IRDAI (INSURANCE REGULATORY DEVELOPMENT

AUTHORITY)

Like all other financial institutions, insurance is an activity that needs to be regulated because 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. 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 law relating to insurance has 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. To promote transparency, regulation
and orderly conduct of insurance business in the country, the Insurance Regulatory and Development
Authority of India (IRDAI was established as statutory body in year 2000 under the IRDAI Act’ 1999.

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. Recently amendments are done under IRDA in compliance with Insurance Law
Amendment Act, 2015.
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.

Board of IRDAI

The Authority shall consist of the following members, namely:--

(a) a Chairperson;

(b) not more than five whole-time members;

(c) not more than four part-time members,

to be 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 or any other discipline which would, in the opinion of the Central
Government, be useful to the Authority:

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 or actuarial science, respectively.

Tenure of office of Chairperson and other members

Section 5. (1) The Chairperson and every other whole-time member shall hold office for a term of five
years from the date on which he enters upon his office and shall be eligible for reappointment:
Provided that no person shall hold office as a Chairperson after he has attained the age of sixty-five
years:
Provided further that no person shall hold office as a whole-time member after he has attained the age of
sixty-two years.
(2) A part-time member shall hold office for a term not exceeding five years from the date on which he
enters upon his office.
(3) 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) be removed from his office in accordance with the provisions of section 6.

Removal from office

Section 6. (1) 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
(c) has been convicted of any offence which, in the opinion of the Central Government, involves moral
turpitude; or
(d) has acquired such financial or other interest as is likely to affect prejudicially his functions as a
member; or
(e) has so abused his position as to render his continuation in office detrimental to the public interest.
(2) No such member shall be removed under clause (d) or clause (e) of subsection (1) unless he has been
given a reasonable opportunity of being heard in the matter.

Bar on future employment of members

Section 8. The Chairperson and the whole-time members shall not, for a period of two years from the
date on which they 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 company in the insurance sector.

Role of IRDA in the Insurance Sector in India

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.
• Resolve disputes of all kinds and speed up claim settlement.
• Set standards and conduct vigilance to check for scams or frauds.
• To protect the interest of and ensure just treatment to insurance policy holders.
• To encourage and ensure the systematic growth of the insurance industry so as to benefit the
common man and help in bringing economic growth.
• To set, promote, monitor and apply high standards of integrity, fair dealing, financial viability and
capability of those it regulates.
• To ensure clarity, preciseness, transparency while dealing with the insurance policy holder. The
Authority ensure that correct information about the products and services is passed on to the policy
holders along with making them aware of their responsibilities.
• To provide dispute resolution mechanism and ensure speedy settlement of genuine claims. The
Authority must check insurance scams and other misconducts.
• To take suitable steps against circumstances where set standards do not prevail or inappropriately
enforced.
• To bring about the optimal amount of self-regulation in day-to-day activities of the industry
reliable with the requirements of the prudential regulation.
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.

Functions of IRDAI
Duties, Powers & Functions of Authority (Section 14)
Powers & Functions to:-
14.(1) Subject to the provisions of this Act and any other law for the time being in force, the Authority
shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-
insurance business.
(2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and
functions of the Authority shall include,--
(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such
registration;
(b) protection of the interests of the policy-holders in matters concerning assigning of policy, nomination
by policy-holders, 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 Intermediary or
insurance intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss assessors;
(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 for carrying out the purposes of this Act;
(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;
(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;
(m) adjudication of 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) exercising such other powers as may be prescribed.

The functions of IRDA includes:

• To protect the interest of and secure fair treatment to policyholders;
• To bring about speedy and orderly growth of the insurance industry (including annuity and
superannuation payments), for the benefit of the common man, and to provide long term funds for
accelerating growth of the economy;
• To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing
and competence of those it regulates;
• To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices
and put in place effective grievance redressal machinery;
• To promote fairness, transparency and orderly conduct in financial markets dealing with insurance
and build a reliable management information system to enforce high standards of financial soundness
amongst market players;
• To take action where such standards are inadequate or ineffectively enforced;
• To bring about optimum amount of self-regulation in day-to-day working of the industry
consistent with the requirements of prudential regulation.
• To register the companies who runs the insurance business.