A PROJECT REPORT ON

PROJECT GUIDE: - KRANTI MADAM

SUBMITTED BY:
 URVASHI
JAGASIA(11)
 ALPA DEDHIA(5)
 NAZNIN SHAIKH(39)
 GEETA TALREJA(42)
 RINI KOCHERY(19)
 ALKA RAJPAL(34)
 EKTA TANEJA(60)

DIPTI SAWANT (51)

 INDEX

[Link] PARTICULARS PAGE NO

1 INTRODUCTION 1
2 OBJECTIVES 2-3
3 COMPOSITION OF AUTHORITY 4
4 TENURE OF OFFICE OF 5
CHAIRPERSON & OTHER MEMBERS
5 REMOVAL FROM OFFICE 6
6 DUTIES, POWERS & FUNCTIONS OF 7-8
AUTHORITY
7 GRANTS BY THE CENTRAL 9
GOVERNMENT
8 POWERS OF CENTRAL 10
GOVERNMENT TO ISSUE
DIRECTIONS (SEC. 18)
9 ESTABLISMENT OF INSURANCE 11
ADVISORY COMMITTEE (SEC. 25)
10 REQUIREMENT AS TO CAPITAL 12-13
11 DEPOSITS WITH RBI 14
12 POWER OF INVESTIGATION AND 15-17
INSPECTION BY AUTHORITY
13 SCOPE OF INSURANCE 18
REGULATORY & DEVELOPMENT
AUTHORITY
14 ACKNOWLEDGEMENT 19
15 BIBLOGRAPHY 20
 INTRODUCTION
Insurance act, 1938 was the first comprehensive legislation in
India to regulate the business of insurance. It aimed to
consolidate and amend the law relating to the business of
insurance. The act provides for the registration of insurance
companies, maintenance and security of accounts and valuation
reports, investment and utilization of funds permissible, limits
on expenditure, approval of premium rates and verifying
solvency margins.

In 1993, the government of India set up the Malhotra Committee

to suggest reforms in the insurance industry. The committee
recommended opening up of the insurance sector to provide
players improving service standards and extending insurance
cover to the largest sector of society. The committee also
suggested to set up a statutory body called Insurance Regulatory
Authority. In 1996, interim IRA was formed and in 1999 the
IRDA Bill was passed in the parliament.

The Insurance Regulatory and Development Authority

(IRDA) is a national agency of the Government of India, based
in Hyderabad. It was formed by an act of Indian Parliament
known as IRDA Act 1999, which was amended in 2002 to
incorporate some emerging requirements.

The IRDA provides for establishment of an Authority to protect

the interests of holders of insurance policies, to regulate,
promote & ensure orderly growth of the insurance industry and
for matters connected therewith or incidental thereto and further
to amend the Insurance Act, 1938, the Life Insurance
Corporation Act, 1956 & the General Insurance Business
(Nationalization) Act, 1972.
 OBJECTIVES
The Insurance Act, 1938, provides for the institution of the
Controller of Insurance to act as strong and powerful
supervisory and regulatory authority. It has powers to direct,
advice, caution, prohibit, investigate, inspect, prosecute, search,
seize, fine, amalgamate, authorize, register and liquidate
insurance companies.

In the Budget speech 1998, the policy of the Government was

announced to open up the insurance sector and also to establish
a Statutory Regulatory Authority. The objective was to provide
better insurance coverage to our citizens and also to augment the
flow of long-term resources for financing infrastructure. The
Insurance Regulatory Authority bill, 1998, provided for setting a
Statutory Insurance Regulatory Authority and containing three
schedules incorporating amendments to the General Insurance
Business Act, 1956 to permit the entry of private Indian
companies into the insurance sector and to make certain
consequential amendments to the Insurance Act, 1998.

The Authority is a corporate body having perpetual succession

and a common seal with power to acquire, hold and dispose of
property and to contract. Some of the main objectives of the
IRDA are:

1. To protect the interest of and secure fair treatment to

policyholders;

2. 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;

3. To set, promote, monitor and enforce high standards of

integrity, financial soundness, fair dealing and competence of
those it regulates;
4. To ensure that insurance customers receive precise, clear and
correct information about products and services and make them
aware of their responsibilities and duties in this regard;

5. To ensure speedy settlement of genuine claims, to prevent

insurance frauds and other malpractices and put in place
effective grievance redressal machinery;

6. 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;

7. To take action where such standards are inadequate or

ineffectively enforced;

8. To bring about optimum amount of self-regulation in day to

day working of the industry consistent with the requirements of
prudential regulation.

COMPOSITION OF AUTHORITY
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 &

OTHER MEMBERS
(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

REMOVAL FROM OFFICE

(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 sub-section (1) unless he has been given a
reasonable opportunity of being heard in the matter.

DUTIES, POWERS AND FUNCTIONS OF

AUTHORITY

(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 organizations
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
organizations 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 (4 of 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 organizations 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.

GRANTS BY THE CENTRAL GOVERNMENT

The Central Government may, after due appropriation made by
Parliament by law in this behalf, make to the Authority grants of
such sums of money as the Government may think fit for being
utilized for the purposes of this Act. Section 17 also provides
that the authority shall maintain proper accounts and other
relevant records and prepare an annual statement of account in
such form as may be prescribed by the central government. The
accounts of the authority shall be audited by the Comptroller
and auditor general of India at intervals as may be specified by
him.

POWERS OF CENTRAL GOVRENMENT TO

ISSUE DIRECTONS (SECTION 18)
The Authority shall in exercise of its powers or the performance
of its function under this Act be bound by such directions on
questions of policy other than those relating to technical and
administrative matters, as the Central Government may give in
writing to it from time to time. Provided that the Authority shall
as far as possible be given an opportunity to express its views
before any directions of the Central Government shall be final in
respect.

Section 19 also provides that, if at any time the Central

Government is of the opinion that on account of circumstances
beyond the control of the Authority it is unable to discharge the
functions or perform the duties imposed on it by or under the
provisions of the Act, or that the Authority has persistently
defaulted in complying with any direction given by the Central
Government under this Act or under the functions or
performance of the duties imposed on it by or under the
provisions of this Act and a result of such default the financial
position of the Authority or the administration of the Authority
has suffered or that the circumstances exist which render it
necessary in the public interest to do so, the Central
Government may by notification and for reasons to be specified
therein supersede the Authority for such period not exceeding
six months as may be specified in the notification person to be
the Controller of Insurance under Section 2B or the insurance
Act, 1938, if not already done.

Provided that before issuing any such notification, the Central

Government shall give a reasonable opportunity to the Authority
to make representations against the proposed suppression and
shall consider the representation, if any, of the Authority.

ESTABLISMENT OF INSURANCE ADVISORY

COMMITTEE (SECTION 25)
(1) The Authority may, by notification, establish with effect
from such date as it may specify in such notification, a
Committee to be known as the Insurance Advisory Committee.
(2) The Insurance Advisory Committee shall consist of not
more than twenty-five members excluding ex-officio members
to represent the interests of commerce, industry, transport,
agriculture, consumer for a, surveyors, agents, intermediaries,
organizations engaged in safety and loss prevention, research
bodies and employees' association in the insurance sector.
(3) The Chairperson and the members of the Authority shall
be the ex officio Chairperson and ex officio members of the
Insurance Advisory Committee.
(4) The objects of the Insurance Advisory Committee shall be
to advise the Authority on matters relating to the making of the
regulations under section 26.

(5) The Insurance Advisory Committee may advise the

Authority on such other matters as may be prescribed.

REQUIREMENT AS TO CAPITAL
Section 6 of the Insurance Act, 1938 has been amended as
follows:
No Insurer carrying on the business of life insurance, general
insurance or re-insurance in India on or after the commencement
of the Insurance Regulatory Development Authority Act, 1999
shall be registered unless he has:

a) A paid up equity capital of Rs. 100 crores in case of a

person carrying on the business of life insurance or general
insurance or
b) A paid up equity capital of Rs. 200 crores in case of a
person carrying on exclusively the business as re-insurer.

Provided that in determining the paid up equity capital specified

above, the deposit to be made under section 7 and any
preliminary expenses incurred in the formation and registration
of the company shall be excluded. It is further provided that an
insurer carrying on business of life insurance, general insurance
or re-insurance in India before the commencement of the IRDA
Act, 1999 and who required to be registered under this Act shall
have a paid up equity capital in accordance with above criterion,
as the case may be within six months of the commencement of
that Act.

Section 6A provides that where the nominal value of the shares

intended to be transferred by any individual, firm, group
constituents of a group, or a body corporate under the same
management, jointly or severally exceeds one percent of paid up
equity capital of the insurer, unless the previous approval of the
Authority has been obtained for the transfers.

Section 6A provides for the manner of divesting excess

shareholding by promoter in certain cases. Accordingly, no
promoter shall at any time hold more than 26% or such other
percentage as may be prescribed of the paid up equity capital in
an Indian Insurance Company begins the business of life
insurance, general insurance or re-insurance in which the
promoters hold more than 26% of the paid up equity capital or
such other excess percentage as may be prescribed, the
promoters shall divest in a phased manner the share capital in
excess of the 26% of the paid up equity capital may be
prescribed after a period of 10 years from the date of the
commencement of the said business by such Indian Insurance
Company or within such period as may be prescribed by the
Central Government.

DEPOSIT WITH RBI

The Act provides that an insurance company has to maintain the
following amount of Deposit with the Reserve Bank of India:

 General Business: 3%of the gross premium written in

India, in any financial year commencing after the 31st day
of March, 2000 but not exceeding Rs. 10 crores.
 In case of Life Insurance Business: a sum equivalent to
one percent of the gross premiums written in India, in any
financial year, commencing after the 31st day of March
2000 but not exceeding Rs. 10 crores.
 In case of re-insurance business: sum of Rupees not
exceeding 20 crores.

POWER OF INVESTIGATION AND INSPECTION

BY AUTHORITY
• The Authority may, at any time, by order in writing, direct
any person specified in the order to investigate the affairs
of any insurer and to report to the Authority on any
investigation made by such Investigating Authority.
• The Investigating Authority may, at any time, and shall as
being directed so to do by the Authority, cause an
inspection to be made by or more of his officer of any
insurer and his books of account, and the Investigating
Agency shall supply to the insurer a copy of his report on
such inspection.
• Any Investigating Authority, directed to make an
investigation, may examine on oath, any manager director
or other officer of the insurer in relation to his business
and may administer oaths accordingly.
• Authority may, after giving reasonable notice to the insurer
publish the report submit the report by the Investigating
Authority, such portion thereof as may, appear to it be
necessary.

The Act also provides that:

i. Every person who intends to act as a surveyor or loss

assessor after the expiry of a period of one year from
the commencement of IRDA Act shall make an
application to the Authority within such time, in such
manner and on payment of such fee as may be
determined by the regulations made by the Authority.
ii. Every surveyor and loss assessor shall comply with
the code of conduct in respect of their duties,
responsibilities and other professional requirements
as may be specified by the regulations made by the
Authority.
iii. Every insurer shall furnish to the Authority with his
returns under Section 15 or 16 as the case may be a
statement certified by an auditor approved by the
Authority in respect of general insurance business or
an actuary approved by the Authority in respect of
 life insurance business as the case may be, of his
assets and liabilities assessed in the manner required
by this section as on 31st March of the preceding
year.
iv. Every insurer shall value his assets & liabilities in
the manner required by this section and in
accordance with the regulation which may be made
the Authority in this behalf.
v. Every insurer shall, at all times, on or after the
commencement of the IRDA Act, 1999, maintain an
excess of the value of his assets over the amount of
his liabilities of not less than the amount arrived as
follows:
a) In the case of an insurer carrying on life
insurance business, the required solvency
margin shall be the higher of the following
amounts:
 50 crores of rupees (100 crores of rupees
in case of re-insurer) or
 The aggregate sum of the results arrived
at in items (I) & (II) stated as under (I) the
aggregate of the results arrived at by
applying the calculation described
below:-

(A-1) There shall be taken a sums equal the

percentage determined by the regulations not
exceeding 5% of the mathematical reserves
for direct business and re-insurance
acceptance without any deduction for re-
insurance cessions.

(A-2) the amount of mathematical reserves

at the end of the preceding financial year
after the deduction of re-insurance cessions
shall be expressed as a percentage of the
amount of those mathematical reserves
before any such deduction.
 (A-3) where the percentage arrived at under
(A-2) above is greater than 85% by that
greater percentage and in any other case by
85%.

There shall be taken, a sum equal to a percentage determined by

the regulations made by the Authority not exceeding one percent
of the sum at risk for the policies on which the sum at risk is not
a negative figure and the amount of sum of risk at the end of the
preceding financial year for policies on which the sum at risk is
not a negative figure after the deduction of re-insurance cessions
shall be expressed as a percentage of the amount of that sum at
risk before only such deduction and the sum arrived at under
above shall be multiplied where the percentage arrived at above
is greater than 50% by that greater percentage and in any other
case, by 50%.

A percentage determined by the regulations made by the

Authority of the value of assets determined in accordance with
the provisions of this section. In case of an insurer carrying on
general insurance business, the required solvency margin shall
be the higher of the following:

1) 50 crores of rupees (100 crores in case of re-insurance

business)
2)A sum equivalent to 20% of net premium income
3)A sum equivalent to 30% of net incurred claims
Subject to credit for re-insurance in computing premiums and
net incurred claims being actual but the percentage, determined
by the regulations, not exceeding 50%

SCOPE OF INSURANE REGULATORY AND

DEVELOPMENT AUTHOROTY
The Insurance Regulatory and Development Authority have
been authorized to register the new insurance companies in
India. The list of new insurance companies also includes the
collaborations of the renowned insurance companies overseas
with the existing Indian companies. The insurance companies in
India are required to approach the Insurance Regulatory and
Development Authority for the purpose of renewal of the
insurance registration. The Insurance Regulatory and
Development Authority are allowed to withdraw registration of
the companies and even cancel the registration of a company if
required. It is also authorized to modify the registration
procedure for a company.

ACKNOWLEDGEMENT
The report on “Insurance Regulatory and Development
Authority Act 1999” would not have seen light of the day
without the following people and their priceless support and co-
operation. Hence we extend our heartfelt gratitude to all of
them.

First and foremost, we would show appreciation to Prof. Kranti

Madam who set the ball rolling for our report. We are grateful to
her for guiding us throughout the report. Without her invaluable
help we would have being able to do real justice to the report.

On the same lines, we would like to thank our college librarian

for being very obliging and patient to our needs.

Last, but definitely not the least, we would like to thank our
principal Prof. Phadnis for providing all the encouragement &
support required in our project.

BIBLOGRAPHY
1) [Link]
2) Laws relating to banking and insurance.