INSURANCE LAW

Assignment on

Insurance Regulatory and Development

Authority of India

Submitted by
ANURAG SUSHANT
Enrollment No: 374817
Roll No: 15225BLT004
B.A. LL.B. (Hons.)
10th Semester
Batch: 2015-20
Session: 2019-20

Of Law School,
Banaras Hindu University, Varanasi.

Under the guidance of

Prof. Sibaram Tripathy

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 ACKNOWLEDGEMENT
I would like to take this opportunity to express my sincere and
profound gratitude to my guide and mentor for this subject
Prof. Sibaram Tripathy for his guidance and constant
encouragement throughout the course of my work. He gladly
accepted all the pains in going through my work, and
participated in enlightening and motivating discussions, which
were extremely helpful.

I humbly extend my words of gratitude to other faculty

members, teachers and administration of the department for
promising me the valuable help and time whenever it was
required.

I would like to express my deepest sense of appreciation to

my family members and mates for their constant
encouragement and support, and finally thanks to the almighty
strength which inspired and continues to inspire me greatly.

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 INDEX

S.No. TOPIC Page No.

1 Introduction to Insurance 04
2 Introduction to IRDAI 06
3 History, Establishment and Composition of 08
IRDAI
4 Duties, Powers and Functions of IRDAI 11
5 Working Mechanism of IRDAI 14
6 Bibliography 16

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 INTRODUCTION TO INSURANCE

The chances of occurrences of the events causing losses are quite

uncertain because these may or may not take place. In other words,
our life and property are not safe and there is always a risk of losing
it. A simple way to cover this risk of loss money-wise is to get life
and property insured. In this business, people facing common risks
come together and make their small contributions to the common
fund. While it may not be possible to tell in advance, which person
will suffer the losses, it is possible to work out how many persons on
an average out of the group may suffer the losses.

When risk occurs, the loss is made good out of the common fund. In
this way, each and everyone share the risk. In fact, insurance
companies bear risk in return for a payment of premium, which is
calculated on the likelihood of loss.

Insurance is a contract between two parties. One party is the insured

and the other party is the insurer. Insured is the person whose life or
property is insured with the insurer. That is, the person whose risks
are insured is called insured. Insurer is the insurance company to
whom risk is transferred by the insured. That is, the person who
insures the risk of insured is called insurer. Thus insurance is a
contract between insurer and insured. It is a contract in which the
insurance company undertakes to indemnify the insured on the

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happening of certain event for a payment of consideration. It is a
contract between the insurer and insured under which the insurer
undertakes to compensate the insured for the loss arising from the risk
insured against.

The insurance industry of India is a huge market with several major

players. So it becomes important that there is an authority overseeing
the industry. And this is where the Insurance Regulatory and
Development Authority of India (IRDAI) comes in.

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 INTRODUCTION TO I.R.D.A.I.

Insurance Regulatory and Development Authority of India is the

regulatory body in India that governs both life insurance and general
insurance companies. India is a vast country that offers great
opportunities to varied segments one of which is the insurance sector.

Let us understand the concept of insurance regulator in a simple way.

India witnesses the concept of a joint family where the head, most
commonly the grandparents, acts as the guardian of each member.
The head takes care of everyone’s needs and maintains a balance for
fair practices to keep the family united. He treats everyone equal and
helps the family in crisis guiding them on how to steer out of it. Now,
similar to how the head of the family plays, IRDAI runs the Indian
insurance industry as per its set rules and guidelines.

The IRDAI is an independent and autonomous statutory body. The

IRDAI was constituted under the Insurance Regulatory and
Development Authority Act which was passed in 1999. The main
function of the IRDAI is to regulate the insurance industry of the
country.

For many years the insurance sector of India was protected. The
IRDA Act of 1999 allowed the entry of private companies in the
insurance sector. It also allowed for 26% investment by foreign
companies. Since 2014 the FDI limit has been increased to 49% and
further opened up the insurance sector.

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So the Insurance Regulatory and Development Authority of India has
a role to protect the policyholders from any form of discriminatory
practices. They regulate all the insurance companies. All companies
have to approach the IRDAI for registration certificates. And they are
responsible for the renewal, modification or cancellation of these
certificates.

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 HISTORY, ESTABLISHMENT AND
COMPOSITION OF I.R.D.A.I.

Insurance in India dates back to the year 1850 with the first General
Insurance company established in Calcutta. Soon, with the passage of
years the market became competitive as many insurers started
emerging both in life and non-life sectors.

Each company practiced business on its rates and rules. It made

customers’ insecure which brought the credibility of the insurance
market at stake. As early as the government realized this fact, they
thought of securing the customer’s interest first and hence established
an independent regulatory body called IRDA.

Over time, new demands rolled and the market got flooded with
several insurance products. Like a responsible head of the family
would act to prevent the family from any damage, IRDA monitors the
development of the insurance industry and other related activities.

General insurance in India began during the Industrial Revolution in

the West and the growth of sea-faring commerce during the 17th
century. It arrived as a legacy of British occupation, with its roots in
the 1850 establishment of the Triton Insurance Company in Calcutta.
In 1907 the Indian Mercantile Insurance was established, the first
company to underwrite all classes of general insurance. In 1957 the
General Insurance Council (a wing of the Insurance Association of

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India) was formed, framing a code of conduct for fairness and sound
business practice.

Eleven years later, the Insurance Act was amended to regulate

investments and set minimum solvency margins and the Tariff
Advisory Committee was established. In 1972, with the passage of the
General Insurance Business (Nationalisation) Act, the insurance
industry was nationalized on 1 January 1973. One hundred seven
insurers were amalgamated and grouped into four companies:
National Insurance Company, New India Assurance Company,
Oriental Insurance Company and United India Insurance Company.
The General Insurance Corporation of India was incorporated in
1971, effective on 1 January 1973.

The re-opening of the insurance sector began during the early 1990s.
In 1993, the government set up a committee chaired by
former Reserve Bank of India governor R. N. Malhotra to propose
recommendations for insurance reform complementing those initiated
in the financial sector. The committee submitted its report in 1994,
recommending that the private sector be permitted to enter the
insurance industry. Foreign companies should enter by floating Indian
companies, preferably as joint ventures with Indian partners.

Following the recommendations of the Malhotra Committee, in 1999

the Insurance Regulatory and Development Authority (IRDA) was
constituted to regulate and develop the insurance industry and was
incorporated in April 2000. Objectives of the IRDA include
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promoting competition to enhance customer satisfaction with
increased consumer choice and lower premiums while ensuring the
financial security of the insurance market.

The IRDA opened up the market in August 2000 with an invitation

for registration applications; foreign companies were allowed
ownership up to 26 percent. The authority, with the power to frame
regulations under Section 114A of the Insurance Act, 1938, has
framed regulations ranging from company registrations to the
protection of policyholder interests since 2000.

In December 2000, the subsidiaries of the General Insurance

Corporation of India were restructured as independent companies and
the GIC was converted into a national re-insurer. Parliament passed a
bill de-linking the four subsidiaries from the GIC in July 2002. There
are 28 general insurance companies, including the Export Credit
Guarantee Corporation of India and the Agriculture Insurance
Corporation of India, and 24 life-insurance companies operating in
the country.

Section 4 of the IRDAI Act 1999 specifies the authority's

composition. It is a ten-member body consisting of a chairman, five
full-time and four part-time members appointed by the government of
India.

However, the regulations are enacted under the guidance of a

statutory advisory committee.

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 DUTIES, POWERS AND FUNCTIONS OF
I.R.D.AI.

At one point of time, some insurance companies used to deny

coverage to their policyholders. The basis of the denial was either
their choice of business to underwrite or was their understanding of
good risk and bad risk. To regulate the market and minimize any sort
of partial acts, the IRDA was established.

Like the banking system in India is regulated as per the guidelines of

RBI. It restricts the bankers to not behave unruly with the account
holders. The banking institutes are allowed to offer loans and interest
as per the rates pre-defined by RBI. It leaves no room for the
monopoly to take over which in turn works best for the masses.
Financial Institutes like banks and insurance companies will be
successful in our democracy until market practices are for the
majority and not just for fraction of people.

IRDA on the same lines of industrial practice plays a vital role like

 Ensures and encourages the systematic growth of the insurance

industry just to benefit the common people who invest in
policies to look for safety.
 Protects the interest of the policyholders so that they trust the
system.
 Promote high standards of integrity and fair dealings in the
market.

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  Resolve disputes of all kinds and speed up claim settlement.
 Set standards and conduct vigilance to check for scams or
frauds.

The Indian economy is growing which further promotes the entrance

of new insurance players in the market. To keep the pace of growth
even-handed, IRDA needs to maintain standards of quality. It will
further contribute to strengthening the financial capacity of a country
as a whole.

The IRDA Act gives the authority its functions and powers. Section
14 of the Act contains the scope of powers of the Insurance
Regulatory and Development Authority of India to regulate
the insurance and reinsurance industry. Let us take a look at the
powers and functions of the IRDAI.

The IRDAI has the authority to issue registration certificates to any

applicant. They also may re-issue, renew, cancel or modify these
certificates as per their discretion.

 Protection of the policyholders in matters such as assigning

of policy, nominating members to the policy, insurable interest,
settlement of claims, and any other such matters
 Make guidelines and provide training for the appropriate code of
conduct for insurance agents and intermediaries
 Also making the code of conduct for loss assessors and
surveyors working with the insurance companies.

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  They can also conduct investigations and audits of insurance
companies, intermediaries, and any other organizations with a
connection to the insurance business
 Regulation of rates, terms, and conditions, etc. that the insurers
offer their customers in the general insurance business
 The IRDAI can also dictate the manner in which the insurance
companies have to maintain their records and books of accounts.
And how they prepare their final accounts as well.
 They regulate how the insurance companies invest their funds
and maintain their margin of solvency
 The adjudication of matters and disputes of any kind involving
the insurance companies or intermediaries is also done by the
IRDAI
 There is a Tariff Advisory Committee with relation to the
insurance company. The IRDAI regulates its functions as well.

Role of IRDAI as a Business Facilitator

One function of the Insurance Regulatory and Development Authority

of India is that it also acts as a business facilitator. It regulates the
insurance industry and creates trust and goodwill in the market for
these insurance companies.

The IRDAI is also responsible for the growth and development of the
insurance sector. The increasing participation of foreign companies
under the watchful eye of the authority is good for both the insurance
sector and the economy as a whole.
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 WORKING MECHANISM OF I.R.D.A.I.

Consider that to run any professional set-up or otherwise, it is very

important to maintain decorum. And so, the one who breaks the rule
and disturbs the peace needs to be checked immediately. Similar to
this, IRDA works and acts as mentioned below in different situations.

IRDA is an autonomous body with the only mission to regulate fair

practices in the insurance market to prevent loss of customers. The
industry is now expected to reach US$280 billion by the year 2020. It
poses that there is a long way to go and hence there arises a dire need
for IRDA actions. To keep up the growth, here is how IRDA works:

 To protect the interest of policyholders at the time of claims,

issuance of the policy, and cancellation of the policy is the
ultimate motive. Hence, it monitors that no insurance
company can deny the claim on their free will unless it falls
beyond the scope of the cover.
 There is a need to tame the market to a single tune which brings
the players together and then compete with each other simply
based on the discounts. And so, IRDA clearly states the code of
conduct for all insurance companies, surveyors, and loss
assessors.
 To prevent any misdeed, it calls for both annual or need-based
audit, conduct investigation, call for information from either the
insurance companies or intermediaries.

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  Regulate the rates and terms offered by the insurance companies
to bring equality for the customers.
 If there arises any dispute between the insurer and the
policyholder, then IRDA will step in to provide a resolution.
 To prevent different insurers quote rates as per their
convenience, they bound the major risks to the Tariff Advisory
Committee. After this, the insurers keep in mind the percentage
of premium income they would need to fund the professional
organizations.
 Keeping in mind the development of both the urban and the
rural sector, IRDA bounds the insurers with a minimum
percentage to carry both life and non -life business.

The scope of work is wide and IRDA as a body works abiding its
limit without favoring any single insurance companies.

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 BIBLIOGRAPHY

BOOKS REFERRED:

 Law of Insurance, (Avatar Singh), 3rd Edition 2017, Eastern

Book Publication.

WEBSITES REFERRED:

 https://financialservices.gov.in/insurance-divisions/Insurance-
Regulatory-&-Development-Authority
 https://www.toppr.com/guides/commercial-
knowledge/organizations-facilitating-business/insurance-
regulatory-and-development-authority-of-india-irdai/
 https://en.wikipedia.org/wiki/Insurance_Regulatory_and_Devel
opment_Authority
 https://www.godigit.com/guides/what-is-irda
 https://www.eindiainsurance.com/insurance/irda.asp

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