A COMPREHENSIVE STUDY ON THE INSURANCE REGULATORY AGENCY OF INDIA – The Insurance Regulatory and development authority of India

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5 months ago

Author: Akash Dey Bhowmick, a student at St. Xavier’s University, Kolkata

ABSTRACT:

The Insurance Regulatory and Development Authority Act, 1999 under its provisions established an apex regulatory agency in the form of the Insurance Regulatory and Development authority of India to develop and regulate the insurance and reinsurance industry in India. The Malhotra Committee report gave the recommendations for the set up of such an agency. All insurance companies that run in India are registered under the IRDAI.

INTRODUCTION:

The IRDAI is an authoritative body primarily overseeing the functioning of the ‘General Insurance’ and ‘Life Insurance’ companies operating across India carrying the main responsibility of protecting the interests of the policyholders pan India. It is a body corporate with perpetual succession and common seal. It is instilled with the main objective to promote competition to enhance customer satisfaction by enabling wider customer choice and lower premiums to guarantee greater financial security in the insurance market. It is an autonomous body which has its own set of rules, regulations and guidelines aiming at regulating fair practice.

STRUCTURE & COMPOSITION OF IRDAI:

Section 4 of the Insurance Regulatory and Development Authority Act, 1999 sets out the structure and composition of the IRDAI. The IRDAI is a ten-member body headed over by a chairman. Of these ten members in total, five of them are full-time while four of them are part-time and the remaining one is the chairman. All of them are appointed by the Government of India.

The chairman and other persons are mandated to hold office for 5 years and stand eligible for reappointment. It is also stated that the chairman cannot be above 65 years of age and the other members are not to be above 62 years of age. The members are allowed to relinquish their offices and at the same time they can also be removed from office in accordance with the grounds laid out in section 6 of the Act.

Any member stands exposed to being removed if he is an insolvent, mentally challenged, been a convict of any offence involving moral turpitude, possessing financial or other interests which are prejudicial to his functions as a member or he has abused his position to serve any interest that is detrimental to the public at large. However, any such member can only be removed after providing him with a reasonable opportunity of being heard first.

FUNCTIONS & OBJECTIVES OF IRDAI:

The functions of IRDAI are manifolds. They are as follow: –

To register, renew, modify, withdraw, suspend or cancel registrations.
To protect the policyholders’ interests.
To control and regulate rates, advantages, terms and conditions.
To monitor and maintain the margin of solvency.
To specify the qualifications and the code of conduct for intermediaries, agents, surveyors and loss assessors.
To adjudicate disputes between insurers and intermediaries.
To supervise the functioning of the Tariff Advisory Committee
To maintain necessary information in regards to undertakings made and to keep and record audits; to carry out timely inspections so as to conduct proper inquiries; to promote competition as per customer satisfaction.

All these functions of IRDAI aims at operating the insurance market without any ambiguity and to infuse financial soundness in the insurance system with the main intent to speedily settle genuine claims, curb insurance frauds and to check malpractices in the market.

MISSION OF IRDAI & THE STEPS TAKEN IN THE FURTHERANCE OF THE SAME:

The main mission of IRDAI is to assist in insurance penetration in India. Penetration rate is the ratio of premiums underwritten in a particular year to GDP helping in grasping a better understanding of the growth of the insurance sector in India. The economic survey report of 2022-23 unveiled the reason why the insurance sector in India is not growing at the faster rate at which it is supposed to be and it showed that the choice of policyholders to select savings-based products was the factor behind it. Although penetration rate has grown from 2.7% in 2000 to 4.2% in 2021, the two parameters of insurance penetration which are namely the ratio of tetra insurance premiums to GDP and insurance density which in turn is the ratio of insurance premium to population need to be further enhanced and worked upon.

The IRDAI covers a wide variety of insurance policies under life insurance and general insurance respectively. Under life insurance, there are policies such as term plans, ULIP (Unit Linked Insurance Plan), endowments, money-back plans, retirement plans etc. while policies such as health insurance, motor vehicle insurance, travel insurance, home insurance etc. are available under general insurances.

It is to be noted that IRDAI deals with the insurance sector to uphold the interest of the policyholders whereas SEBI deals securities and commodities sector to safeguard the interests of the investors. IRDAI functions as per the Insurance Regulatory and Development Authority Act, 1999 and the SEBI works in accordance to the Securities and Exchange Board of India Act, 1992.

Then comes the aspect of insurance ombudsman which is an initiative by the Government of India to ensure cost-effective grievances in insurance policies. It enables complaints to be filed at zero costs in offices that cover their jurisdiction. At present, there are 17 ombudsman offices across India arranging hearings for the grievances lodged from time to time. An award for the same needs to be given within 3 months from the date of the hearing. However, it must be noted that only claims which are less than INR 30 lakh can be taken up to the ombudsman.

The IRDAI has also brought in new guidelines for health and medical insurances. It has introduced telemedicine which now provides the insurers the opportunity to consult doctors in online mode. A claiming settlement mandate has also been brought in which necessitates the IRDAI to settle a claim within 30-45 days from the date of submission of the last document. It has also laid down a few rules on the grounds for claims rejection. The insurer cannot reject a claim of a policyholder who has had his policy renewed for a term of 8 years straight without any lapse, this duration is called the moratorium period.

FURTHER DIVE INTO CONTEMPORARY DEVELOPMENTS:

The IRDAI has also introduced better provisions that would guarantee a better exit payout for life insurance policy holders who are no more willing to continue paying their insurance. The exit payout is actually a higher ‘surrender value’. The prevalent situation until the introduction of these newer provisions was that the policy-holders used to receive less or almost no payout if they discontinued paying their premiums; therefore, to check this, what the IRDAI did was that the introduction of the process of determination of surrender value in keeping with a proper justification in regards to adequate reasonableness and value for money for both the exiting and continuing policyholders.

The amount that a policyholder is liable to receive when the policy is terminated before the maturity date is called the surrender value. The insurers deduct a certain amount as ‘surrender charges’ as per the terms set out in the plan; however, what is important to note here is that whether a policy gets discontinued or not is a later thing of concern, what comes prior is the liability of the policyholder to receive earnings, savings and other associated benefits which stand qualified of being accrued from his association with the policy. This surrender charge is levied by the insurer to take away a portion of the payout. This payout constitutes a portion of the premiums paid and serves the primary purpose of a disincentivising tool to discourage the premature exits of policyholders and also as a compensation for the administrative expenses incurred and the potential losses that might be suffered because of no further premiums. Now, with the newer provisions invoked, the IRDAI has taken it upon itself to make sure that the disincentivising tools which are applied by the insurers to protect and safeguard their interests should be in conformity with the financial fairness meted out towards the policyholders and the well-being of the policyholders as a whole and should not place the policyholder in some compromised position just so because he is opting out of the policy.

Wider product choices and customisation has also been enabled to realise the need for a greater flexibility that’s sought by individual needs.

Claims settlement process has also been enhanced too for a more expedited and streamlined procedure. With the inculcation of strict timelines, it has been made a responsibility of the insurers to turn in timely survey reports. The aspect of no contribution clause has also been highlighted with the same being not applicable in case of multiple policies to simplify the claims process for the policyholders all the more. In terms of salvaging disposal, it has been brought on the insurers and not the customers to ensure that the policyholders receive their full claim amount. All in all, an all-inclusive effort has been made to make the entire insurance scenario policyholder friendly.

Recent reformations have taken place in governance and compliance measures too where the IRDAI to practice broad oversight over the insurance market has implemented a more developed mechanism on product development, sales and policy servicing stages. In terms of product development, customer suitability and affordability has been prioritised. Product pricing has been done in consideration with risk exposure, experience and expenses. Attempts have also been made to ensure that rates are not excessive or discriminatory.

Moreover, technology has also been leveraged for a heightened efficiency. Technology has helped IRDAI to attain a more end-to-end solution to facilitate seamless onboarding. The necessity for fair work allocation has also been recognised through the latest reforms to secure equitable opportunities without any human intervention and potential biases.

POWERS OF IRDAI:

The following characteristics of IRDAI represent the powers possessed by IRDAI: –

It possesses quasi-judicial power having the liberty to pass orders, give directions and make awards.
It serves as a one-stop resource or as a point of information for all matters in regards to insurance.
It is vested with the power to conduct examinations to issue licenses to agents, brokers, surveyors and loss assessors.
It also holds certification courses for insurance agents and brokers.

IRDAI effectuates these powers by working in unison with the RBI (Reserve Bank of India) and the SEBI (Securities and Exchange Board of India). It also maintains a close working relationship with the Insurance Institute of India (III) which in turn is the educational wing of IRDAI to conduct training and educational programs for insurance personnels.

The IRDAI Act is a comprehensive legislation which has given IRDAI the sweeping powers to regulate insurance industry in India wherein IRDAI through its various departments implement the various provisions of the Act.

AN INSIGHT INTO SOME NOTABLE PROVISIONS OF THE IRDAI ACT, 1999:

Section 16 of the Act deals with ‘IRDAI Fund’ and the various outlets from which IRDAI derives its fundings. The sources are: –

Government grants and fees.
Grants received from government agreed sources.
From the percentage of minimum premium income that the insurers receive.

Section 17 of the Act deals with Accounts and Audits where in it has been stated that the authority to maintain accounts and annual statements lie with the Comptroller and Auditor General of India. Now, if the Comptroller General delegates his work to some other person, that person too would have the same rights and privileges as the Comptroller and Auditor General. These rights include the production of books of accounts, vouchers and other relevant documents and papers too. And finally, it is through the him that the audit report is forwarded to the Central Government and from there on it gets presented before the two Houses of the Parliament.

Section 18 powers the Central Government to issue directions to the IRDAI on policy matters and Section 19 powers it to supersede the IRDAI too in certain specific scenarios. However, this superseding action by the Central Government can only take place when it realises that the Authority is failing to discharge its functions or the financial condition of the authority has been hampered or circumstances are so that it is inevitable for the Government to intervene in general public interest.

Through Section 22 of the Act, any action taken by the authority in good faith stands protected; however, if any such act is committed which is inconsistent with the provisions of the Act and is in non-consonance with the aims and objectives of the authority, then against such an act, the aggrieved has the right to file suit against the Authority or the Central Government.

Lastly, Section 24 of the Act sees the Central Government empowered to make rules in regards to the Act such as provisions in relation to salary and allowances payable to the members of the Authority.

CONCLUSION:

Insurance constitutes a very essential aspect of the economy which requires constant adaption from time to time due to its ever-changing requirements. Full force and maximum utility of various institutions like the Advisory Committee and self-regulatory organisations are yet to be realised in India and presently the insurance picture in India seems to be under a learning mode. A problem that has come to recent notice is that of over-delegation which has let the individual incumbents to decide the pace and extent of utilization of prudential and statutory bodies which is not really helping the cause of IRDAI. Most researches that get carried out on insurance regulation takes place through legacy channels. The utmost need of the hour is that of an overhaul and a revamp of certain provisions of insurance regulation in India which the country patiently awaits. There needs to be a revision of certain aspects of the IRDAI Act too so as to check excess delegation and subjective localisation of development agencies to bring forth meaningfully functioning regulatory bodies. The IRDAI at present can be conclusively identified as a silent regulator which has its hands full activities confined to its local existence.

FREQUENTLY ASKED QUESTIONS:

What does the 3-year rule of the IRDAI state?

Ans.- Section 45 of the Insurance Act states that post the lapse of 3 years from the date of commencement of any policy, no policy claim can be rejected for whatsoever reason.

What are the KYC norms for IRDAI?

Ans.- KYC or ‘Know Your Customer’ norms necessitate a list of documents to be verified at the activation of any policy which are mainly the recent photograph, document identity and address of the claimant.

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