointment but not
exceeding the age 62 years.
Removal of Members (Section 6)
The Central Government can remove any member of the Authority if he:-
a) Is declared bankrupt
b) Has become physically or mentally incapable of acting as a member
c) Has been awarded punishment by any Court.
d) Has acquired such financial or other interest which affect his function as a member.
e) Has so abused his position as to render his continuation in office detrimental to the public
interest.
But no member can be removed from the office unless & until the reasonable opportunity of
being heard is given to such member in the matter.
Bar on future employment (Section 8)
The Chairperson and the whole time members cannot accept any appointment without Govt.
approval within 2 years from the date on which he ceases or retires from the office.
CHAIRPERSON, MEMBERS, OFFICERS AND OTHER EMPLOYEES OF
AUTHORITY TO BE PUBLIC SERVANTS- Section 21 says that the Chairperson, members,
officers and other employees of Authority shall be deemed, when acting or purporting to act in
pursuance of any of the provisions of this Act, to be public servants within the meaning of section
21 of the Indian Penal Code (45 of 1860).

PROTECTION OF ACTION TAKEN IN GOOD FAITH.—Section 22 says that No suit,

prosecution or other legal proceedings shall lie against the Central Government or any officer of
the Central Government or any member, officer or other employee of the Authority for anything
which is in good faith done or intended to be done under this Act or the rules or regulations made
thereunder: Provided that nothing in this Act shall exempt any person from any suit or other
proceedings which might, apart from this Act, be brought against him.

Duties, Powers & Functions of Authority (Section 14)

Duties: The Authority shall have the duty to regulate, promote and ensure orderly growth of the
Insurance business and reinsurance business subject to the provisions of any other provisions of
the act.
Powers & Functions to:-
(a) Issue to the applicant (Insurance company or Insurance Agent or Surveyors or Insurance
Brokers or Third Party Administrators) a certificate of registration, renew, modify,
withdraw, suspend or cancel such registration;
(b) Protection of the interests of the policyholders in matters concerning assigning of policy,
nomination by policyholders, insurable interest, settlement of insurance claim, surrender
value of policy and other terms and conditions of contracts of insurance;
(c) Specifying requisite qualifications, code of conduct and practical training for insurance
brokers , agents, surveyors, Third Party Administrator ;
(d) Specifying the code of conduct for surveyors and loss assessors (Who assess the loss of
policyholder in case of General Insurance);
(e) Promoting efficiency in the conduct of insurance business;
 (f) Promoting and regulating professional organisations connected with the insurance and re-
insurance business;
(g) Levying fees and other charges on insurance companies, Agents, Insurance Brokers,
Surveyors and Third party Administrator;
(h) Calling for information from, undertaking inspection of, conducting enquiries and
investigations including audit of the insurers, intermediaries, insurance intermediaries and
other organisations connected with the Insurance business;
(i) 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 64U of the Insurance Act, 1938 (w.e.f.,
1/1/2007 TAC has ceased to function).
(j) 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;
(k) Regulating investment of funds by insurance companies;
(l) Regulating maintenance of margin of solvency i.e., having sufficient funds to pay
insurance claim amount;
(m) To settle the disputes between insurers and intermediaries or insurance intermediaries;
(n) Supervising the functioning of the Tariff Advisory Committee;
(o) Specifying the percentage of premium income of the insurer to finance schemes for
promoting and regulating professional organisations referred to in clause(f);
(p) Specifying the percentage of life insurance business and general insurance business to be
undertaken by the insurer in the rural or social sector; and
(q) (q) Exercising such other powers as may be prescribed.

POWER OF CENTRAL GOVERNMENT TO ISSUE DIRECTIONS- Under the provision

of Section 18 it is said that Without prejudice to the foregoing provisions of this Act, the
Authority shall, in exercise of its powers or the performance of its functions under this Act, be
bound by such directions on questions of policy, other than those relating to technical and
administrative matters, as the Central Government may give in writing to it from time to time.
PROVIDED that the Authority shall, as far as practicable, be given an opportunity to express its
views before any direction is given under this sub-section. The decision of the Central
Government, whether a question is one of policy or not, shall be final.

POWER Of CENTRAL GOVERNMENT TO MAKE RULES- As per Section 24 of IRDAI

Act the Central Government may, by notification, make rules for carrying out the provisions of
this Act. In particular, and without prejudice to the generality of the foregoing power, such rules
may provide for all or any of the following matters, namely:
(a) the salary and allowances payable to, and other terms and conditions of service of, the
members other than part-time members under sub-section(1) of Section 7;
(b) the allowances to be paid to the part-time members under sub-section(2) of Section 7;
(c) such other powers that may be exercised by the Authority under clause (q) of sub-
section(2) of Section 14;
(d) the form of annual statement of accounts to be maintained by the Authority under sub-
section(1) of Section 17;
(e) the form and the manner in which and the time within which returns and statements
and particulars are to be furnished to the Central Government under sub-section(1) of
Section 20;
(f) the matters under sub-section(5) of section 25 on which the Insurance Advisory
Committee shall advise the Authority;
 (g) Any other matter which is required to be, or may be, prescribed, or in respect of which
provision is to be or may be made by rules.

POWER OF CENTRAL GOVERNMENT TO SUPERSEDE AUTHORITY- Section 19

says that if at any time the Central Government is of the opinion-
(a) that, on account of circumstances beyond the control of the Authority, it is unable to
discharge the functions or perform the duties imposed on it by or under the provisions
of this Act, or
(b) that the Authority has persistently defaulted in complying with any direction given by
the Central Government under this Act or in the discharge of the functions or
performance of the duties imposed on it by or under the provisions of this Act and as a
result of such default the financial position of the Authority or the administration of the
Authority has suffered; or
(c) that circumstances exist which render it necessary in the public interest so to do, the
Central Government may, be notification and for reasons to be specified therein,
supersede the Authority for such period, not exceeding six months, as may be specified
in the notification and appoint a person to be the Controller of Insurance under section
2B of the Insurance Act, 1938 (4 of 1938), if not already done: Provided that before
issuing any such notification, the Central Government shall give a reasonable
opportunity to the Authority to make representations, if any, of the Authority.
Upon the publication of a notification under sub-section (1) superseding the Authority,-
(a) the Chairperson and other members shall, as from the date of supersession, vacate their
offices as such;
(b) all the powers, functions and duties which may, by or under the provisions of this Act,
be exercised or discharged by or on behalf of the Authority shall, until the Authority is
reconstituted under sub-section(3), be exercised and discharged by the Controller of
Insurance; and
(c) All properties owned or controlled by the Authority shall, until the Authority is
reconstituted under sub-section (3), vest in the Central Government.
On or before the expiration of the period of supersession specified in the notification issued under
sub-section (1), the Central Government shall reconstitute the Authority by a fresh appointment
of its Chairperson and other members and in such case any person who had vacated his office
under clause (a) of sub-section (2) shall not be deemed to be disqualified for reappointment. The
Central Government shall cause a copy of the notification issued under sub-section (1) and a full
report to any action to be laid before each House of Parliament at the earliest.

POWER OF IRDAI TO MAKE REGULATIONS- As per Section 26 of the IRDA Act 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. 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 transactions 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.

RULES AND REGULATIONS TO BE LAID BEFORE PARLIAMENT (Section 27). Every

rule and every regulation made under this Act shall be laid, as soon as may be after it is made,
before each House of Parliament, while it is in session, for a total period of thirty days which may
be comprised in one session or in two or more successive sessions, and if, before the expiry of the
session immediately following the session or the successive session aforesaid, both Houses agree
in making any, modification in the rule or regulation or both Houses agree that the rule or
regulation should not be made, the rule or regulation shall thereafter have effect only in such
modified form or be of no effect, as the case may be; so, however, that any such modification or
annulment shall be without prejudice to the validity of anything previously done under that rule
or regulation.

Establishment of Insurance Advisory Committee (Section 25)

1. The Authority may, by notification, establish with effect from such date as it may specify in
such notification, a Committee to be known as the Insurance Advisory Committee.
2. The Insurance Advisory Committee shall consist of not more than twenty-five members
excluding ex-officio members to represent the interests of commerce, industry, transport,
agriculture, consumer fora, surveyors, agents, intermediaries, organisations engaged in safety
and loss prevention, research bodies and employees’ association in the insurance sector.
3. The Chairperson and the members of the Authority shall be the ex-officio Chairperson and ex
officio members of the Insurance Advisory Committee.
4. The objects of the Insurance Advisory Committee shall be to advise the Authority on matters
related to insurance.
5. The Insurance Advisory Committee may advise the Authority on such other matters as may be
prescribed.

IMPORTANT REGULATIONS:
Insurance Regulatory and Development Authority (Obligations of Insurers to Rural Social
Sectors) Regulations, 2000 (Also See the same regulation of 2008 at
https://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=RL&mid=3.2
.1)
Under the provisions of Sections 32B and 32C of the Insurance Act, 1938, insurance companies
are obliged to provide such percentages of business as may be specified by the IRDA, for persons
in the rural sector or social sector, workers in the unorganised or informal sector, for
economically vulnerable or backward classes of the society and other categories of persons, as
may be specified by the IRDA. The IRDA has, in pursuance of the provisions of the above two
sections of the Insurance Act, issued the (Obligations of Insurers to Rural or Social Sectors)
Regulations, 2000, which lays down that every insurer transacting general insurance business,
shall underwrite business in the rural sector, to the extent of at least 2% of total gross premium in
the first financial year, at least 3% of gross premium in the second financial year and 5% of the
gross premium in the third and further financial years. The obligations include insurance for
crops. The Rural sector has been defined as any place which, as per the last census, has a
population of not more than 5000, density of population of not more than 400 per square
kilometer, and at least 75% of the male working population engaged in agriculture. The
Government of India has launched various programmes for the benefit of small farmers, marginal
farmers, agricultural laborers, etc. Since 1980, all these programmes have been integrated into
Integrated Rural Development Programme (IRDP) which is funded by the Central and State
governments on 50:50 basis. The objective of the programme is to provide, to the target group of
 rural families, a package of assistance comprising of income generating assets, working capital,
etc. through subsidy, institutional credit, etc. Insurers will evolve appropriate strategies and plans
to meet these obligations.
The (IRDA) Insurance Regulatory and Development Authority Act, 1999 (para 19; first schedule)
has amended the Section 32B and 32C of the Insurance Act, 1938 as under:
Section 32B- Every insurer shall, after the commencement of Insurance Regulatory and
Development Authority Act, 1999, undertakes such percentages of life insurance business and
general insurance business in the rural and social sector, as may be specified, in the Official
Gazette by the authority, in this behalf.
Section 32C- Every insurer shall, after the commencement of Insurance Regulatory and
Development Authority Act, 1999, discharge the obligations specified under Section 32B to
provide life insurance or general insurance policies to those residing in the rural sector, workers
in the unorganized sector of informal sector or economically vulnerable or backward classes of
the society and other categories of persons as may be specified by the regulations made by the
authority and such insurance policies shall include insurance for crops. The IRDA Regulations
2000 makes it compulsory for the insurers, existing and new to promote the rural insurance. The
regulations prescribe for undertaking benchmark percentages for insurances in the rural insurance
sector for the players.
As per Insurance Regulatory and Development Authority (Obligations of Insurers to Rural Social
Sectors) Regulations, 2000 every insurer shall undertake following percentages of life insurance
business and general insurance business in the rural and social sector:
a) rural sector,
I. in respect of a life insurer, --
i. Five per cent in the first financial year;
ii. Seven per cent in the second financial year;
iii. Ten per cent in the third financial year;
iv. Twelve per cent in the fourth financial year;
v. Fifteen per cent in the fifth year; of total policies written direct in that year;
II. in respect of a general insurer,--
i. Two per cent in the first financial year;
ii. Three per cent in the second financial year;
iii. Five per cent thereafter, of total gross premium income written direct in that year.
b) social sector, in respect of all insurers, --
i. five thousand lives in the first financial year;
ii. seven thousand five hundred lives in the second financial year;
iii. ten thousand lives in the third financial year;
iv. fifteen thousand lives in the fourth financial year;
v. twenty thousand lives in the fifth year;
Provided that in the first financial year, where the period of operation is less than twelve months,
proportionate percentage or number of lives, as the case may be, shall be undertaken. Provided
further that, in case of a general insurer, the obligations specified shall include insurance for
crops. Provided further that the Authority may normally, once in every five years, prescribe or
revise the obligations as specified in Regulation 3.
IRDA (Insurance Advertisement and Disclosure) Regulations, 2000: The insurers are bound
by the IRDA (Insurance Advertisement and Disclosure Regulation, 2000).In fact, the law relating
to advertisements binds the insurers while they issue advertisements to market their insurance
products. In addition to the existing law of advertisements, all insurers are bound by the IRDA
regulations. The IRDA regulations on advertisements are made with an objective to check
misleading advertisements from being issued by the insurance companies and protect the
common person from ornamental and ambiguous advertisements. Every advertisement, the
insurer issues, is subject to inspection and review by the authority. Every insurer has an
obligation to have a statutory warning as prescribed under Section 41 of the Insurance Act, 1938,
which states that `no rebate is given or commission is payable to any person who directly or
indirectly induces a person to purchase the policies’. Thus, the insurers are bound tight under the
IRDA regulations.

Insurance Regulatory and Development Authority (Licensing of Insurance Agents)

Regulations, 2000:
Qualifications of the Insurance Agent- The applicant shall possess the minimum qualification
of a pass in 12th Standard or equivalent examination conducted by any recognised
Board/Institution, where the applicant resides in a place with a population of five thousand or
more as per the last census, and a pass in 10th Standard or equivalent examination from a
recognised Board/ Institution if the applicant resides in any other place.
Practical Training - (1) The applicant shall have completed from an approved institution, at
least, one hundred hours’ practical training in life or general insurance business, as the case may
be, which may be spread over three to four weeks, where such applicant is seeking licence for the
first time to act as insurance agent. Provided that the applicant shall have completed from an
approved institution, at least, one hundred fifty hours’ practical training in life and general
insurance business, which may be spread over six to eight weeks, where such applicant is seeking
licence for the first time to act as a composite insurance agent.
Code of Conduct- (1) Every agent, shall adhere to the code of conduct specified below:-
I. Every insurance agent shall,---
(a) identify himself and the insurance company of whom he is an insurance agent;
(b) show the agency identity card to the prospect, and also disclose his agency
appointment letter to the prospect on demand;
(c) disseminate the requisite information in respect of insurance products offered for
sale by his insurer and take into account the needs of the prospect while
recommending a specific insurance plan;
(d) where the Insurance agent represents more than one insurance company offering
same line of products, he should dispassionately advice the policyholder on the
products of all Insurers whom he is representing and the product best suited to the
specific needs of the prospect.
(e) disclose the scales of commission in respect of the insurance product offered for
sale, if asked by the prospect;
(f) indicate the premium to be charged by the insurer for the insurance product offered
for sale;
 (g) explain to the prospect the nature of information required in the proposal form by
the insurer, and also the importance of disclosure of material information in the
purchase of an insurance contract;
(h) bring to the notice of the insurer any adverse habits or income inconsistency of the
prospect, in the form of a report called “Insurance Agent’s Confidential Report”
along with every proposal submitted to the insurer, and any material fact that may
adversely affect the underwriting decision of the insurer as regards acceptance of
the proposal, by making all reasonable enquiries about the prospect;
(i) obtain the requisite documents at the time of filing the proposal form with the
insurer; and other documents subsequently asked for by the insurer for completion
of the proposal;
(j) advise every prospect to effect nomination under the policy
(k) inform promptly the prospect about the acceptance or rejection of the proposal by
the insurer;
(l) render necessary assistance and advice to every policyholder on all policy servicing
matters including assignment of policy, change of address or exercise of options
under the policy or any other policy service, wherever necessary;
(m)render necessary assistance to the policyholders or claimants or beneficiaries in
complying with the requirements for settlement of claims by the insurer;

II. No insurance agent shall,----

(a) solicit or procure insurance business without being appointed to act as such by the
insurer
(b) induce the prospect to omit any material information in the proposal form;
(c) induce the prospect to submit wrong information in the proposal form or documents
submitted to the insurer for acceptance of the proposal;
(d) Resort to multilevel marketing for soliciting and procuring insurance policies
and/or induct any prospect/policyholder to join a multilevel level marketing
scheme.
(e) behave in a discourteous manner with the prospect;
(f) interfere with any proposal introduced by any other insurance agent;
(g) offer different rates, advantages, terms and conditions other than those offered by
his insurer;
(h) demand or receive a share of proceeds from the beneficiary under an insurance
contract;
(i) force a policyholder to terminate the existing policy and to effect a new policy from
him within three years from the date of such termination of the earlier policy;
(j) apply for fresh agency appointment to act as an insurance agent, if his agency
appointment was earlier cancelled by the designated official, and a period of five
years has not elapsed from the date of such cancellation;
(k) become or remain a director of any insurance company;

III. Every insurance agent shall, with a view to conserve the insurance business already
procured through him, make every attempt to ensure remittance of the premiums by
the policyholders within the stipulated time, by giving notice to the policyholder orally
and in writing;
IV. The insurer shall be responsible for all acts and omissions of its agents including
violation of code of conduct specified under these Regulations, and shall be liable to a
penalty which may extend to one crore rupees.
IRDA (Appointed Actuary) Regulations, 2000: (See the Original Regulation and
Amendments to it)
Every insurance company, must now is necessarily required to have an “appointed actuary.” His
role has been defined in the regulations issued by IRDA. While the appointed actuary will receive
his remuneration from the company, he will also be reporting to IRDA direct on certain matters
which are critical and may require immediate IRDA intervention.
‘Actuary’ means a person skilled in determining the present effects of future contingent events or
in finance modelling and risk analysis in different areas of insurance, or calculating the value of
life interests and insurance risks, or designing and pricing of policies, working out the benefits
recommending rates relating to insurance business, annuities, insurance and pension rates on the
basis of empirically based tables and includes a statistician engaged in such technology, taxation,
employees’ benefits and such other risk management and investments and who is a fellow
member of the Institute.
Traditional responsibilities of Actuaries in life and general insurance business include designing
and pricing of policies, monitoring the adequacy of the funds to provide the promised benefits,
recommending fair rate of bonus where applicable, valuation of the insurance business, ensuring
solvency margin and other insurance risks like legal liability, loss of profit, etc. They also define
the risk factors, advise on the premia to be charged and re-insurance to be purchased, calculate
reserve for outstanding claims and carry out financial modelling. An Actuary works as consultant
either individually or in partnership with other Actuaries in multi-disciplines likfe insurance,
information technology, taxation, employees benefit, risk management, investment, etc.
Evidently, the scope of the functions and duties of an Actuary has increased considerably under
the changed conditions.
(a) Actuaries Make Financial Sense of the Future
Actuaries are experts in assessing the financial impact of tomorrow’s uncertain events. They
enable financial decisions to be made with more confidence by:
 Analyzing the past
 Modelling the future
 Assessing the risks involved, and
 Communicating what the results mean in financial terms.
(b) Actuaries Enable More Informed Decisions:
Actuaries add value by enabling businesses and individuals to make better-informed decisions,
with a clearer view of the likely range of financial outcomes from different future events.
The actuaries skills in analysis and modelling of problems in finance, risk management and
product design are used extensively in the areas of insurance, pensions, investment and more
recently in wider fields such as project management, banking and health care. Within these
industries, actuaries perform a wide variety of roles such as design and pricing of product,
financial management and corporate planning. Actuaries are invariably involved in the overall
management of insurance companies and pension, gratuity and other employee benefit funds
schemes; they have statutory roles in insurance and employee benefit valuations to some extent in
social insurance schemes sponsored by government.
Actuarial skills are valuable for any business managing long-term financial projects both in the
public and private sectors.
Actuaries apply professional rigor combined with a commercial approach to the decision -making
process.

Actuaries Balance the Interests of All

Actuaries balance their role in business management with responsibility for safeguarding the
financial interests of the public. The duty of Actuaries to consider the public interest is illustrated
by their legal responsibility for protecting the benefits promised by insurance companies and
pension schemes. The professions code of conduct demands the highest standards of personal
integrity from its members.

It is suggested to go through class notes also.