Insurance Regulatory and Development Authority of India

The Insurance Regulatory and Development Authority of India, commonly known as IRDAI is a supreme authority over India’s insurance market. IRDAI was established under an Act of Parliament, viz., the Insurance Regulatory and Development Authority Act, 1999. IRDAI was formed as an autonomous body primarily to regulate and develop the insurance industry, later it was incorporated as a statutory body in April 2000. Initially, it was set up in New Delhi in April 2000, but later, it was shifted to Hyderabad, Telangana in 2001.

                     IRDAI guides the insurance industry and promotes an efficient insurance business by regulating rates and other charges related to insurance. IRDAI aims to carry forward the interests of policyholders with the speedy settlement of claims. prevent fraud and malpractices. 31 general insurance companies and 24 life insurance companies are enlisted with IRDAI as of September 2020. 

Evolution of Insurance System in India:

                 Insurance has a deep-rooted history dating back to ancient times in India, where the Rigveda refers to the concept of “Yogakshema” reflecting the meaning of “security of people’s well-being”. Dharmashastra and Kautilya’s works on Arthashastra discuss the mobilization of resources to be redistributed in unforeseen circumstances such as disasters, epidemics, earthquakes, floods, and drought.

                 In modern Indian history insurance has evolved from the inspiration in England country, and with that in 1818 “The Oriental Life Insurance” company was established in Kolkata. The British Insurance Act came into force in 1870 in British India. The first statutory regulation framed for life insurance was the “Indian Life Assurance Companies Act, 1912, which deals with insurance in India.

                After post-Independence, The Government of India enacted the Insurance Amendment Act of 1950, which abolished central agencies and decided to nationalize insurance activities in India. On 19 January 1956, the Government of India issued an ordinance to nationalize the life insurance sector in India, and in the same year, the Life Insurance Corporation of India (LIC) came into existence which acts as a single proprietorship in the insurance sector until the 90s when the insurance sector was re-privatized.

                In 1993, The government of India appointed a committee to reform the insurance sector in India, headed by Mr. R N Malhotra who is a retired governor of the RBI. Finally, IRDA was established in April 2000 in New Delhi on the recommendation of the R.N Malhotra Committee.

Composition of Insurance Regulatory and Development Authority of India:

Section 4 of the Insurance Regulatory and Development Authority Act, 1999 refers to the following members of the Authority :

1. A chairman.
2. Full-time members – not more than five.
3. Part-time members – not more than four.

                    The Chairman of IRDAI is appointed by a three-member collegium in consultation with the President of India. Presently as of July 2022, the Chairman of IRDAI is Shri Debasish Panda and he joined as the Chairman of the Insurance Regulatory and Development Authority of India on 14th March 2022.

Duties, Powers, and Functions of the IRDAI:

• Section 14 of the IRDAI Act, 1999 states the functions, powers, and duties of the IRDAI.

Duties of Insurance Regulatory and Development Authority of India (IRDAI):

• IRDAI must check the periodic balance sheet reports submitted by the insurance companies and verify whether the corporate set-up has been established for the policyholders.
• IRDAI suggests different types of policies and different types of insurance schemes for the insurance companies to grow rapidly.
• IRDAI encourages new companies and promotes more in the early stages. Although banks are allowed to encourage insurance companies with their subsidies.
• IRDAI has set rules and regulations for insurance companies, who should be appointed in the companies, what type of insurance business should be preferred,
• The main duty of IRDAI is to protect against coverage of losses in insurance policies and it also prescribes terms and conditions for insurance coverage by policyholders.
• IRDAI should make over the prequalification, training on practical issues policies, for insurance intermediaries, and agents, and issue the conduct certificate for them.
• IRDAI should go through prequalification, and training on practical issues for the insurance intermediaries and agents. It issues a certificate of conduct and license to them and also surveyors and loss assessors with the relevant insurance business.
• Another duty of the IRDAI is to publish information about all insurance companies and their policies on a public platform

Powers of Insurance Regulatory and Development Authority of India (IRDAI):

• IRDAI is authorized to issue a certificate to enroll applicants, the same IRDAI may modify or suspend the certificate if deemed ineligible by the insurance company.
• All insurance companies must carry out insurance business only and must be registered with IRDAI.
• IRDAI has the power to levy fees, commissions, or other charges on insurance companies for Act.
• It has the power to regulate rates, terms, and conditions under Section 64U of the Insurance Act, 1938, and also has the power to make special offers to insurers.
• IRDAI determines the capital structure of insurance companies and they have to deposit with RBI the amount prescribed by IRDAI.
• It has the power to scrutinize insurance claims, insurable interests, and the value of policies that have an agreement between insurance companies and policyholders.
• It is empowered to conduct inspections, inquiries, investigations, and audits of insurers, intermediaries, and other professional bodies connected with the insurance market.
• IRDAI orders insurance companies to appoint actuaries for calculating the liabilities of that particular insurance company and they should report the same to IRDAI.
• IRDAI mandates insurance companies to appoint actuaries to take over the liabilities of a particular insurance company and they will report the same to IRDAI.
• All statements, investment assets, and account balance sheets of insurance companies must be submitted to IRDAI at the beginning of each financial year.
• It has the power to settle disputes between insurance companies and insurers or intermediaries or agents or third-party organizations or customers.
• IRDAI has directed insurance companies to earmark a percentage of their business for crop insurance under the unorganized sector to encourage economically weaker sections.
• IRDA has the power to impose penalties on insurance companies that fail to comply with the rules and regulations outlined in the Act.

Functions of Insurance Regulatory and Development Authority of India (IRDAI):

• Performing the “Tariff Advisory Committee” administrative functions.
• It functions for protecting the interests of the policyholders in terms of grant of policies, settlements of claims, interest rates, and surrender of policies.
• It implements and monitors high standards of respectability, fair management, monetary adequacy, and skill of the protection of policyholders.
• IRDAI has established a functioning grievance redressal system to prevent malpractices and fraud.
• IRDAI ensures insurance coverage through insurance companies to rural people and weaker sections of society.
• It functions as a regulatory body that exercises control and regulates the investment of funds in insurance companies.
• The main function of IRDAI is to maintain high standards of financial stability to be followed by insurance companies and to take appropriate action where such standards are not maintained.
• IRDAI generally observes that an optimum amount is maintained by the insurance industry for self-regulation in day-to-day working requirements.
• IRDAI functions as the regulatory body for the below entities :

1. Life Insurance Companies – Both Private and Public Sector.
2. General Insurance Companies – Private and public sector and some mixed health insurance companies.
3. Re-Insurance Companies.
4. Intermediaries – brokers, agents, third-party firms, surveyors, and loss assessors.

Challenges of the Insurance Regulatory and Development Authority of India (IRDAI):

• Indian people have low financial literacy which is a problem for IRDAI in disseminating the right type of insurance products to the public.
• Indian insurance faces problems of low penetration and density rate and it clearly shows that a large portion of the population is still uninsured.
• The MNYL-NCAER India Financial Protection Survey in collaboration with MAX New York Life Insurance has yielded alarming results that indicate the problem of uninsured and underinsured Indian households.
• The share of insurance business in rural areas is still low and gravitates towards the urban population due to a lack of offices as compared to urban and metropolitan cities.
• According to an IRDAI report, the majority of people are not aware of health insurance as insurance companies consistently ignore the rural markets.
• Regulation of ULIPs by IRDAI has taken away pricing flexibility from insurers. It announces the lowest commission rates for agent companies and it Impacts agent motivation for insurance products, commitment to the industry, and attraction to quality talent.
• Expansion of the insurance business in the Indian market remains a challenge for IRDAI due to insufficient capital among insurance companies and additionally the situation worsened by the COVID-19 pandemic.
• The Reserve Bank of India has raised repo rates consecutively quarter-on-quarter to manage inflation and as a result growth in the insurance industry has become a major challenge for IRDAI.

Way Forward:

• As we know the insurance business is a very important sector of the Indian economy which requires changes from time to time according to per needs of the policyholders.
• IRDAI should showcase the opportunities that are mainly available to policyholders regarding life and health insurance.
• Media and third-party influencers play a major role in the insurance business and they need to understand the importance of insurance, not just comparing returns, which can mislead policyholders.
• The various stakeholders in the insurance business, insurers, distributors, regulators, and policyholders need to come together to build a robust insurance sector in India for a secure society.
• Online digital sale points are gaining popularity in recent times, and IRDAI also should continue to rely on digital platforms with traditional distribution channels.
• Government insurance schemes like Pradhan Mantri Jan Arogya Yojana, Pradhan Mantri Fasal Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, and Pradhan Mantri Jeevan Jyoti Bima Yojana should play a significant role in the insurance sector in India and should lead to better coverage in insurance
• IRDAI should guide insurance companies in India to show long-term commitment to rural people and create various schemes that are favorable to rural people. Also, the distribution mechanism should be improved in rural areas.

Frequently Asked Questions and Answers on IRDAI:

Q1. What were the reforms recommended by the Malhotra Committee?

Ans: In 1994, the Malhotra Committee recommended some reforms in the insurance sector, these were:

1. The government of India should allow the private sector to promote insurance companies.
2. The government of India should also allow foreign promoters.
3. The government should delegate its regulatory powers to an independent regulatory body accountable to Parliament.

Q2. How was the Insurance Regulatory and Development Authority of India (IRDAI) established?

Ans: IRDAI was established under an Act of Parliament, viz., the Insurance Regulatory and Development Authority Act, 1999, and The IRDAI were formed as an autonomous body primarily to regulate and develop the insurance industry, later it was incorporated as a statutory body in April 2000. 

Q3. Briefly describe the membership of IRDAI.

Ans: Section 4 of the Insurance Regulatory and Development Authority Act, 1999 refers to the following members of the IRDAI Authority :

1. A chairman.
2. Full-time members – not more than five.
3. Part-time members – not more than four.

The Chairman of IRDAI is appointed by a three-member collegium in consultation with the President of India. The government of India recruits these members with extraordinary knowledge in the fields of life insurance, general insurance, economics, financial market, law, and accountancy, and experience in these fields is add-ons to the selection process.

Q4. List the insurance organizations working under IRDAI.

Ans:

1. Life Insurance Companies – Both Private and Public Sector.
2. General Insurance Companies – Private and public sector and some mixed health insurance companies.
3. Re-Insurance Companies.
4. Intermediaries – brokers, agents, third-party firms, surveyors, and loss assessors.

Q5. Write the List of important functions of IRDAI.

Ans: IRDAI has established a functioning grievance redressal system to prevent malpractices and fraud. It functions for protecting the interests of the policyholders in terms of grant of policies, settlements of claims, interest rates, and surrender of policies. It implements and monitors high standards of respectability, fair management, monetary adequacy, and skill of the protection of policyholders. IRDAI ensures insurance coverage through insurance companies to rural people and weaker sections of society.

Q6. Write the list of insurance schemes run by the Government of India.

Ans: 

1. Pradhan Mantri Jan Arogya Yojana.
2. Pradhan Mantri Fasal Bima Yojana.
3. Pradhan Mantri Suraksha Bima Yojana.
4. Pradhan Mantri Jeevan Jyoti Bima Yojana