IRDA Overview

India saw the advent of the insurance business with the establishment of Oriental
Life Insurance Company in Calcutta. Ever since various insurance companies came
into being, however, after India’s independence, the Government of India
nationalized all the insurance companies to curb unfair trade practices.

After Liberalization was introduced in India in 1990, the “Malhotra Committee”

was formed to examine the structure of the Insurance Industry and recommend
changes to make it more efficient and competitive. Based on the
recommendations of the “Malhotra Committee”, IRDA (Insurance Regulatory and
Development Authority) was formed in 1999 after going through various
transformations. The IRDA was incorporated as a statutory body in April 2000.

What is IRDA?

The IRDA (Insurance Regulatory and Development Authority) is a statutory body

meant to regulate, promote and ensure the orderly growth of insurance and
reinsurance business in India. The IRDA Act, of 1999 also paves the way for
opening up of the insurance sector to private Indian Companies, LIC and GIC will
no longer have monopolies and they will have to work under the directions of the
IRDA and compete with other companies that may be set up in private sector.

Objective of IRDA

The basic objective and the aim of IRDA, 2000 is “Insurance for All by 2047” which
means that every citizen shall have required life, health and property insurance
coverage and every organisation is supported by appropriate insurance solutions.
Features of IRDA

The salient features of the IRDA Act (1999) are as follows;

The IRDA Act (1999) marks the opening of India’s insurance sector to private
entities. The Act’s second and third schedules outline the removal of existing
corporations or companies that engage in life and non-life insurance business in
India.

An Indian insurance company is defined as a company registered under the

Companies Act, of 1956, where foreign equity does not exceed 26% of the total
equity shareholding, including that of NRIs, FIls, and OCBs.

After the ten-year period, excess equity above the 26% limit will be divested
according to a phased program outlined by IRDA. The Central Government has the
authority to extend the ten-year period on a case-by-case basis and set higher
ceilings for Indian promoter shareholding.

Foreign promoters are subject to a maximum operational limit of 26% equity and
cannot hold equity beyond this threshold at any stage.

The Act grants statutory status to the Interim Insurance Regulatory Authority
(IRA), which was established by the Central Government through a Resolution in
January 1996.

All the powers currently exercised by the Controller of Insurance (Col) under the
Insurance Act, 1938, will be transferred to IRDA.

The IRDA Act also allows for the appointment of a Controller of Insurance by the
Central Government when the Regulatory Authority is superseded.

The minimum required paid-up equity capital is Rs. 100 crore for both life and
general insurance and Rs. 200 crore for reinsurance.
The solvency margin, which represents the surplus of assets over liabilities, is
mandated to be at least Rs. 50 crore for life and general insurance and Rs. 100
crore for reinsurance in each case.

Insurance companies are required to deposit Rs. 10 crore as a security deposit

before commencing operations.

In the non-life insurance sector, preference is given to companies that offer

health insurance.

Safeguards for policyholders’ funds include a prohibition on investing these funds

outside India and adherence to IRDA policy guidelines for investments, including
those in social and infrastructure projects.

Every insurer must offer life insurance or general insurance policies, including
crop insurance, to individuals in rural areas, workers in the unorganized or
informal sector, economically vulnerable or disadvantaged groups, and other
categories specified by IRDA regulations.

Failure to meet these social obligations may result in a Rs. 25 lakh fine, and
persistent non-compliance could lead to license cancellation.

Functions of IRA

The Principal Functions of IRDA are suggested as follows:

One of its key roles is to establish capital adequacy and solvency margin
requirements, as well as other prudent standards for entities engaged in
insurance activities.

Examine, in the light of the prescribed criteria, applications for grant of

registration for transacting insurance business and to grant such registration
where appropriate.

In the interest of consumer protection, set standards for insurance products.

There should be a system of “file and use’ for insurance products subject to the
power of the IRA to modify the rates, terms and conditions thereof within a
prescribed time limit.

Ensure compliance with the prescribed ceiling for management expenses of

insurance and agency commissions.

Monitor the performance and quality of reinsurance ceded and accepted.

Ensuring the proper maintenance of adequate technical reserves by the insurers.

Review the insurer’s asset distribution and management and particularly monitor
compliance with prescribed prudential norms and patterns of investment.

Ensure high standards of accounting and transparency of the balance sheet of

insurance companies and scrutinize and accept annual accounts, valuation reports
and solvency margin statements.

Detect badly managed unhealthy or failing insurers and take suitable corrective
action, including the appointment of administrators to temporarily manage such
companies and where warranted, cancellation of registration.

Where necessary to act as a ‘dispute resolution forum for consumer grievances.

Create and release an annual report detailing the condition of the insurance
sector.

Powers of IRDA

The IRDA has been given wide-ranging powers in the matter of promoting and
regulating the orderly growth of business and exercising control over agents and
other intermediaries. The following are some of the powers of IRDA.

Granting permission for the establishment of new Insurance Companies.

Protecting the interests of policyholders in all matters.

IRDA specifies the qualifications, code of conduct and training required for
insurance agents and other intermediaries.

Promoting efficiency in the conduct of the insurance business.

Encouraging and overseeing professional associations which are connected with

the insurance and reinsurance industries.

Inspection, investigation and audit of the insurers and intermediaries.

Prescribing principles of maintenance of accounts.

Regulating and directing the investment of funds by the Insurance Companies.

Adjudicating the disputes between insurers and intermediaries. Specifying the

minimum quantum of rural business to be procured by Life and General Insurance
Companies and imposing penalties for non-compliance with provision.

Conclusion

In summary, the Insurance Regulatory and Development Authority (IRDA) plays a

crucial role in the insurance industry by regulating and promoting its orderly
growth. It manages registrations, sets ethical standards for industry
intermediaries, exercises key powers under relevant acts, and protects
policyholders’ interests, ensuring a fair and transparent insurance environment.
IRDA’s multifaceted functions are essential for the industry’s integrity and
policyholder security.... Read more at: [Link]
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