INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

Group Members

Name
Shamika Sawant Kimberley Pinto Sumit Kamble Chinmay Haldankar

Roll no.
39 31 14 07

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

Asha Ranawat Ashmi Rajput

35 34

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

Serial no.
1 2 3 4 5 6 7 Insurance

Topic

History of Insurance Insurance regulatory and Development authority Duties and Function of Authority Establishment of Insurance advisory committee Requirement as to capital Case Law

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a large, possibly devastating loss. The insured receives a contract called the insurance policy which details the conditions and circumstances under which the insured will be compensated.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

Principles:
Insurance involves pooling funds from many insured entities (known as exposures) in order to pay for relatively uncommon but severely devastating losses which can occur to these entities. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be insurable, the risk insured against must meet certain characteristics in order to be an insurable risk. Insurance is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure through saving money for possible future losses.

Legislation:

(as on 1.4.2000)

Insurance is a federal subject in India. The primary legislation that deals with insurance business in India is: Insurance Act, 1938, and Insurance Regulatory & Development Authority Act, 1999.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

History of insurance:

Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his new plan for London in 1667." A number of attempted fire insurance schemes came to nothing, but in 1681 Nicholas Barbon, and eleven associates, established England's first fire insurance company, the 'Insurance Office for Houses', at the back of the Royal Exchange. Initially, 5,000 homes were insured by Barbon's Insurance Office. The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

Charleston), South Carolina, in 1732. Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. In recent years, some have called for a dual state and federal regulatory system (commonly referred to as the Optional federal charter (OFC)) for insurance similar to that which oversees state banks and national banks.

Customer Protection:
Insurance Industry has Ombudsmen in 12 cities. Each Ombudsman is empowered to redress customer grievances in respect of insurance contracts on personal lines where the insured amount is less than Rs. 20 lakhs, in accordance with the Ombudsman Scheme. Addresses can be obtained from the offices of LIC and other insurers.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

COMPOSITION OF AUTHORITY UNDER IRDA ACT, 1999

As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority (IRDA, which was constituted by an act of parliament) specify the composition of Authority The Authority is a ten member team consisting of (a) (b) (c) a Chairman; five whole-time members; four part-time members,

These all are appointed by the Government of India.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY

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. Mission of IRDA as stated in the act is "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto." In 2010, the Government of India ruled that the Unit Linked Insurance Plans (ULIPs) will be governed by IRDA, and not the market regulator Securities and Exchange Board of India

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

Establishment of Insurance Advisory Committee (section 25)

Composition of IRDA:
The IRDA consists of a chairperson and not more than nine members of whom not more than five would be fulltime members, to be appointed by the government from amongst persons of ability, integrity, and standing who have knowledge and experience of life insurance or general insurance or actual services, finance, economics, law, accountancy, administration or any other discipline which in the opinion of the government would be useful to it.

Issue of Direction:
The IRDA is bound by the direction of the government on question of policy other than those relating to techniques and administrative matters in writing from time to time. The decision of the government weather a question is one of policy or not would be final.

Suppression:
The government may by notification and for specified reason supersede the IRDA for a period not exceeding six months in circumstances specified below and during the

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

period of suppression appointed a person to act as the Controllers of Insurance under the Insurance Act, 1938.
(a)

(b)

(c)

On account of circumstances beyond its control, the IRDA is unable to discharge its functions. Persistent default by it in complying with any direction given by the government under the IRDA Act or in discharge of functions or duties imposed on it by or under the provisions of the Act and as a result of such default the financial position of the IRDA has suffered. Circumstances exist which render it necessary in public interest to do so.

Objectives

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

The potential for the growth and spread of life insurance in India is high as in many other Ashian countries. More then 75% of Indias insurance industry requires a high degree of regulation. The Insurance Act, 1938, provides for the institution of the Controller of Insurance to act as a strong and powerful supervisory and regulatory authority. It has powers to direct, advise caution, prohibit, investigate, inspect, prosecute, search, seize, fine, amalgamate, authorize, register and liquidate insurance companies. However, the role of Controller of Insurance diminashed over a period of time after the nationalisation of life insurance in 1956 and the general insurance in1972. The Government of India set up a high powered committee in 1993, headed by Shri R. N. malhotra, former Governor, RBI to examine the structure of the insurance industry and recommend changes in other parts of the financial system of the economy. The Committee submitted its report on 7th January, 1994, felt that insurance regulatory apparatus should be activated even in the present set up of nationalised insurance sector and recommended the establishment of a strong and effective Insurance Regulatory Authority in the form of a statutory autonomous board on the lines of the securities and exchange board of India. The Committee also recommended opening up of Insurance Companies only 26% initially but it has been raised to 49% in 2004. In 1996, interim Insurance Regulatory Authority was formed and in 1999 the IRDA Bill was passed

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

in the Parliament. The IRDA Act provides for the establishment of an authority to protect the interest of the holders of insurance policies, to regulate, to promote and ensure orderly growth of the insurance industry.

Expectations:
The law of India has following expectations from IRDA 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.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

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.

Duties, Powers and Functions of IRDA:

Section 14 of IRDA Act, 1999 laysdown the duties,powers and functions of IRDA 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.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

2. Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, 1. issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; 2. 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; 3. specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; 4. specifying the code of conduct for surveyors and loss assessors; 5. promoting efficiency in the conduct of insurance business; 6. promoting and regulating professional organisations connected with the insurance and re-insurance business; 7. levying fees and other charges for carrying out the purposes of this Act; 8. 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; 9. 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); 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;

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

11. regulating investment of funds by insurance companies 12. regulating maintenance of margin of solvency; 13. adjudication of disputes between insurers and intermediaries or insurance intermediaries; 14. supervising the functioning of the Tariff Advisory Committee; 15. Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professionals orgnisations; 16. specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; 17. exercising such other powers as may be prescribed in the Act

Advisory committee:
IRDA consists of a Chairman and some permanent as well as part time members. The regulations, however, are enacted under the guidance of a statutory advisory committee. The advisory committee consists of following individuals and ex-officio authorities:

Chairman: Hari Narayana is the current Chairman of IRDA. Full-time Members: Currently, they are Mr K K Srinivasan (Nonlife Member), Sri G Prabhakara (Life Member), Dr R Kannan(Member, Actuary) and Sri R.K. Nair (Member, F & I). There is provision for a panel of other members and part time members. IRDA formed a high powered Insurance Law Reforms

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

Committee known as KPN Committee with important insurance advisors like Mr N Govardhan and Dr K C Mishra as its members. There were also a few non-advisory committee members like Mr Liaquat Khan and Mr. T Viswanathan etc. Full force and utility of various institutions like Advisory Committee and self-regulatory organizations are not yet realized as the regulator seems to be in a long learning mode. Due to over delegations, Individual incumbents decide the pace and extent of utilization of prudential and statutory bodies. Research is limited to opinion seeking through legacy channels. Market waits for revision of insurance act and establishment meaningfully functioning regulatory organs devoid of excess delegation and subjective localization of development agencies.

Case Law
Cases of fraudulent companies selling insurance products in India without a licence from the sector regulator, Insurance Regulatory and Development Authority (Irda), are on the rise. Several such incidents have come to Irdas attention in the last eight to ten months. All these companies were found to be involved in selling life insurance, healthcare insurance policies and related products to the public in certain pockets of Delhi, Mumbai and Bengaluru. They used to project themselves as part of global insurance companies and are said to have collected large amounts of money from the public.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

Irda came to know of at least two such incidents over the last few days. Bengaluru-based Aetna Healthcare Networks (India), claiming to be a unit of Aetna of the US, was found to be involved in selling health insurance products and collecting money from applicants subscribing to the same. Similarly, Mumbai-based Darwin Platform Life Insurance and Finance Company and DP Life Insurance Finance, claiming to be units of Darwin Platform Group of the Netherlands, were also involved in offering life insurance products and have allegedly collected a large amount of money, Irda pointed out. Other such incidents too have been unearthed during the last eight to ten months. An unknown Delhi-based company was involved in selling policies, pretending to be part of a Belarusbased insurance company. Similarly, Mumbai-based Winner Insurance Benefits was caught issuing certificates of protection for health schemes and collecting money from applicants subscribing to the same. While the insurance industry in India claims to be clueless about such incidents, persons closely involved in this business are believed to have blown the whistle and brought these facts to Irdas notice for stringent action. The regulatory body said that the above named companies have not been issued any licence/certificate of registration by itself under any of the provisions of the Insurance Act, 1938 and the Irda Act, 1999, for carrying on the said business. It is hereby clarified that carrying on insurance business without obtaining the mandatory licence or certificate of registration from the Irda in terms of provisions of the Insurance Act, 1938 and the Irda Act, 1999 amounts to violation of the said statutes for which appropriate actions, civil or criminal, under the Insurance Act

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

and the Irda Act could be taken up by the regulator against such companies.

Bibiliography
1.

www.google.com(IRDA in India) Wikipedia

2.

INSURANCE REGULATORY & DEVELOPMENT AUTHORITY (IRDA)

SUBJECT: INNOVATIONS IN BANKING AND INSURANCE

CLASS: SECOND YEAR B.COM (BANKING & INSURANCE)

SEMESTER: 4TH SEMESTER

COLLEGE: VARTAK COLLEGE

SUBMITTED ON: 27TH JANUARY, 2011

GUIDED BY: PROF. PRATIKSHA KHEDEKAR