Insurance Regulatory and Development Authority: Constitution, Functions and Powers

The Insurance Regulatory and Development Authority is the main organization or supervisory body that regulates the insurance sector in the country.

By: Shivalika Midha, Advocate

What is the Insurance Regulatory and Development Authority (IRDA) ?

The Insurance Regulatory and Development Authority is the main organization or supervisory body that regulates the insurance sector in the country. It sets rules and regulations for the functioning of the insurance industry. Its sole purpose is to protect the interest of policyholders and to develop the industry on the whole.

The IRDA or IRDAI regularly issues advisories to insurance companies in case of changes to the rules and regulations. The regulator guides the insurance industry in promoting the efficiency in the conduct of insurance business all the while controlling the rates and other charges related to insurance. This article dwells on the functioning of the IRDA, features and benefits as well as answers to frequently asked questions at the end of this reading.

Establishment of IRDA:

The Government of India was the regulator for the insurance industry until 2000. However, to institute a stand-alone apex body, the IRDA was established in 2000 following the recommendation of the Malhotra Committee report in 1999. In August 2000, the IRDA began accepting applications for registrations through invites and allowed companies from other countries to invest up to 26% in the market.

The IRDA has outlined several rules and regulations under Section 114A of the Insurance Act, 1938. Regulations range from registration of insurance companies for operating in the country to protecting policyholder’s interests. As of September 2020, there are 31 General Insurance companies and 24 Life Insurance companies who are registered with the IRDA.

The objective of IRDA:

The main objective of the Insurance Regulatory and Development Authority of India is to enforce the provisions under the Insurance Act. The mission statement of the IRDA is:

To protect the interest and fair treatment of the policyholder.
To regulate the insurance industry in fairness and ensure the financial soundness of the industry.
To regularly frame regulations to ensure the industry operates without any ambiguity.

Important Role of IRDA in the Insurance Sector in India:

The insurance industry in India dates back to the early 1800s and has grown over the years with better transparency and focus on protecting the interest of the policyholder. The IRDA plays an integral role in emphasizing the importance of policyholders and their interest while framing rules and regulations. Here are the important roles of the IRDA:

To protect the policyholder’s interests.
To help speed up the growth of the insurance industry in an orderly fashion, for the benefit of the common man.
To provide long-term funds to speed up the nation’s economy.
To promote, set, enforce and monitor high standards of integrity, fair dealing, financial soundness and competence of the insurance providers.
To ensure genuine claims are settled faster and efficiently.
To prevent malpractices and fraud, the IRDA has set up a grievance redress forum to ensure the policyholder is protected.
To promote transparency, fairness and systematic conduct of insurance in the financial markets.
To build a dependable management system to make sure high standards of financial stability are followed by insurers.
To take adequate action where such high standards are not maintained.
To ensure the optimum amount of self-regulation of the industry.

Functions of IRDA:

Below are the important functions of the IRDAI in the insurance industry in India:

Grant, renew, modify, suspend, cancel or withdraw registration certificates of the insurance company.
Protecting the interests of the policyholder in matters concerning the grant of policies, settlement of claims, nomination by policyholders, insurable interest, surrender value of the policy and other terms and conditions of the policy.
Specify code of conduct, qualifications and training for intermediary or insurance agents.
Specify code of conduct for loss assessors and surveyors.
Levying fees and charges for carrying out the provisions of the Act.
Undertaking inspection, calling for information, and investigations including an audit of insurance companies, intermediaries, and other organizations associated with the insurance business.
Regulate and control insurance rates, terms and conditions, advantages that may be offered by the insurance providers.

Apart from the above-mentioned core functions of the IRDA, there are several functions that the regulator performs keeping the policyholder’s interest as its priority.

How Does IRDA Work?

The apex body of the insurance industry, the IRDA, ensures it frames rules and regulations without any ambiguity towards any particular insurance company. To ensure fairness and the financial soundness of the industry, the main work of IRDA revolves around the policyholder’s interests. Refer to the following roles that the IRDA is mainly involved in:

Issues certificate of registration to new insurance companies.
Sets rules and regulations to ensure the interests of the policyholder are taken care of.
Monitors all claims are settled in all fairness and that no insurer will deny any claim on their own free will.
Regulates the code of conduct of the insurance companies, insurance intermediaries, and others associated with the insurance industry.
Provides solutions in case of disputes through the IRDA ombudsman.
Controls and regulates the rates of insurance to prevent unwanted price hikes in the insurance premium.
The apex body is responsible for setting the minimum percentage limit of insurance companies for General and Life Insurance, thereby developing both urban and rural sectors.

Features & Benefits of IRDA:

Following are the salient features of the apex body, the Insurance Regulatory and Development Authority of India:

Acts as a regulator for the insurance industry.
Protects the policyholder’s interests.
Rules and regulations are framed by the apex body under Section 114A of the Insurance Act, 1938.
It is entrusted under the Insurance Act to grant the certificate of registration to new insurance companies to operate in India.
Oversees the insurance industry’s activities to ensure sustained development of insurers and policyholders.

Types of Insurances Regulated by the IRDAI:

Insurance is mainly divided into Life and Non-Life/General Insurance. These are further classified into other types of insurance. Below are the types of insurance regulated by the IRDAI:

Life Insurance

- Term Plans
- Endowment Policies
- Unit-linked Insurance Policies
- Retirement Policies
- Money-back Policies

General Insurance
- Health Insurance Policies
- Vehicle/Motor Insurance Policies
  - Car insurance
  - Bike Insurance
- Property Insurance Policies
- Travel Insurance Plans
- Gadget Insurance Plans

Section 14 of IRDAI Act, 1999 lays down the duties, powers and functions of IRDAI

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.

Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, –

Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;
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;
Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors;
Promoting efficiency in the conduct of insurance business;
Promoting and regulating professional organisations connected with the insurance and re-insurance business;
levying fees and other charges for carrying out the purposes of this Act;
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;
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;
Regulating investment of funds by insurance companies;
Regulating the maintenance of margin of solvency;
Adjudication of disputes between insurers and intermediaries or insurance intermediaries;
Supervising the functioning of the Tariff Advisory Committee;
Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f);
Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and
exercising such other powers as may be prescribed

Composition of IRDAI

The Insurance Regulatory and Development Authority of India is constituted by an act of parliament. The Authority is a ten-member body, specified in section 4 of the IRDAI Act of 1999, consisting of

a Chairman;
five whole-time members;
four part-time members;
All of the appointments are done by the Government of India.

Conclusion:

The enormous insurance industry is expanding rapidly, at a pace of 15-20%. Insurance services together with banking services boost the nation’s GDP by roughly 7%. The thriving and advanced insurance industry is beneficial for economic growth as it increases the country’s capacity to take risks while providing long-term funding for infrastructure development.

Irdai thus plays a variety of roles. It must first defend the rights of insurance policyholders and make sure they are handled fairly. To make sure that the interests of the average person are not compromised, it must also keep an eye on policy issuers.