Unit – V

REGULATION OF INSURANCE BUSINESS IN INDIA

This Act was passed by Parliament in Dec.1999 & it received presidential assent in Jan.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.
The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the
IRDA include promotion of competition so as to enhance customer satisfaction through
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 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.
Beside IRDA Act and Insurance Act, 1938, there are some common Act/Regulation to the
General and Life Insurance Business in India and some Acts have been made for specific
requirement of Life Insurance/General Insurance Acts/Regulations common to General and
Life Insurance Business in India The following Acts regulate the Insurance Business in India.
• Insurance Act,1938
• IRDA Act,1999
• Insurance Amendment Act,2002
• Exchange Control Regulations(FEMA)
• Insurance Co-opSociety
• Indian Stamp Act,1899
•Consumer Protection Act,1986
• Insurance Ombudsman

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.

Subject: Banking and Insurance Law Course Incharge: Dr.M.Sekar

Programme : III B.Com CA

 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)
CONSTITUTION OF INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY
The IRD Act has established the Insurance Regulatory and Development Authority (“IRDA”
or “Authority”) as a statutory regulator to regulate and promote the insurance industry in
India and to protect the interests of holders of insurance policies. The IRDA Act also carried
out a series of amendments to the Act of1938 and conferred the powers of the Controller of
Insurance on the IRDA. The members of the IRDA are appointed by the Central Government
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 etc. The Authority consists of a chairperson, not more than five whole-time
members and not more than four part-time members. Every Chairperson and member of
IRDA appointed shall hold office for a term of five years. However, Chairperson shall not
hold office once he or she attains 65 years while whole time members shall not hold office
beyond 62 years. Central Government may remove any member from office if he or she is
adjudged insolvent or is physically or mentally incapacitated or has been convicted of an
offence involving moral turpitude or has acquired financial or other interests or has abused
his position. Chairperson and the whole time members shall not for a period of two years
from the date of cessation of office in IRDA, hold office as an employee with Central
Government or any State Government or with any company in the insurance sector.
POWERS /FUNCTIONS OF IRDA Under Section 14 of the IRDA Act, IRDA has the
following powers:
(a) Issue of Certificate of Registration to insurance companies, renew, modify, withdraw,
suspend or cancel the certificate of registration
(b) Protection of interests of policyholders in matters concerning assignment of policies,
nomination, insurable interest, claim settlement, surrender value and other terms and
conditions of insurance contract

Subject: Banking and Insurance Law Course Incharge: Dr.M.Sekar

Programme : III B.Com CA

 (c) Specification of requisite qualifications, practical training and code of conduct for
insurance agents and intermediaries
(d) Specification of code of conduct for surveyors and loss assessors
(e) Promoting efficiency in the conduct of insurance business
(f) Promoting and regulating professional organizations connected with insurance and
reinsurance business
(g) Levying fees and other charges for carrying out the purposes of the Act
(h) Calling for information from or undertaking inspection of insurance companies,
intermediaries and other oganisations connected with insurance business
(i) Control and regulation of rates, advantages, terms and conditions that may be offered by
general insurance companies
(j) Specifying the form and manner in which books of account shall be maintained by
insurance companies and intermediaries
(k) Regulation of investments of funds by insurance companies
(l) Regulation of maintenance of margin of solvency
(m) Adjudication of disputes between insurers and insurance intermediaries
(n) Supervising the functioning of Tariff Advisory Committee
(o) Specifying the percentage of premium income of the insurer to finance schemes for
promoting and regulating professional organizations.
Powers of IRDA with reference to control of management of insurance companies, takeover
of management, mergers, acquisitions and winding up Section 52A empowers IRDA to make
a report to Central Government if the affairs of a Life insurance Company are carried on in
any manner prejudicial to the interests of policyholders.
Based on the Report, the Central Government is empowered to appoint an Administrator to
manage the affairs of the life insurance company.
A report shall be filed by such Administrator to the Central Government giving his
recommendations on the way forward, including the options of transfer of business to an
existing insurer or winding up, as he deems fit.
Central Government is empowered to take such action as it deems fit based on the Report of
the Administrator.
Section 52H empowers Central Government to acquire the undertaking of any insurer based
on a report from IRDA on failure to comply with directions or if the insurance company is
being managed in a manner detrimental to the public interest or in the interests of public or
policyholders it is appropriate to do so.

Subject: Banking and Insurance Law Course Incharge: Dr.M.Sekar

Programme : III B.Com CA

Powers of IRDA for imposition of penalties for default in complying with the Act (Section
102) Section 102 empowers IRDA to impose a penalty not exceeding Rupees five lakhs for
each of the following failures by an insurance company:
(a) Failure to furnish any document, statement, account, return or report to IRDA
(b) Failure to comply with the directions (Section 34 empowers IRDA to issue directions if it
is satisfied to do so in the interests of public or for prevention of affairs being conducted
detrimental to policyholders or to secure proper management of any insurer)
(c) Failure to maintain the required solvency margin
(d) Failure to comply with the directions on the insurance treaties Further Section 105B
empowers IRDA to impose a penalty not exceeding Rupees Five lakhs for failure to comply
with Section 32B, while Section 105C empowers IRDA to impose a penalty not exceeding
Rupees Twenty five lakhs for failure to comply with Section 32C, with cancellation of
certificate of registration for continuing failure.

Subject: Banking and Insurance Law Course Incharge: Dr.M.Sekar

Programme : III B.Com CA