Insurance Regulatory & Development Authority of India (IRDAI)

Like all other financial institutions, insurance is an activity that needs to be regulated as health of the
insurance sector reflects a country’s economy. This sector not only generates long terms funds for
infrastructural development but also increase a country’s risk taking capacity.1 The basic rationale to
regulate this sector is to maintain the confidence of the financial system and to provide appropriate
degree of consumer protection. Moreover, the smooth functioning of a business depends on the trust and
confidence reposed by the customers in the solvency of the financial institutions. A proper regulatory
mechanism is therefore the sine qua non of success and growth of insurance industry as it inspires the
confidence of all stakeholders. The Indian Insurance Sector went through a full circle of phases from
being unregulated to completely regulate and then currently being partly regulated. And the law relating
to insurance has also gradually developed, undergoing several phases from nationalization of the
insurance industry to the recent reforms permitting entry of private players and foreign investment in the
insurance industry.
To study the liberalization process in Insurance sector in India, Malhotra Committee was formed under
the Chairmanship of Late Shri R.N. Malhotra. The Malhotra committee submitted its report in 1994
which recommended that private companies be allowed to operate in India. The Government accepted
the Committee’s recommendation and Insurance Regulatory Authority (IRA) was set up in 1996 to show
the path for privatization of insurance Industry. The main aim was the development of Insurance
covering all strata of society (to not only rich but poor, folks from rural, tribal, unorganized sector, social
sector, disabled community, daily wagers, women at large, etc.) gained importance through concerns put
forth by political leaders, trade unionists, social organisations, cooperatives and policy makers; which
amended the name IRA to IRDA (Insurance Regulatory & Development Authority). Again some
amendments were made in the Insurance Act 1938 for smooth functioning of IRDA.

INSURANCE REGULATORY DEVELOPMENT AUTHORITY ACT (IRDA) 1999

This Act was passed by Parliament in Dec.1999 & it received presidential assent in January 2000. The
aim of the Authority is “to protect the interest of holders of Insurance policies, to regulate, promote
and ensure orderly growth of Insurance industry & for matters connected therewith or incidental
thereto.” Under this Act, an authority called IRDA is established which replaces Controller of Insurance
under Insurance Act 1938.
Features of Authority:
 Corporate body by the aforesaid name which means it will act as group of persons, called
members, who will work jointly not as an individual person like Controller of Insurance.
 Having perpetual succession which means any member may resign or die but the Authority will
work.
 A common seal with power to enter into a contract by affixing a stamp on the documents.
 Sue or be sued means the Authority can file a case against any person or organization and vice
versa.
Composition of Authority:
The Authority shall consist of nine persons as per details given below:
 Chairperson.
 Not more than 5 whole time members.
 Not more than 4 part time members.
These persons shall be appointed by the Central Govt. from amongst persons of ability, integrity &
standing who have knowledge or experience in life Insurance, general Insurance, actuarial science,
finance, economics, law accountancy, administration or other discipline which would in the opinion of
the Central Govt. be useful to the Authority. (Section 4)
Tenure (Section 5)
 The Chairman tenure will be for 5 years and eligible for reappointment till he attains the age of 65
years.
  The appointment of members will be for 5 years and eligible for reappointment but not exceeding
the age 62 years.
Removal of Members (Section 6)
The Central Government can remove any member of the Authority if he:-
a) Is declared bankrupt
b) Has become physically or mentally incapable of acting as a member
c) Has been awarded punishment by any Court.
d) Has acquired such financial or other interest which affect his function as a member.
e) Has so abused his position as to render his continuation in office detrimental to the public interest.
But no member can be removed from the office unless & until the reasonable opportunity of being heard
is given to such member in the matter.
Bar on future employment (Section 8)
The Chairperson and the whole time members cannot accept any appointment without Govt. approval
within 2 years from the date on which he ceases or retires from the office.
CHAIRPERSON, MEMBERS, OFFICERS AND OTHER EMPLOYEES OF AUTHORITY TO
BE PUBLIC SERVANTS- Section 21 says that the Chairperson, members, officers and other
employees of Authority shall be deemed, when acting or purporting to act in pursuance of any of the
provisions of this Act, to be public servants within the meaning of section 21 of the Indian Penal Code
(45 of 1860).
PROTECTION OF ACTION TAKEN IN GOOD FAITH.—Section 22 says that No suit, prosecution
or other legal proceedings shall lie against the Central Government or any officer of the Central
Government or any member, officer or other employee of the Authority for anything which is in good
faith done or intended to be done under this Act or the rules or regulations made thereunder: Provided
that nothing in this Act shall exempt any person from any suit or other proceedings which might, apart
from this Act, be brought against him.
Duties, Powers & Functions of Authority (Section 14)
Duties: The Authority shall have the duty to regulate, promote and ensure orderly growth of the
Insurance business and reinsurance business subject to the provisions of any other provisions of the act.
Powers & Functions to:-
(a) Issue to the applicant (Insurance company or Insurance Agent or Surveyors or Insurance Brokers
or Third Party Administrators) a certificate of registration, renew, modify, withdraw, suspend or
cancel such registration;
(b) Protection of the interests of the policyholders in matters concerning assigning of policy,
nomination by policyholders, 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 insurance brokers ,
agents, surveyors, Third Party Administrator ;
(d) Specifying the code of conduct for surveyors and loss assessors (Who assess the loss of
policyholder in case of General Insurance);
(e) Promoting efficiency in the conduct of insurance business;
(f) Promoting and regulating professional organisations connected with the insurance and re-
insurance business;
(g) Levying fees and other charges on insurance companies, Agents, Insurance Brokers, Surveyors
and Third party Administrator;
(h) Calling for information from, undertaking inspection of, conducting enquiries and investigations
including audit of the insurers, intermediaries, insurance intermediaries and other organisations
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 (w.e.f., 1/1/2007 TAC has
ceased to function).
(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 i.e., having sufficient funds to pay insurance claim
amount;
(m) To settle the 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 organisations 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) (q) Exercising such other powers as may be prescribed.
POWER OF CENTRAL GOVERNMENT TO ISSUE DIRECTIONS- Under the provision of
Section 18 it is said that Without prejudice to the foregoing provisions of this Act, the Authority shall, in
exercise of its powers or the performance of its functions 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
practicable, be given an opportunity to express its views before any direction is given under this sub-
section. The decision of the Central Government, whether a question is one of policy or not, shall be
final.
POWER Of CENTRAL GOVERNMENT TO MAKE RULES- As per Section 24 of IRDAI Act the
Central Government may, by notification, make rules for carrying out the provisions of this Act. In
particular, and without prejudice to the generality of the foregoing power, such rules may provide for all
or any of the following matters, namely:
(a) the salary and allowances payable to, and other terms and conditions of service of, the
members other than part-time members under sub-section(1) of Section 7;
(b) the allowances to be paid to the part-time members under sub-section(2) of Section 7;
(c) such other powers that may be exercised by the Authority under clause (q) of sub-section(2) of
Section 14;
(d) the form of annual statement of accounts to be maintained by the Authority under sub-
section(1) of Section 17;
(e) the form and the manner in which and the time within which returns and statements and
particulars are to be furnished to the Central Government under sub-section(1) of Section 20;
(f) the matters under sub-section(5) of section 25 on which the Insurance Advisory Committee
shall advise the Authority;
(g) Any other matter which is required to be, or may be, prescribed, or in respect of which
provision is to be or may be made by rules.
POWER OF CENTRAL GOVERNMENT TO SUPERSEDE AUTHORITY- Section 19 says that if
at any time the Central Government is of the opinion-
(a) 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 this Act, or
(b) that the Authority has persistently defaulted in complying with any direction given by the
Central Government under this Act or in the discharge of the functions or performance of the
duties imposed on it by or under the provisions of this Act and as a result of such default the
financial position of the Authority or the administration of the Authority has suffered; or
(c) that circumstances exist which render it necessary in the public interest so to do, the Central
Government may, be 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
and appoint a person to be the Controller of Insurance under section 2B of the Insurance Act,
1938 (4 of 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, if any, of the Authority.
Upon the publication of a notification under sub-section (1) superseding the Authority,-
(a) the Chairperson and other members shall, as from the date of supersession, vacate their offices
as such;
 (b) all the powers, functions and duties which may, by or under the provisions of this Act, be
exercised or discharged by or on behalf of the Authority shall, until the Authority is
reconstituted under sub-section(3), be exercised and discharged by the Controller of Insurance;
and
(c) All properties owned or controlled by the Authority shall, until the Authority is reconstituted
under sub-section (3), vest in the Central Government.
On or before the expiration of the period of supersession specified in the notification issued under sub-
section (1), the Central Government shall reconstitute the Authority by a fresh appointment of its
Chairperson and other members and in such case any person who had vacated his office under clause (a)
of sub-section (2) shall not be deemed to be disqualified for reappointment. The Central Government
shall cause a copy of the notification issued under sub-section (1) and a full report to any action to be laid
before each House of Parliament at the earliest.
POWER OF IRDAI TO MAKE REGULATIONS- As per Section 26 of the IRDA Act the Authority
may, in consultation with the Insurance Advisory Committee, by notification, make regulations
consistent with this Act and the rules made thereunder to carry out the purposes of this Act. In particular,
and without prejudice to the generality of the foregoing power, such regulations may provide for all or
any of the following matters, namely:-
(a) the time and places of meetings of the Authority and the procedure to be followed at such
meetings including the quorum necessary for the transaction of business under sub-section(1)
of section 10;
(b) the transactions of business at its meetings under sub-section(4) of section 10;
(c) the terms and other conditions of service of officers and other employees of the Authority
under sub-section(2) of section 12;
(d) the powers and functions which may be delegated to Committees of the members under sub-
section(2) of section 23; and
(e) Any other matter which is required to be, or may be, specified by regulations or in respect of
which provision is to be or may be made by regulations.

RULES AND REGULATIONS TO BE LAID BEFORE PARLIAMENT (Section 27). Every rule
and every regulation made under this Act shall be laid, as soon as may be after it is made, before each
House of Parliament, while it is in session, for a total period of thirty days which may be comprised in
one session or in two or more successive sessions, and if, before the expiry of the session immediately
following the session or the successive session aforesaid, both Houses agree in making any, modification
in the rule or regulation or both Houses agree that the rule or regulation should not be made, the rule or
regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be;
so, however, that any such modification or annulment shall be without prejudice to the validity of
anything previously done under that rule or regulation.
Establishment 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
fora, surveyors, agents, intermediaries, organisations 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 related
to insurance.
5. The Insurance Advisory Committee may advise the Authority on such other matters as may be
prescribed.
 IMPORTANT REGULATIONS:

Insurance Regulatory and Development Authority of India (Obligations of

Insurers to Rural and Social Sectors) Regulations, 2015
Under the provisions of Sections 32B and 32C of the Insurance Act, 1938, insurance companies are
obliged to provide such percentages of business as may be specified by the IRDA, for persons in the rural
sector or social sector, workers in the unorganised or informal sector, for economically vulnerable or
backward classes of the society and other categories of persons, as may be specified by the IRDA. The
IRDA has, in pursuance of the provisions of the above two sections of the Insurance Act, issued the
(Obligations of Insurers to Rural or Social Sectors) Regulations, 2000, which lays down that every
insurer transacting general insurance business, shall underwrite business in the rural sector, to the extent
of at least 2% of total gross premium in the first financial year, at least 3% of gross premium in the
second financial year and 5% of the gross premium in the third and further financial years. The
obligations include insurance for crops. The Rural sector has been defined as any place which, as per the
last census, has a population of not more than 5000, density of population of not more than 400 per
square kilometer, and at least 75% of the male working population engaged in agriculture. The
Government of India has launched various programmes for the benefit of small farmers, marginal
farmers, agricultural laborers, etc. Since 1980, all these programmes have been integrated into Integrated
Rural Development Programme (IRDP) which is funded by the Central and State governments on 50:50
basis. The objective of the programme is to provide, to the target group of rural families, a package of
assistance comprising of income generating assets, working capital, etc. through subsidy, institutional
credit, etc. Insurers will evolve appropriate strategies and plans to meet these obligations.
The (IRDA) Insurance Regulatory and Development Authority Act, 1999 (para 19; first schedule) has
amended the Section 32B and 32C of the Insurance Act, 1938 as under:
Section 32B- Every insurer shall, after the commencement of Insurance Regulatory and Development
Authority Act, 1999, undertakes such percentages of life insurance business and general insurance
business in the rural and social sector, as may be specified, in the Official Gazette by the authority, in this
behalf.
Section 32C- Every insurer shall, after the commencement of Insurance Regulatory and Development
Authority Act, 1999, discharge the obligations specified under Section 32B to provide life insurance or
general insurance policies to those residing in the rural sector, workers in the unorganized sector of
informal sector or economically vulnerable or backward classes of the society and other categories of
persons as may be specified by the regulations made by the authority and such insurance policies shall
include insurance for crops. The IRDA Regulations 2000 makes it compulsory for the insurers, existing
and new to promote the rural insurance. The regulations prescribe for undertaking benchmark
percentages for insurances in the rural insurance sector for the players.
Now, As per Insurance Regulatory and Development Authority (Obligations of Insurers to Rural Social
Sectors) Regulations, 2015 every insurer shall undertake following percentages of life insurance business
and general insurance business in the rural and social sector:
(A) Rural Sector
(a) In respect of a Life Insurer:
i. Seven per cent in the first financial year;
ii. Nine per cent in the second financial year;
iii. Twelve per cent in the third financial year;
iv. Fourteen per cent in the fourth financial year;
v. Sixteen per cent in the fifth year;
vi. Eighteen per cent in the sixth and seventh financial years;
vii. Nineteen per cent in the eighth and ninth financial years;
viii. Twenty per cent in the tenth financial year to fifteenth financial year and every year
thereafter; of the total policies written direct in that year;
(b) In respect of a General Insurer:
 i. Two per cent in the first financial year;
ii. Three per cent in the second financial year;
iii. Five per cent in the third to seventh financial years;
iv. Six per cent in the eighth financial year;
v. Seven per cent in the ninth financial year and thereafter;

of total gross premium income written direct in that year;

(c) In respect of Standalone Health Insurers

(i) 50% of the obligations prescribed for General Insurers

(B) Social Sector

In respect of all Insurers (Life,Non-Life,Standalone Health):

Age of the proposed % of Social Sector lives

Life Insurers on the total business procured in
the preceding financial year
1 0.5%
2 1%
3 1.5%
4 2%
5 2.5%
6 3%
7 3.5%
8 4%
9 4.5%
10 and above 5%
(Note: Total business for the purpose of these regulations is the total policies issued in case of
individual insurance and number of lives covered in case of Group Insurance)
Provided that in cases where an Insurer commences operations in the second half of the financial year and is in
operations for less than six months as at 31st March of the relevant financial year, (i) no rural and social sector
Obligations shall be applicable for the said period, and (ii) the annual obligations as indicated in the Regulations
shall be reckoned from the next financial year which shall be considered as the first year of operations for the
purpose of compliance to this regulations. However, in cases where an Insurer commences operations in the first
half of the financial year, that financial year shall be treated as the first year of operations and the applicable
obligations for the first year shall be 2500 lives for Social Sector. Similarly the obligations for Rural Sector shall
be half of the percentage prescribed for the first year.
Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations,
2000:
Qualifications of the Insurance Agent- The applicant shall possess the minimum qualification of a pass
in 12th Standard or equivalent examination conducted by any recognised Board/Institution, where the
applicant resides in a place with a population of five thousand or more as per the last census, and a pass
in 10th Standard or equivalent examination from a recognised Board/ Institution if the applicant resides
in any other place.
Practical Training - (1) The applicant shall have completed from an approved institution, at least, one
hundred hours’ practical training in life or general insurance business, as the case may be, which may be
spread over three to four weeks, where such applicant is seeking licence for the first time to act as
insurance agent. Provided that the applicant shall have completed from an approved institution, at least,
one hundred fifty hours’ practical training in life and general insurance business, which may be spread
over six to eight weeks, where such applicant is seeking licence for the first time to act as a composite
insurance agent.
Code of Conduct- (1) Every agent, shall adhere to the code of conduct specified below:-
I. Every insurance agent shall,---
(a) identify himself and the insurance company of whom he is an insurance agent;
(b) show the agency identity card to the prospect, and also disclose his agency appointment
letter to the prospect on demand;
(c) disseminate the requisite information in respect of insurance products offered for sale by
his insurer and take into account the needs of the prospect while recommending a specific
insurance plan;
(d) where the Insurance agent represents more than one insurance company offering same line
of products, he should dispassionately advice the policyholder on the products of all
Insurers whom he is representing and the product best suited to the specific needs of the
prospect.
(e) disclose the scales of commission in respect of the insurance product offered for sale, if
asked by the prospect;
(f) indicate the premium to be charged by the insurer for the insurance product offered for
sale;
(g) explain to the prospect the nature of information required in the proposal form by the
insurer, and also the importance of disclosure of material information in the purchase of an
insurance contract;
(h) bring to the notice of the insurer any adverse habits or income inconsistency of the
prospect, in the form of a report called “Insurance Agent’s Confidential Report” along with
every proposal submitted to the insurer, and any material fact that may adversely affect the
underwriting decision of the insurer as regards acceptance of the proposal, by making all
reasonable enquiries about the prospect;
(i) obtain the requisite documents at the time of filing the proposal form with the insurer; and
other documents subsequently asked for by the insurer for completion of the proposal;
(j) advise every prospect to effect nomination under the policy
(k) inform promptly the prospect about the acceptance or rejection of the proposal by the
insurer;
(l) render necessary assistance and advice to every policyholder on all policy servicing matters
including assignment of policy, change of address or exercise of options under the policy
or any other policy service, wherever necessary;
(m)render necessary assistance to the policyholders or claimants or beneficiaries in complying
with the requirements for settlement of claims by the insurer;
No insurance agent shall,----
solicit or procure insurance business without being appointed to act as such by the insurer
(a) induce the prospect to omit any material information in the proposal form;
(b) induce the prospect to submit wrong information in the proposal form or documents
submitted to the insurer for acceptance of the proposal;
(c) Resort to multilevel marketing for soliciting and procuring insurance policies and/or induct
any prospect/policyholder to join a multilevel level marketing scheme.
(d) behave in a discourteous manner with the prospect;
(e) interfere with any proposal introduced by any other insurance agent;
(f) offer different rates, advantages, terms and conditions other than those offered by his
insurer;
(g) demand or receive a share of proceeds from the beneficiary under an insurance contract;
(h) force a policyholder to terminate the existing policy and to effect a new policy from him
within three years from the date of such termination of the earlier policy;
(i) apply for fresh agency appointment to act as an insurance agent, if his agency appointment
was earlier cancelled by the designated official, and a period of five years has not elapsed
from the date of such cancellation;
(j) become or remain a director of any insurance company;
 II. Every insurance agent shall, with a view to conserve the insurance business already procured
through him, make every attempt to ensure remittance of the premiums by the policyholders
within the stipulated time, by giving notice to the policyholder orally and in writing;
III. The insurer shall be responsible for all acts and omissions of its agents including violation of
code of conduct specified under these Regulations, and shall be liable to a penalty which may
extend to one crore rupees.
Appointed Actuary
Every insurance company, must now is necessarily required to have an “appointed actuary.” His role has
been defined in the regulations issued by IRDA. While the appointed actuary will receive his
remuneration from the company, he will also be reporting to IRDA direct on certain matters which are
critical and may require immediate IRDA intervention.
‘Actuary’ means a person skilled in determining the present effects of future contingent events or in
finance modelling and risk analysis in different areas of insurance, or calculating the value of life
interests and insurance risks, or designing and pricing of policies, working out the benefits
recommending rates relating to insurance business, annuities, insurance and pension rates on the basis of
empirically based tables and includes a statistician engaged in such technology, taxation, employees’
benefits and such other risk management and investments and who is a fellow member of the Institute.
Traditional responsibilities of Actuaries in life and general insurance business include designing and
pricing of policies, monitoring the adequacy of the funds to provide the promised benefits,
recommending fair rate of bonus where applicable, valuation of the insurance business, ensuring
solvency margin and other insurance risks like legal liability, loss of profit, etc. They also define the risk
factors, advise on the premium to be charged and re-insurance to be purchased, calculate reserve for
outstanding claims and carry out financial modelling. An Actuary works as consultant either individually
or in partnership with other Actuaries in multi-disciplines life insurance, information technology,
taxation, employees benefit, risk management, investment, etc. Evidently, the scope of the functions and
duties of an Actuary has increased considerably under the changed conditions.
(a) Actuaries Make Financial Sense of the Future
Actuaries are experts in assessing the financial impact of tomorrow’s uncertain events. They enable
financial decisions to be made with more confidence by:
 Analyzing the past
 Modelling the future
 Assessing the risks involved, and
 Communicating what the results mean in financial terms.
(b) Actuaries Enable More Informed Decisions:
Actuaries add value by enabling businesses and individuals to make better-informed decisions, with a
clearer view of the likely range of financial outcomes from different future events.
The actuaries’ skills in analysis and modelling of problems in finance, risk management and product
design are used extensively in the areas of insurance, pensions, investment and more recently in wider
fields such as project management, banking and health care. Within these industries, actuaries perform a
wide variety of roles such as design and pricing of product, financial management and corporate
planning. Actuaries are invariably involved in the overall management of insurance companies and
pension, gratuity and other employee benefit funds schemes; they have statutory roles in insurance and
employee benefit valuations to some extent in social insurance schemes sponsored by government.
Actuarial skills are valuable for any business managing long-term financial projects both in the public
and private sectors. Actuaries apply professional rigor combined with a commercial approach to the
decision -making process.
Actuaries Balance the Interests of All
Actuaries balance their role in business management with responsibility for safeguarding the financial
interests of the public. The duty of Actuaries to consider the public interest is illustrated by their legal
responsibility for protecting the benefits promised by insurance companies and pension schemes. The
professions code of conduct demands the highest standards of personal integrity from its members.

THE MICRO-INSURANCE REGULATION OF 2005

What happens when a poor family’s breadwinner dies, when a child in a disadvantaged household is
hospitalized, or the home of a vulnerable family is destroyed by fire or natural disaster? Every serious
illness, every accident and every natural disaster threatens the very existence of poor people and usually
leads to deeper poverty. That’s where “micro-insurance” comes in. Micro insurance - the protection of
low-income people against specific perils in exchange for regular monetary payments (premiums)
proportionate to the likelihood and cost of the risk involved – seeks to provide a suitable solution for
managing these risks.
HISTORY OF MICROINSURANCE IN INDIA- In India, a few micro-insurance schemes were initiated,
either by non-governmental organizations (NGO) due to the felt need in the communities in which these
organizations were involved or by the trust hospitals. These schemes have now gathered momentum
partly due to the development of micro-finance activity, and partly due to the regulation that makes it
mandatory for all formal insurance companies to extend their activities to rural and well-identified social
sector in the country (IRDA 2000). As a result, Micro-finance institutions (MFIs) and NGOs are
negotiating with the for-profit insurers for the purchase of customized group or standardized individual
insurance schemes for the low-income people. Although the reach of such schemes is still very limited,
their potential is viewed to be considerable. The micro insurance regulation of 2005 was a pioneering
approach by the Insurance Regulatory Development Authority (IRDA). India is among the few countries
to draft and implement specific micro-insurance regulations.
TYPES OF MICROINSURANCE
 Life Insurance Health Insurance Property Insurance Disability Insurance  Crop
Insurance Disaster Insurance Unemployment Insurance
MICRO-INSURANCE DELIVERY MODELS One of the greatest challenges for micro-insurance is the
actual delivery to clients. Methods and models for doing so vary depending on the organization,
institution, and provider involved. In general, there are four main methods for offering micro-insurance
the partner-agent model, the provider-driven model, the full-service model, and the community-based
model. Each of these models has their own advantages and disadvantages.
 Partner agent model: A partnership is formed between the micro-insurance scheme and an agent
(insurance company, microfinance institution, donor, etc.), and in some cases a third-party healthcare
provider. The micro-insurance scheme is responsible for the delivery and marketing of products to the
clients, while the agent retains all responsibility for design and development. In this model, micro-
insurance schemes benefit from limited risk, but are also disadvantaged in their limited control.
 Full service model: The micro-insurance scheme is in charge of everything; both the design and
delivery of products to the clients, working with external healthcare providers to provide the services.
This model has the advantage of offering micro-insurance schemes full control, yet the disadvantage of
higher risks.
 Provider-driven model: The healthcare provider is the micro-insurance scheme, and similar to the full-
service model, is responsible for all operations, delivery, design, and service. There is an advantage once
more in the amount of control retained, yet disadvantage in the limitations on products and services
 Community-based/mutual model: The policyholders or clients are in charge, managing and owning the
operations, and working with external healthcare providers to offer services. This model is advantageous
for its ability to design and market products more easily and effectively, yet is disadvantaged by its small
size and scope of operations.
NEW IRDAI MICRO-INSURANCE REGULATION
On 13th March 2015, the Insurance Regulatory and Development Authority of India (IRDAI) introduced
the revised Micro-insurance Regulation (2015) which supersedes the existing regulations introduced in
2005. Withdrawal of all existing micro-insurance products which do not meet the stipulations of the new
regulation must be done by January 2016.
The new regulation makes a number of important amendments including to the guidance on product
development, adjusting the risk coverage levels, permitting more entities to distribute micro-insurance
products and the training of micro-insurance agents and their specified personnel. It also introduces a
change in the existing compliance norms for insurance companies which had been established under the
Rural and Social Sector Obligations (2002 & 2015). Of particular note is the introduction of a new
product category called micro variable life, a hybrid product category which offers the customer the
benefit of systematic contribution with term insurance coverage. With respect to distribution, the new
regulation enlarges the current range of institutional intermediaries to include Reserve Bank of India
(RBI) regulated Non-banking Financial Companies, District Cooperative Banks, Regional Rural Banks
and Urban Co-operative Banks, Primary Agricultural Cooperative Societies registered under the
Cooperative Societies Act, and Business Correspondents who have been appointed in accordance with
the RBI Financial Inclusion Guidelines.
In connection to training, the new regulation specifies a mandatory training period of 25-hours for
individuals employed as micro insurance agents (”agents and their specified persons”). Individuals
selling non-life products to micro and small enterprises now need to undergo an additional 25 hours
training. In addition, every micro insurance agent or sales person needs to undergo refresher training for
half of the specified mandatory training time at the end of 3 years.
In terms of risk coverage levels, the new regulation sees an increase in the maximum limits across
previously specified risk coverage levels. The earlier limits ranged between INR 5, and INR 50,000
depending on the type of product. The new limits are set as follows: for life INR 200,000, for non-life
INR 100,000 and for group health INR 250,000. This should enable insurers to target consumers across
the lower middle income segment, which remains presently largely uninsured on account of the
unattractive (low) coverage limits and poor access.
The new regulation also sees the introduction of a new product category, Micro Variable Life Insurance
Products, a hybrid insurance solution comprising of systematic contributions with term insurance cover.
This product has a lock-in period of five years during which policy surrenders are not allowed, but partial
withdrawals may be permitted. Lastly the new regulation no longer recognises policies sourced as part of
social security schemes as micro-insurance, and prohibits insurance companies from including them as
part of their reporting on their rural and social sector mandatory targets.
Collaborations between life insurers and non-life insurers
The regulations allow for the bundling of life and non-life elements in one single product provided there
is clear separation of premium and risk at the insurer’s level. Where an insurer carrying on life insurance
business offers any general micro-insurance product, he shall have a tie-up with the insurer carrying on
general insurance business for this purpose, and subject to the provisions of section 64 VB of the
Insurance Act (governing the remittance of the premium amount to the insurance company), the premium
attributable to the general micro-insurance product may be collected from the prospect (proposer) by the
insurer carrying on life insurance business, either directly or through any of the distributing entities of
micro-insurance products. In the event of any claim in regard to general micro-insurance, the insurer
carrying on life business or the agent shall forward the claim to the insurer carrying on general insurance
business. The same arrangement holds true for life claims faced by non-life vendors of a micro-insurance
product. In both cases, the respective primary first insurer would render all assistance in claim settlement
by coordinating with his opposite number.

Insurance Regulatory and Development Authority (Protection of Policyholders’

Interests) Regulations, 2002.
Point of Sale
(1) Notwithstanding anything mentioned in regulation 2(e) above, a prospectus of any insurance product
shall clearly state the scope of benefits, the extent of insurance cover and in an explicit manner explain
the warranties, exceptions and conditions of the insurance cover and, in case of life insurance, whether
the product is participating (with-profits) or non-participating (without-profits). The allowable rider or
riders on the product shall be clearly spelt out with regard to their scope of benefits, and in no case, the
premium relatable to all the riders put together shall exceed 30% of the premium of the main product.
Explanation: The rider or riders attached to a life policy shall bear the nature and character of the main
policy, viz. participating or non-participating and accordingly the life insurer shall make provisions, etc.,
in its books.
(2) An insurer or its agent or other intermediary shall provide all material information in respect of a
proposed cover to the prospect to enable the prospect to decide on the best cover that would be in his or
her interest.
(3) Where the prospect depends upon the advice of the insurer or his agent or an insurance intermediary,
such a person must advise the prospect dispassionately.
(4) Where, for any reason, the proposal and other connected papers are not filled by the prospect, a
certificate may be incorporated at the end of proposal form from the prospect that the contents of the
form and documents have been fully explained to him and that he has fully understood the significance of
the proposed contract.
(5) In the process of sale, the insurer or its agent or any intermediary shall act according to the code of
conduct prescribed by:
i. The Authority
ii. The Councils that have been established under section 64C of the Act and
iii. The recognized professional body or association of which the agent or intermediary or insurance
intermediary is a member.
Proposal for insurance
(1) Except in cases of a marine insurance cover, where current market practices do not insist on a written
proposal form, in all cases, a proposal for grant of a cover, either for life business or for general business,
must be evidenced by a written document. It is the duty of an insurer to furnish to the insured free of
charge, within 30 days of the acceptance of a proposal, a copy of the proposal form.
(2) Forms and documents used in the grant of cover may, depending upon the circumstances of each
case, be made available in languages recognised under the Constitution of India.
(3) In filling the form of proposal, the prospect is to be guided by the provisions of Section 45 of the
Act. Any proposal form seeking information for grant of life cover may prominently state therein the
requirements of Section 45 of the Act.
(4) Where a proposal form is not used, the insurer shall record the information obtained orally or in
writing, and confirm it within a period of 15 days thereof with the proposer and incorporate the
information in its cover note or policy. The onus of proof shall rest with the insurer in respect of any
information not so recorded, where the insurer claims that the proposer suppressed any material
information or provided misleading or false information on any matter material to the grant of a cover.
 (5) Wherever the benefit of nomination is available to the proposer, in terms of the Act or the conditions
of policy, the insurer shall draw the attention of the proposer to it and encourage the prospect to avail the
facility.
(6) Proposals shall be processed by the insurer with speed and efficiency and all decisions thereof shall
be communicated by it in writing within a reasonable period not exceeding 15 days from receipt of
proposals by the insurer.
Grievance redressal procedure
Every insurer shall have in place proper procedures and effective mechanism to address complaints and
grievances of policyholders efficiently and with speed and the same along-with the information in respect
of Insurance Ombudsman shall be communicated to the policyholder along-with the policy document and
as maybe found necessary.
Matters to be stated in life insurance policy
(1) A life insurance policy shall clearly state:
a) the name of the plan governing the policy, its terms and conditions;
b) whether it is participating in profits or not;
c) the basis of participation in profits such as cash bonus, deferred bonus, simple or compound
reversionary bonus;
d) the benefits payable and the contingencies upon which these are payable and the other terms and
conditions of the insurance contract;
e) the details of the riders attaching to the main policy;
f) the date of commencement of risk and the date of maturity or date(s) on which the benefits are
payable;
g) The premiums payable, periodicity of payment, grace period allowed for payment of the premium,
the date the last instalment of premium, the implication of discontinuing the payment of an
instalment(s) of premium and also the provisions of a guaranteed surrender value.
h) the age at entry and whether the same has been admitted;
i) the policy requirements for (a) conversion of the policy into paid up policy, (b) surrender (c) non-
forfeiture and (d) revival of lapsed policies;
j) contingencies excluded from the scope of the cover, both in respect of the main policy and the
riders;
k) the provisions for nomination, assignment, and loans on security of the policy and a statement that
the rate of interest payable on such loan amount shall be as prescribed by the insurer at the time of
taking the loan;
l) any special clauses or conditions, such as, first pregnancy clause, suicide clause etc.; and
m) The address of the insurer to which all communications in respect of the policy shall be sent.
n) The documents that are normally required to be submitted by a claimant in support of a claim
under the policy.
Matters to be stated in general insurance policy
(1) A general insurance policy shall clearly state:
a) the name(s) and address(es) of the insured and of any bank(s) or any other person having financial
interest in the subject matter of insurance;
b) full description of the property or interest insured;
c) the location or locations of the property or interest insured under the policy and, where
appropriate, with respective insured values;
d) period of Insurance;
e) sums insured;
f) perils covered and not covered;
g) any franchise or deductible applicable;
h) premium payable and where the premium is provisional subject to adjustment, the basis of
adjustment of premium be stated;
i) policy terms, conditions and warranties;
j) action to be taken by the insured upon occurrence of a contingency likely to give rise to a claim
under the policy;
 k) the obligations of the insured in relation to the subject matter of insurance upon occurrence of an
event giving rise to a claim and the rights of the insurer in the circumstances;
l) any special conditions attaching to the policy;
m) provision for cancellation of the policy on grounds of mis-representation, fraud, non-disclosure of
material facts or non-cooperation of the insured;
n) the address of the insurer to which all communications in respect of the insurance contract should
be sent;
o) the details of the riders attaching to the main policy;
p) proforma of any communication the insurer may seek from the policyholders to service the policy.
Claims procedure in respect of a life insurance policy
(1) A life insurance policy shall state the primary documents which are normally required to be
submitted by a claimant in support of a claim.
(2) A life insurance company, upon receiving a claim, shall process the claim without delay. Any queries
or requirement of additional documents, to the extent possible, shall be raised all at once and not in a
piece-meal manner, within a period of 15 days of the receipt of the claim.
(3) A claim under a life policy shall be paid or be disputed giving all the relevant reasons, within 30 days
from the date of receipt of all relevant papers and clarifications required. However, where the
circumstances of a claim warrant an investigation in the opinion of the insurance company, it shall
initiate and complete such investigation at the earliest. Where in the opinion of the insurance company
the circumstances of a claim warrant an investigation, it shall initiate and complete such investigation at
the earliest, in any case not later than 6 months from the time of lodging the claim.
(4) Subject to the provisions of section 47 of the Act, where a claim is ready for payment but the
payment cannot be made due to any reasons of a proper identification of the payee, the life insurer shall
hold the amount for the benefit of the payee and such an amount shall earn interest at the rate applicable
to a savings bank account with a scheduled bank (effective from 30 days following the submission of all
papers and information).
(5) Where there is a delay on the part of the insurer in processing a claim for a reason other than the one
covered by sub-regulation (4), the life insurance company shall pay interest on the claim amount at a rate
which is 2% above the bank rate prevalent at the beginning of the financial year in which the claim is
reviewed by it.

Claim procedure in respect of a general insurance policy

(1) An insured or the claimant shall give notice to the insurer of any loss arising under contract of
insurance at the earliest or within such extended time as may be allowed by the insurer. On receipt of
such a communication, a general insurer shall respond immediately and give clear indication to the
insured on the procedures that he should follow. In cases where a surveyor has to be appointed for
assessing a loss/ claim, it shall be so done within 72 hours of the receipt of intimation from the insured.
(2) Where the insured is unable to furnish all the particulars required by the surveyor or where the
surveyor does not receive the full cooperation of the insured, the insurer or the surveyor as the case may
be, shall inform in writing the insured about the delay that may result in the assessment of the claim. The
surveyor shall be subjected to the code of conduct laid down by the Authority while assessing the loss,
and shall communicate his findings to the insurer within 30 days of his appointment with a copy of the
report being furnished to the insured, if he so desires. Where, in special circumstances of the case, either
due to its special and complicated nature, the surveyor shall under intimation to the insured, seek an
extension from the insurer for submission of his report. In no case shall a surveyor take more than six
months from the date of his appointment to furnish his report.
(3) If an insurer, on the receipt of a survey report, finds that it is incomplete in any respect, he shall
require the surveyor under intimation to the insured, to furnish an additional report on certain specific
issues as may be required by the insurer. Such a request may be made by the insurer within 15 days of
the receipt of the original survey report.
Provided that the facility of calling for an additional report by the insurer shall not be resorted to more
than once in the case of a claim.
 (4) The surveyor on receipt of this communication shall furnish an additional report within three weeks
of the date of receipt of communication from the insurer.
(5) On receipt of the survey report or the additional survey report, as the case may be, an insurer shall
within a period of 30 days offer a settlement of the claim to the insured. If the insurer, for any reasons to
be recorded in writing and communicated to the insured, decides to reject a claim under the policy, it
shall do so within a period of 30 days from the receipt of the survey report or the additional survey
report, as the case may be.
(6) Upon acceptance of an offer of settlement as stated in sub-regulation (5) by the insured, the payment
of the amount due shall be made within 7 days from the date of acceptance of the offer by the insured. In
the cases of delay in the payment, the insurer shall be liable to pay interest at a rate which is 2% above
the bank rate prevalent at the beginning of the financial year in which the claim is reviewed by it.
Policyholders’ Servicing
An insurer carrying on life or general business, as the case may be, shall at all times, respond within 10
days of the receipt of any communication from its policyholders in all matters, such as:
a) recording change of address;
b) noting a new nomination or change of nomination under a policy;
c) noting an assignment on the policy;
d) providing information on the current status of a policy indicating matters, such as, accrued bonus,
surrender value and entitlement to a loan;
e) processing papers and disbursal of a loan on security of policy;
f) issuance of duplicate policy;
g) issuance of an endorsement under the policy; noting a change of interest or sum assured or perils
insured, financial interest of a bank and other interests; and
h) Guidance on the procedure for registering a claim and early settlement thereof.

It is suggested to go through class notes also.