Introduction:
In the year 1818, the first insurance company was set up in Kolkata, followed by which the life insurance sector was nationalized on 1st January 1973. Later in the late 90s, the insurance sector was again reopened to the private sector. And thus, arose the need to regulate the insurance sector. A committee was set up by the government to make proposal and recommendations for making reformations in the insurance sector. The committee was under the chairmanship of RN Malhotra, who was the former Governor of RBI. In the year 1994, a report was submitted by the committee, under which it was recommended to grant permission for the private sector to enter into the insurance industry. It was also recommended that foreign companies should be allowed to enter the insurance market by floating Indian companies, a joint venture system with the Indian companies was proposed.
Later in 1999, followed by the recommendations of the Malhotra Committee, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry of India.[1] The Insurance Regulatory and Development Authority (IRDA) consists of one chairperson and not more than five whole-time members and not more than four part-time members. Further, in April 2000 the Insurance Regulatory and Development Authority (IRDA) was incorporated as a statutory body. The headquarters of the Insurance Regulatory and Development Authority (IRDA) was shifted from Hyderabad, Andhra Pradesh to Delhi in the year 2001. Further in the coming year, due to the newly emerging requirements of the Indian insurance industry, the Insurance Regulatory and Development Authority (IRDA) was amended in 2002.
Regulatory Powers of IRDAI
The Insurance Regulatory and Development Authority (IRDA) has been vested with many powers under the IRDAI Act,199 for regulating the distributors of the insurance policy. The Insurance Regulatory and Development Authority (IRDA) should ensure fair treatment of the policyholders by the insurance companies and in turn, protect the interests of the policyholder. Provision 8 of the IRDA (Protection of Policyholders Interests) Regulations, 2002 lays down the guidelines which are required on claim procedure in the case of a life insurance policy. The IRDAI Act, 1999 lays down the specification of the required qualifications, code of conduct and practical training for the insurance agents and intermediaries. Some of the main functions of the Insurance Regulatory and Development Authority (IRDA) that is powers, functions and duties are laid down under Section 14 of IRDA Act, 1999. These includes are:
- To promote the overall efficiency in conducting of the insurance business. To ensure orderly growth of the insurance business and re-insurance business. Issuing certificate of registration, modify, withdraw, renew, suspend or cancel such registration.
- Protecting the interests of the policyholders in matters such as assigning of policy, nomination by policyholders, settlement of insurance claim, insurable interest, surrender value of the policy and other terms and conditions of contracts of insurance.
- Conducting inspections of insurance companies or acquiring information from insurance companies, intermediaries and other organizations that are related to the insurance business.
- Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations.
- Lays out the rules or guidelines according to which the books of account should be maintained by the insurance companies and intermediaries.
- Specifies the code of conduct required for conducting surveys.
- To regulating investments of funds by regulating the maintenance of margin of solvency, insurance companies, adjudication of disputes between insurers and intermediaries or insurance intermediaries.
- One of the important powers vested is to regulate and control the rates, advantages, terms and conditions that may be offered by insurance companies. Regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938).
- Specify the required percentage of life insurance business and general business to be undertaken by the insurer in the social or rural sector.
Further, if we look closely into the Insurance Regulatory and Development Authority of India Act, 1999 it can be seen that under section 24, the central government is given the power to make rules. And under Section 26, the powers to make regulations are laid down, which gives the authority powers to make regulations that are in consistence with the Insurance Regulatory and Development Authority of India Act, 1999.
The mission of the Insurance Regulatory and Development Authority (IRDA) are explained below:
- To monitor, promote, set and enforce high standards of integrity, fair dealing, financial soundness and competence of which all it regulates.
- To increase or promote the transparency, fairness and orderly conduct in financial markets which deals with insurance and to build a reliable information management system so that high standards of financial standards can be enforced amongst market players.
- To ensure fair treatment of policyholders and to ensure the protection of their interest and rights.
- To take action in cases where the standards are inadequate or ineffectively enforced.
- To ensure orderly and speedy growth of the insurance industry in a way that it benefits the common man and also to provide long term funds which accelerate the growth of the economy.
- To ensure that there are no malpractices, to prevent insurance fraud, to ensure speedy settlements of genuine claims and for building reliable and effective redressal machinery.
The Insurance Regulatory and Development Authority (IRDA) of India regulates the minimum statutory solvency ratio and lays out that it should be 1.5 at all times for an insurance company. This means that the assets of the company should be 1.5 times of liability at all times. And in case there is a threat to it and falls below the desired ratio then the shareholders should bring in extra or additional capital and should boost the solvency. There has been a completely separate regulation on the assets, solvency margins and liabilities issued by the Insurance Regulatory and Development Authority (IRDA). This is used as the method to evaluate the assets and liabilities of the insurance company. The insurance companies are also supposed to disclose the necessary information in the newspaper, websites etc. as required by the Insurance Regulatory and Development Authority (IRDA) regulations on disclosure norms.
Some of the persons authorized to sell insurance policies are as follows: corporate agents, individual agents, telemarketing who are authorized verifiers, insurance brokers, web aggregators, insurance marketing firms, point of sale persons, motor insurance service providers, micro-insurance agents & common service centres.
Individual Agents
Section 42 of the Insurance Act, 1938 permits appointment of an individual by an insurance company to sell insurance policies on their behalf. An insurance agent can be disqualified on the following conditions:
- If the person is a minor,
- If he/she has not passed any examinations that may be specified under the regulations,
- If he/she is found guilty of criminal misappropriation or criminal breach of forgery or trust or cheating or abetment of or attempt to commit any such offence,
- If it is found that he/she is of unsound mind,
- If he/she does not process any required qualification or passed the examination or practical training which may be specified under the regulations,
- If he/she has violated the code of conduct which may be specified under the regulations.
Corporate Agents
As opposed to individual agents, who can only work for one insurer in the line of business, a corporate agent is permitted to work for up to 3 insurers in each line of business. Corporate agencies can be divided into exclusive and non-exclusive agencies. Also, net worth and a minimum capital of rupees 50 lakhs are required only for exclusive corporate agents.
Insurance Brokers
Unlike the case of a corporate agent who is able to represent three insurers, brokers can sell the products of any number of insurance companies. There are three types of brokers recognized under IRDA, they are direct, composite and reinsurance. There is a minimum capital requirement of rupees 50 lakhs in the case of a direct broker.
Web Aggregators
A seller who sells insurance through online is called a web aggregator. Similar to corporate agents web aggregators are allowed to sell insurance products of multiple companies.
Point of Sales Persons
This is one of the recent innovations intended to sell simplified products in any area, irrespective of being urban or rural. General insurance and life insurance can be covered under the point of sales persons.
Conclusion
The idea of insurance developed and evolved from the simple idea of spreading the risk in order to mitigate the loss suffered by an individual party. This lays as a foundation for the modern-day insurance, which has become interwoven into all aspects of our lives, and due to this most of the people are able to ‘pool the risk’. There has been a tremendous increase in the growth, performance and development in the insurance industry since the establishment of the Insurance Regulatory and Development Authority (IRDA) in India. The evolution of insurance has taken place at a dynamic rate and it has even reached an extent where people can buy insurance online.
While ensuring the growth of insurance industries, the Insurance Regulatory and Development Authority (IRDA) at the same time ensures the interests of the policyholders. IRDA has taken huge steps to ensure that awareness is increased amongst all the people regarding the benefits of insurance. And for the same purpose, there is even a separate website of the Insurance Regulatory and Development Authority (IRDA) for educating and to spread awareness about insurance.
The insurance companies should take the approval from the Insurance Regulatory and Development Authority (IRDA) before launching any new products, making changes to the existing products or withdrawing a product from the market. Due to the increased awareness of people over the years about the benefits of insurance, the flow of funds has shifted to the insurance industry have been shifted through post offices and banks. This is because insurance has become a medium for not only covering the risks or losses but has also become a popular way through which tax can be saved.
References:
- https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo1332&mid=1.9
- https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo108&flag=1
- https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo100&mid=1.1
- https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo101&mid=1.2
[1] International Journal in Multidisciplinary and Academic Research (SSIJMAR) Vol. 1, No. 4, November-December (ISSN 2278 – 5973)
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