Insurance Regulatory Framework

IRDA - Insurance Regulatory Development and Authority

• IRDA is a statutory, independent, and apex body that governs and supervises the Insurance Industry in India.
• It was constituted by Parliament of India Act, called Insurance Regulatory and Development Authority of India (IRDA of India) after the formal declaration of Insurance Laws (Amendment) Ordinance 2014, by the President of India Pranab Mukherjee on December 26, 2014.

Establishment of IRDA

• IRDA Act was passed upon the recommendations of Malhotra Committee report (7 Jan, 1994), headed by Mr. R.N. Malhotra (Retired Governor, RBI).
• Main Recommendations - Entrance of Private Sector Companies and Foreign promoters & An independent regulatory authority for Insurance Sector in India.

Objectives of IRDA

• To promote the interest and rights of policy holders.
• To promote and ensure the growth of Insurance Industry.
• To ensure speedy settlement of genuine claims and to prevent frauds and malpractices.
• To bring transparency and orderly conduct of in financial markets dealing with insurance.

Organisational Setup of IRDA

• IRDA is a ten-member body consisting of :
  • One Chairman (For 5 Years & Maximum Age - 60 years).
  • Five whole-time Members (For 5 Years and Maximum Age - 62 years).
  • Four part-time Members (Not more than 5 years).
• The Chairman and members of IRDAI are appointed by the Government of India.

Functions and Duties of IRDA

• IRDA issues the registration certificates to insurance companies and regulates them.
• It protects the interest of policy holders.
• It provides license to insurance intermediaries such as agents and brokers after specifying the required qualifications and set norms/code of conduct for them.
• It promotes and regulates the professional organisations related with insurance business to promote efficiency in insurance sector.
• It regulates and supervises the premium rates and terms of insurance covers.
• It specifies the conditions and manners, according to which the insurance companies and other intermediaries have to make their financial reports.
• It regulates the investment of policyholder's funds by insurance companies.
• It ensures the maintenance of solvency margin (company's ability to pay out claims) by insurance companies.

Legal Framework of IRDA

• IRDA has the power to frame regulations that lay down the regulatory framework for supervision of the entities operating in the sector.
• There are certain other Acts which govern specific lines of Insurance business and functions such as Marine Insurance Act, 1963 and Public Liability Insurance Act, 1991.
• Insurance Regulatory Framework:
  • IRDA is a statutory body formed under an Act of Parliament, i.e., Insurance Regulatory and Development Authority Act, 1999 (IRDAI Act 1999) for overall supervision and development of the Insurance sector in India.
  • The powers and functions of the Authority are laid down in the IRDAI Act, 1999 and Insurance Act, 1938.
  • The key objectives of the IRDAI include promotion of competition so as to enhance customer satisfaction through increased consumer choice and fair premiums, while ensuring the financial security of the Insurance market.