IRDAI: What is IRDA, Meaning, Facts, Role & Importance

What is IRDAI?

The Insurance Regulatory and Development Authority of India (IRDAI) is a self-governing body that is liable for managing and controlling the insurance and reinsurance industry in India. IRDA is the highest authority that authorizes the insurance business in India. It was established by the Insurance Regulatory and Development Authority of India Act, 1999 after the announcement made by the former President of India, Pranab Mukherjee, on Insurance Laws (Amendment) Ordinance of 2014.

IRDAI is consists of 10-member- a chairman, five full-time members, and four part-time members. It was composed under an Act of Parliament in 1999 and the agency’s headquarters is in Hyderabad.

What is IRDA?

IRDAI Establishment

The Insurance Regulatory and Development Authority of India (IRDA) was established on the recommendations made by the Malhotra Committee in its report. This committee was directed by Mr. R.N. Malhotra (retired Governor of the Reserve Bank of India (RBI)). It was established in New Delhi in April 2000, though later on, it was shifted to Hyderabad, Telangana in 2001. The main recommendation delivered by this committee was to provide the entrance of private sector companies and foreign promoters and autonomous regulatory authority for the Insurance sector in India.

History of IRDA

Below are the brief history of IRDA:

1991: Government of India starts the economic reforms program and financial sector reforms.

1993: Committee on Reforms in the Insurance sector, directed by Shri R. N. Malhotra (Retired Governor, Reserve Bank of India) established to suggest reforms in the insurance sector.

1994: Malhotra Committee promotes changes after studying the insurance sector and accepting inputs from all the stakeholders. Important advice of the Malhotra Committee are:

Private sector companies should be provided to aid insurance companies:

  1. Foreign promoters should also be allowed
  2. Government to vest its regulatory powers on an independent regulatory body answerable to Parliament

1996: Setting up an interim group called the Insurance Regulatory Authority

1999: Enactment of the IRDAI Act, 1999

2000: Formation of the Insurance Regulatory and Development Authority as a self-governing regulatory body on 19.4.2000

Structure of IRDAI

Below are the organizational structure of IRDAI:

Composition of IRDAI

According to Sec. 4 of The Insurance Regulatory and Development Authority of India (IRDA) Act, 1999, the composition of the Authority is:

  1. Chairman;
  2. Five whole-time members;
  3. Four part-time members,

IRDAI’s Head Office is in Hyderabad

The main activities of IRDAI including assuring the financial stability of insurers and monitoring market conduct of several regulated entities are carried out from the Head Office.

IRDAI’s Regional Offices are in New Delhi & Mumbai

The Regional Office, New Delhi focuses on growing consumer perception and managing Insurance complaints besides providing the required help for inspection of Insurance companies and other controlled entities located in the Northern Region. This office is functionally liable for the allowing of Surveyors and Loss Assessors. Regional Office at Mumbai manages related activities, as in Regional Office Delhi, about Western Region.

Objectives of IRDA

  • To carry forward the interests of the policyholders.
  • To uphold the development of the Insurance industry.
  • To ensure speedy resolution of claims.
  • To prevent frauds and malpractices.
  • To assure fair conduct on the part of the financial market and transparency when dealing with insurance.

Powers & Functions of the Authority

Section 14 of the IRDAI Act, 1999 states the powers and functions of the Authority are mentions below:

  • The Authority means to protect the interest of the insurance policyholders in matters associated with the surrender value of the policy, settlement of insurance claims, insurable interest, nomination by policyholders, etc.
  • The authority gives the Certificate of Registration to the candidate. It can also renew, modify, withdraw, suspend, or even cancel the registration of the candidate.
  • The Authority declares the qualifications, code of conduct, and practical training for the intermediaries and insurance agents.
  • The Authority promotes efficiency in the conduct of the business of insurance.
  • The Authority declares the code of conduct for surveyors and loss assessors.
  • The Authority promotes and manages the professional organizations that are related to the insurance business. It levies charges for carrying the purpose of this Act.
  • The Authority has the power to call for information, conduct investigation, audit, and inquiry of the insurers, insurance intermediaries, and organizations connected with the business of insurance.
  • The Authority controls and regulates the rates, gains terms, and conditions that are offered by the insurers concerning the general insurance business.
  • The investment of funds by the insurance companies are controlled by the Authority.
  • The Authority regulates the margin of solvency.
  • The Authority gives conflict resolution between the insurers and insurance intermediaries.
  • The Authority controls the working of the Tariff Advisory Committee.
  • The Authority sets the percentage of premium income of the insurer to fund the schemes for promoting and controlling the professional organizations.
  • The Authority sets down the percentage of life insurance and general insurance business that can be taken out by the insurer in the rural or social sector.

Role and Importance of IRDA

The main role and importance of IRDA are:

  • To protect the interest of and ensure just treatment to insurance policyholders.
  • To encourage and ensure the systematic growth of the insurance industry to benefit the common man and help in bringing economic growth.
  • To initiate, encourage, 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 policyholder. The Authority ensures that correct information about the products and services is passed on to the policyholders along with making them aware of their responsibilities.
  • To provide a dispute resolution mechanism and ensure speedy settlement of genuine claims. The Authority needs to check insurance scams and other misconducts.
  • To take suitable steps against circumstances where set standards do not prevail or are inappropriately enforced.
  • To make about the optimal amount of self-regulation in daily activities of the industry reliable with the requirements of the prudential regulation.

Effect of Insurance Regulatory and Development Authority (IRDA)

Check below the effect of IRDA:

Effect on Regulation of Insurance Industry

Insurance Regulatory and Development Authority manages the Insurance sector. It proposes to protect the interest of the insurance policyholders. It also supports and ensures the systematic growth of the insurance industry.

The effect over the protection of policyholders

IRDA has a great impact on the protection of policyholders. The Authority intends to give a fair approach to all the policyholders.

The effect of Awareness about Insurance

IRDA is considering steps to raise awareness amongst the masses about the benefits of insurance. There is a separate Consumer education website of IRDA to instruct people on insurance.

The effect over Insurance Market

There is a drastic effect of the Insurance Regulatory and Development Authority over the insurance market. IRDA regulates the insurance market and secures the systematic and rapid growth of the insurance market.

The effect over the Development of Insurance Product

All the insurance companies must take esteem from Insurance Regulatory and Development Authority before launching any new product or before making any changes in the existing product or withdrawing a product. The insurers who want to launch a new product or do changes to the existing product or withdrawing a product shall submit an application to the Authority in the directed form along with the required details and reasons for the change reasons. The authority may ask for further information if needed. If there is no information is asked for then the insurer can begin selling the product. The insurer can offer the new product after providing it for 60 days for non-life and 30 days for life for approval by IRDA. This might be delayed due to a lack of details about the product, which is necessary to assess the product before approval is given by the Authority.

Effect on Competition between Private and Public sector

As there is more demand from the customer for new, beneficial, and improved insurance products, there is healthy competition amongst the insurers. This acts as a boon to the customer. Refined products, along with engaging schemes, have been created by the public sector to provide strong competition to the private sector.

The effect over Banks and Post Offices

With the growing awareness amongst people about the benefits of insurance, the flow of funds has shifted to the insurance industry from Banks and Post Offices. Insurance has grown a medium for not only including losses and risks but has also become a common way to save tax.

IRDAI Amendment

IRDAI (Insurance Regulatory and Development Authority of India) Act, 1999 are:

1. Section 4- Structure Of Authority

The Authority consists of the following members:-a Chairperson: Whole-time members of 5, part-time of members of four, to be designated by the Central Government from amongst persons of ability, honor, and standing who have experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration or any other order which would, in the view of the Central Government, be useful to the Authority.

2. Section 5 – Chairperson And Other Members Office Tenure

  • For the period of 5 years, the Chairperson and whole-time member shall retain office from the date on which he begins upon his office and shall be eligible for reappointment. Neither person will be able to hold the post as a chairperson and whole-time member after attaining the age of 65 and 62 years respectively.
  • A part-time member shall retain office for a term not exceeding five years from the date on which he enters upon his office.

3. Section 6- Departure From Office

The Central Government may remove from office any member who-is, or at any time has been, adjudged as an unbalanced; or has become physically or mentally incompetent of working as a member; or has been condemned of any misdemeanor which, in the judgment of the Central Government, involves moral depravity; or has received such financial or other interest as is likely to affect prejudicially his functions as a member, or has hence exploited his position to execute his continuance in office detrimental to the public interest.

4. Section 9 – Administrative Powers Of Chairperson

The Chairperson shall have the powers of general administration and direction in respect of all administrative matters of the Authority.

5. Section 12 – Officers And Employees Of Authority

  • Under this act, the Authority may elect officers and such other employees as it is regarded necessary for the effective removal of its function.
  • The duration and other requirements of service of officers and other employees of the Authority elected shall be directed by regulations made under this Act.

6. Section 15 – Awards By Central Government

 The Central Government may, after due allowance made by Parliament by law in this part, advance to the Authority grants of so sums of money as the Government may think fit for being utilized for this Act.

7. Section 16 – Constitution Of Funds

a. In this, constituted a fund to be called “the Insurance Regulatory and Development Authority of India Fund” and there shall be credited to-

  • all Government grants, fees received by the Authority;
  • all sums obtained by the Authority from such other source as may be determined upon by the Central Government;
  • The percentage of designated premium income obtained from the insurer.

The Fund shall be employed for the meeting –

  • the salaries, wages, and other compensation of the members, officers, and other employees of the Authority;
  • The other expenses of the Authority in connection with the discharge of its functions and for this Act.

8. Section 18 – Power Of Central Government To Issue Directions

  • Without objection to the preceding provisions of this Act, the Authority shall, in the use of its powers or the performance of its functions under this Act, be bound by such regulations on questions of policy, other than those associating to technical and administrative matters, as the Central Government may provide in writing to it from time to time.

Provided that the Authority shall, as far as practicable, be allowed to express its views before any direction is given under this subsection.

  • The determination of the Central Government, whether a question is one of policy or not, shall be final.

9. Section 23 – Delegation Of Powers

  • The Authority may, by general or specific order in writing, member to the Chairperson or any other member or office of the Authority subject to such conditions, if any, as may be defined in the order such of its powers and functions under this Act as it may consider important.
  • The Authority may, by a general or specific order in writing, also form committees of the members and member to them the powers and functions of the Authority as may be defined by the regulations.

10. Section 28 – Application Of Other Laws Not Barred

 The requirements of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time remaining in force.

11. Section 29 – Power To Remove Difficulties

  • If any problem arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, establish such provisions not incompatible with the provisions of this Act as may appear to be necessary for raising the difficulty:

Rendered that no order shall be made under this section after the expiry of two years from the appointed day.

  • Every order given under this section shall be placed, as soon as may be, after it is made, before each House of Parliament.

Benefits to Insured

The main benefits of insured:

  1.  Protects income from unexpected expenses: As income is one’s greatest asset so insurance companies help insured to deal with sudden medical emergencies or others. Therefore, insurance companies protect your income in such a way that it can be used in these times when it is very difficult to get a large amount of monetary help.
  2. Protects the money for future: Insurance company helps you to keep your money safe for a given period through life insurance policies or others. These policies help you to build your or your child’s future.
  3. Gives you the power to protect your family: Insurance helps the insured person to secure their family’s future and free them from any financial issues. By availing of the insurance plan, the insured’s family is assured of financial assistance even beyond the lifetime.

Indian Insurance in the Global Scenario – 2018

  • During 2018 in the Global Insurance Market India’s share was 1.92 percent. Yet, there was an increment of 9.3% (with adjusted-inflation) in the total insurance premium in India during the same year. While global total insurance premium was increased by 1.5% only.
  • Globally in total premium, the share of life insurance business was 54.30 percent and the share of non-life insurance was 45.70 percent. Whereas for India, the share of life insurance business was extensively high at 73.85% but for non-life insurance business the share was at 26.15%.
  • According to data published by Swiss Re (a wholesale provider of reinsurance, insurance, and other insurance-based forms of risk transfer), India ranks 10th among the 88 countries in the Life insurance business. In the global life insurance market during 2018 India’s share was 2.61%. However, when the global life insurance premium increased by 0.2% then the life insurance premium in India also increased by 7.7%.
  • A growth of 14% was observed in The Indian non-life insurance sector. During the same year, a growth of 3% was also seen in the global non-life insurance sector. However, India ranked 15th in the global non-life insurance market with a 1.1% share.

Conclusion

 As an important aspect of the economy Insurance requires changes from time to time according to the needs of the people. The opportunities that are present to an individual in the form of health and life insurance should be aware of. To secure the interests of the policyholders a significant role is played by the Insurance Regulatory and Development Authority of India (IRDAI). As the competition has increased with changes in time, still the objectives of an insurer and policyholder can be achieved.

Frequently Asked Questions

Q1. What is IRDAI?
Ans. Insurance Regulatory Development Authority of India (IRDAI) is a regulatory body formed to protect one’s interests. While monitoring insurance-related activities it also controls and observes the development of the insurance industry.

Q2. What is Insurance Ombudsman?
Ans. It is a scheme started by the Government of India to guarantee a cost-effective, effective, and impartial reimbursement of your complaints. In India, there are 17 ombudsman offices each covering different regions (jurisdictions). Where you can file your complaint without paying anything at an office that covers your jurisdiction.

Once the complaint is lodged, the office of the Ombudsman arranges a hearing. This hearing is accompanied by the claimer and the spokespeople of the insurer. Usually, within the three months of hearing the Ombudsman declares the award. However, you can address an Ombudsman only if the value of the claim is less than 30 lakh.

Q3. What information related to investments is provided by the Insurer to the policyholder?
Ans. An annual report is required to send by an insurer which covers the fund performance during the previous financial year about the economic scenario, market developments, etc.

Q4. What is the role of the Administrator appointed by the IRDAI?
Ans. The Administrator shall conduct the management of the business of the insurer as per applicable provisions under the Insurance Act, 1938. The Administrator will endeavor to ensure the servicing of the policyholders and to conduct the affairs of the insurer in as smooth a manner as attainable.

Q5. Whether claims and other benefits (like policy loans) would be paid under existing policies?
Ans. All the policyholders’ requests for settlement of claims and other benefits would be treated, as per respective terms & conditions of the policy, within 30 days from the date of receipt of all claims.

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