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1 | P a g e
INDEX.
Sr.No. Contents. Page No.
1. Objective of IRDA. 2
2. Research methodology. 4
3. Introduction of IRDA. 5
4. Formation of IRDA. 7
5. Introduction of Insurance. 8
6. History of Insurance in India. 10
7. Types of insurance. 11
8. Malhotra Committee 19
9. Regulators of IRDA. 21
10. Powers & duties of IRDA. 23
11. Feature of IRDA. 25
12. Role of IRDA. 27
13. Functions & Expectations of IRDA. 30
14. Conclusion. 36
15. Bibliography. 37
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2 | P a g e
Objective of IRDA:
1) Mission of IRDA.
To pr otect the inter ests of the policyholder s, to r egulate, pr omote
and ensur e or der ly gr owth of the insur ance industr y and for matter s
connected ther ewith or incidental ther e to.
2 ) IRDA obligation under the Act:-
The Insur ance R egulator y and Develo pment Authority (IRDA) is a public authority as def ined in the Right to Infor mation Act, 2005.As such, the Insur ance R egulator y and Develo pment Authority ar e obliged to pr ovide infor mation to member s of public in accor dance
with the pr ovisions of the said Act.
3 ) Complaint against insurance companies.
IRDA has pr ovided for a se par ate channel for lodging com plaints
against def iciency of ser vices r ender ed by Insur ance Com panies. If you have a com plaint/grievance against an insur ance com pany for
poor quality of ser vice r ender ed by any of its off ices/br anches, please a ppr oach the Nodal Off icer of the Insur ance Com pany concerned. In case you ar e not satisf ied wit h the Insur ance Com pany¶s r es ponse you may also f ile a com plaint with the Insur ance Ombudsman in your State. The Insur ance Ombudsman is
an inde pendent off ice to pr ovide s peedy and cost effective r esolution of grievances to the customer s.
4 ) Composition of IRDA:-
The IRDA consist of a Chair Per son & not mor e than nine
member s of whom not mor e than 5 would be full time member , to
be a ppointed by the government accor ding to the ability,
Knowledge, & ex perience of life insur ance & gener al insur ance.
5 ) Objectives of IRDA Act. To pr otect the investor's inter est To pr omote or der ly gr owth of insur ance industr y in the countr y,
including r egistr ation of insur ance com panies
To administer the pr ovisions of Insur ance Acts To devise contr ol activities needed for smooth fun ctioning of the
insur ance com panies including investment of funds and solvency r equir ements to be maintained by insur ance com panies.
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3 | P a g e
To lay down the accounting methodology to be ado pted
To adjudicate on dis putes.
6 ) IRDA Initiatives.
IRDA's r egulation stipulate that the pr os pectus issued by the
insur er should ex plicitly state the sco pe of benef its, conditions, warr anties, entitlements exce ptions, and right to par ticipate in
bonus under ever y plan of insur ance A decision on the pr o posal should be made by the insur er within 15
days IRDA has f r amed r egulations r egar ding adver tisement by insur ance
com panies and other inter mediaries. They a pply to all categories
and media em ployed
IRDA can adjudicate dis putes between the insur ance com panies and inter mediaries
IRDA r egulation r equir es that ever y insur ance com pany a ppoint anactuar y
IRDA r egulation has laid down the following stipulations as r egar ds settlement of claim:
a. All the r equir ements needed under death claim ar e to be
sought in one instance
b. Admit or r e pudiate the claim in 30 days c. All investigations need to be com pleted in 6 months
d. Inter est at 2 % over bank r ate is payable in case of delayed settlement
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4 | P a g e
Research methodology.
a ) Type of data Collected:-
It is a Primar y data as well as secondar y data to collect.
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5 | P a g e
Introduction of IRDA:
The Insur ance Act, 1938 had pr ovided for setting u p of the Contr oller of
Insur ance to act as a str ong and power ful su per visor y and r egulator y
authority for insur ance. Post nationalization, the r ole of Contr oller of Insur ance diminished consider ably in signif icance since the Government owned the insur ance com panies.
But the scenario changed with the private and for eign com panies for aying
in to the insur ance sector. This necessitated the need for a str ong, inde pendent and autonomous Insur ance R egulator y Authority was felt.
As the enacting of legislation would have tak en time, the thenGovernment constituted thr ough a Government r esolution an Interim Insur ance R egulator y Authority pending the enactment of a
com pr ehensive legislation.
The Insur ance R egulator y and Develo pment Authority Act, 1999 is an act
to pr ovide for the establishment of an Authority to pr otect the inter ests of holder s of insur ance policies, to r egulate, pr omote and ensur e or der ly gr owth of the insur ance industr y and for matter s connected ther ewith or incidental ther eto and fur ther to amend the Insur ance Act, 1938, the Life
Insur ance Corpor ation Act, 1956 and the Gener al insur ance Business (Nationalization) Act, 1972 to end the mono poly of the Life Insur ance Corpor ation of India (for life insur ance business) and Gener al Insur ance
Corpor ation and its subsidiaries (for gener al insur ance business).
The act extends to the whole of India and will come into for ce on such
date as the Centr al Government may, by notif ication in the Off icial Gazette s pecify. Differ ent dates may be a ppoint ed for differ ent pr ovisions
of this Act.
The Insur ance R egulator y Develo pment Authority Act, 1999 mark ed the
end of government mono poly in the insur ance business. The IRDA Act r eceived the assent of the Pr esident of India on 29 December 1999. The
IRDA Act has r amif ications on The Insur ance Act (1938), The Life Insur ance Corpor ation Act (1956) and The Gener al Insur ance Business (Nationalization) Act (1972).
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6 | P a g e
The passage of Insur ance R egulator y and Develo pment Authority Act in1999 can be seen a dividing lin e for insur ance business in India. It was an
outcome of the im plementation of the r ecommendations of a high
power ed committee, which suggested the setting u p of a statutor y body called the Insur ance R egulator y Authority in 1996. This body was later
r enamed as Insur ance r egulator y and Develo pment Authority with the passage of IRDA Act by the par liament.
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7 | P a g e
Formation of IRDA.
In the year 1980, the government felt in necessar y to r efor m the insur ance
industr y, to pr ovide a better cover age to the citizen & to incr ease the flow
of long ter m f inancial r esour ces to f inance the inf r astr uctur e gr owth.
In the year 1993, the government of India set u p the Malhotr a committee
to suggest the r efor m in the insur ance industr y. The committee
r ecommend o pening u p the insur ance sector to pr ovide ser vice &
extending insur ance cover to the lar ge section of the society. The
committee also suggest to set u p the statutor y body called Insur ance
R egulator y insur ance Authority (IRA).
In the year 1996, IRA was for med & in 1999 the IRDA bill was passed in
the par liament.
The IRDA Act pr ovides for the establishment of an authority to r egulate
to pr omote & to ensur e or der ly gr owth the insur ance policy in India.
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8 | P a g e
Introduction of Insurance.
Introduction:-
Mans life is a full of risk. Even if a man does not have any business or
pr o per ty, he/she not f r ee f r om risk. He fall sick , he/she gr ow old he r etir e
f r om ser vices & the pr oblem of maintaining his family become diff icult.
His deaths mak e a serious pr oblem for his family, s pecially even if he is
only earning hand in the family. He may suffer f r om serious disability &
may become inca pable for doing any work , to money, etc. if he is owner of the pr o per ty ar e also subject to risk of damage by f ir e, ear thquak e, etc.
This risk may r esult in loss & man is not in a position to bear heavy
losses, he may go mad, commit suicide. Ther efor e, a man needs some
shor t of pr otection against the risk to which his life & pr o per ty ar e
ex posed. This pr otection is given by insur ance.
Meaning:-
Insur ance is a device invented by a man to pr otect him against the risk. It
is the based on the principle of co-o per ation.
It is a contr act between 2 par ties wher e by one par ty under tak es to
com pensate the other par ty against the loss which may arise on the
ha pping of an event in consider ation of a cer tain payment.
Definition:-
Accor ding to Justice Tindall:
³ Insurance is a contract in which a sum of money is paid
to the insured as consideration of insurer incurring the risk
of paying a large sum upon a given contingency.´
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9 | P a g e
PURPOSE OF INSURANCE
Insur ance s pr eads the economic bur den of losses by using funds contri buted by member s of the gr ou p to pay for them. Thus, it is a loss
s pr eading device.The fundamental purpose of insur ance however is neither the
s pr ead ignor e the pr evention of losses. R ather , it is r eduction of the uncer tainty which is caused by awar eness of the possi bility of loss.
An insur ance scheme pr ovides cer tainty for the individual member s
of the gr ou p by aver aging loss costs. The contri bution made by the individual to the gr ou p is assumed, on the basis of pr edictions, to be his
shar e of losses suffer ed by the gr ou p.In exchange for this contri bution, he is assur ed that the gr ou p will
assume any losses that involve him. He tr ansfer s his risk to the gr ou p and
aver ages his loss costs, thus substituting cer tainty for uncer tainty. He pays a cer tain pr emium instead of facing the uncer tainty of the pos si bility
of lar ge loss.
Insurance Act
The passage of the Insur ance Act, 1938 and its subsequent amendments
in 1950 and 1999 ar e serious attem pts to bring or der in the business of
insur ance in India. The Act attem pted to addr ess various issues r elating to the business. Some of them ar e:
y Pr otection of policy holder inter est
y Limiting the ex penses of insur ance or ganizations y Establishment of tariff advisor y committee
y Solvency levels to be maintained
y Cr eation of Insur ance or ganization
y Def ining the r oles and r es ponsi bilities of various functionaries
associated with the business
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10 | P a g e
History of Insurance in India.
Insur ance in India has its histor y dating back until 1818, when Oriental
Life Insur ance Com pany was star ted by Anita Bhavsar in K olk ata to cater
to the needs of Eur o pean community. The pr e -inde pendence er a in India
saw discrimination between the lives of for eigner s (English) and Indians
with higher pr emiums being char ged for the latter. In 1870, Bombay
Mutual Life Assur ance Society became the f ir st Indian insur er.
At the dawn of the twentieth centur y, many insur ance com panies wer e
founded. In the year 1912, the Life Insur ance Com panies Act and the
Pr ovident Fund Act wer e passed to r egulate t he insur ance business. The
Life Insur ance Com panies Act, 1912 made it necessar y that the pr emium -r ate tables and periodical valuations of com panies should be cer tif ied by
an actuar y. However , the dis parity still existed as discrimination between
Indian and for eign com panies. The oldest existing insur ance com pany in
India is the National Insur ance Com pany Ltd., which was founded in
1906. It is in business. Befor e that, the industr y consisted of only two
state insur er s: Life Insur er s (Life Insur ance Corpor ation of India, LIC)
and Gener al Insur er s (Gener al Insur ance Corpor ation of India, GIC). GIC
had four subsidiar y com panies.
With effect f r om December 2000, these subsidiaries have been de-link ed f r om the par ent com pany and wer e set u p as inde pendent insur ance
com panies: Oriental Insur ance Com pany Limited, New India Assur ance
Com pany Limited, National Insur ance Com pany Limited and United
India Insur ance Com pany Limited.
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11 | P a g e
Types of Insurance:
Insurance is a generall a contract of indemnify where the
insurance company. Under takes the responsibility to indemnify theinsured against the pro ba ble loss which the insured may suffer on
the happing of the event.
Basically insurance business is divided in to 2 types.
A) Li fe Insurance:-
Life insurance is a contract where by, for an agreed payment (premium),
the insur ing company agrees to pay the insured, or his benef iciar ies, a
f ixed sum or an income upon the death of the insured. In addition, life
insurance can be used as a means of investment or savings. There are four
people involved in the contract:
1) The insurer - who draws out the contract and pledges to offer a
service to the benef iciary.
2) The policy holder - a person, natural or legal who signs the contract,
pays the premium and selects the nominated benef iciar ies .
3) The insured - the person¶s whose death is covered by the policy.
4) The nominated benef iciar ies or next of k in - persons, natural or legal
who will receive the f ixed sum or income as agreed by the contract.
1) Why purchase lif e i surance?
The main purpose of any life insurance policy is to protect your family
Types of Insurance.
Lif e Insurance
GeneralInsurance
Re-Insurance
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and loved ones against the risk of f inancial uncer tainty. Life insur ance
can pr ovide for the welfar e of your family in face of your death. If you
have a s pouse, thr ee kids, a mor tgage, car payments, and cr edit car d bills,
what would ha ppen to them if you wer e suddenly to die? Would your
family have enough money to k ee p the house, car , pay off cr edit car d debt, and send your childr en to college?
Life insur ance can guar d your family and l oved ones f r om potential
f inancial disaster.
2 ) Basic facts:
Taking out a life insur ance policy is a long-ter m investment and can be a good way to: build u p your savings get additi onal income for
your r etir ement get r eturns on your ca pital pass on your ca pital.Befor e you sign a life insur ance contr act, you should give car eful consider ation to the following: the contr acts¶ ter ms and conditions
benef iciaries setting u p tr ust pr emium payments cooling-off period ty pes of life insur ance
3 ) Terms and conditions: When you buy life insur ance, it is always in ter ms of a contr act. The
fact that you ar e entering a legal contr act carries with it a number of benef its, but it also places a r es ponsi bility on you. The main ter ms of
the contr act ar e: You or your de pendants w ill be paid a benef it in the event of your death or disability, or at a futur e date (the maturity date),
in the case of an investment policy you must pay an agr eed amount (pr emium) on a r ecurring basis, either monthly, thr ee-monthly
4 ) Premium payments: Usually ther e ar e two ty pes of pr emium payments: R egular pr emium -
these ar e r egular payments (usually monthly) with the minimum ty pically being between £10 and £20 paid per month. S ingle pr emium - these pr oducts ar e often called bonds and usually have a minimum
single investment of between £2000 and £5000
5 ) Charges:
Char ges can be com plex and it is often unclear to investor s how much of their contri butions ar e being deducted in char ges. They can be high and will var y with the ty pe of investment and policy. Usually they will
be: administr ation fee - will cover the policy¶s setting u p costs initial
char ge (for unit link ed policies) - thr ough the bid/offer s pr ead of 5%to 6% in the price of units unit allocation (for unit link ed policies) -
this can be confusing and you need to under stand how it
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6 ) Withdrawals and loans on life insurance policies : Life insur ance is a long ter m commitment. Pr emiums ar e payable
usually for 10 year s or mor e and the policy is not designed to be
cashed in ear ly. If you need to r aise some cash, surr endering a policy is a last r esor t. These ar e the alternatives you might consider : Loan - your insur ance com pany may be able to gr ant you a loan against the surr ender value of your policy at a r easonably co m petitive r ate. Paid-
u p policy - you may be able to mak e the policy "paid -u p".
7 )Life Insurance Proceeds & Taxes: Many peo ple don't r ealize that even though life insur ance death
benef it pr oceeds should be paid income tax -f r ee1 to the
benef iciar y(ies), ther e's a chance that such pr oceeds will be included
in the value of the insur ed's estate, which may be subject to estate taxation.
8 ) Selling or surrendering a policy: Ther e ar e two ways to r edeem a life insur ance policy if you just don¶t
want it any mor e, you can sell or surr ender it. You can sell your life insur ance policy via a br ok er on to a thir d par ty who wants to buy aninvestment pr oduct, at a lower price than they could ge t f r om scr atch.
The calculation to deter mine an a ppr o priate price to pay for your policy by a Mark et Mak er is made inde pendently of the surr ender
value. However , if you ar e selling your policy, the price offer ed by a Mark et
Types of Life Insurance Policy.
Endowment Pr oduct. Whole-Life Policy.
Ter m Assur ance.
Annuities Money Back Policy
Marriage Endowment / Education Annuity
Jeevan Sati (Joint Life Policy).
K omal Jeevan.
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B G eneral Insurance:-
All Insur ance other than µLife Insur ance¶ falls under the categor y of Gener al Insur ance. Gener al Insur ance includes of insur ance of
pr o per ty against f ir e, bur glar y etc, per sonal insur ance lik e Accident
and Health Insur ance, and liability insur ance which cover s legal liabilities. Ther e ar e also other kinds of cove r s such as Err or s
and Omissions insur ance for pr ofessionals, cr edit insur ance etc. Non-life insur ance com panies have pr oducts that cover pr o per ty against Fir e and r elated hazar ds, flood stor m and inundation,
ear thquak e and so on. Ther e ar e pr oducts that cover pr o per ty against r obber y, bur glar y etc. The non-life com panies also offer policies covering machiner y against br eak down, ther e ar e policies that cover the hull of ships and so on. A Marine Car go policy cover s goods in
tr ansit including by sea, air and r oad. Fur ther , insur ance of motor vehicles against damages and theft for ms a major por tion of non -
life insur ance business.
Most gener al insur ance cover s ar e annual contr acts. However , ther e
ar e few pr oducts that ar e long-ter m. It is ver y im por tant for pr o poser s to r ead and under stand the ter ms and conditions of a policy befor e
they enter into an insur ance contr act. The pr o posal for m needs to be f illed in com pletely and corr ectly by a pr o poser to mak e sur e that the cover is adequate and the right one.
Insur ance is a method in which a lar ge number of peo ple ex posed to a par allel risk mak e contri butions to a common fund out of which the losses under gone by the unfor tunate few, due to accidental events, ar e
made good. The distri bution of risk among lar ge gr o u ps of peo ple is the basis of insur ance. The losses of an individual will be distri buted over a gr ou p of individuals.
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The risk becomes insur able if the following necessities ar e com plied with:
· The insur ed should suffer f inancial loss if the risk o per ates. · The loss should be measur able in money,
· The object of the insur ance contr act should be legal. · The insur er must have suff icient knowledge about the risk s he acce pts.
Types of G eneral Insurance. Fir e Insur ance. Marine Insur ance.
Accident Insur ance.
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C) Re-Insurance:
It¶s a form of insurance where several Insurance Company comes
together to issue on a single r isk. It is a similar to underwr iting so that
Insurance Company can protect them selves from potential loss. An
insurance company can take R e-insurance from other re- insurance
company .when an insurance company takes re-insurance it has to pay re-
insurance premium.
When an insurance company accepts re-insurance from other insurancecompany gets premium from other insurance company. Insurance Act
provide every insurer shall reinsure with reinsurer such percentage of the
sum assured on each policy as may be specif ied by the author ity with the
pervious approval of Central Government. Provided that no percentage so
specif ied shall exceed 30 % of the sum assured on such policy. The
author ity may at any time call upon re-insurance treaties & other
insurance
Contract for examination.
There are two basic methods of reinsurance:
a. F acult ati ¡ e Reinsurance is specif ic reinsurance cover ing a single
r isk. The reinsurer is reinsur ing one insured on a specif ic policy.
Each facultative r isk is su bmitted by the insurer to the reinsurer .
Insured.Insurance Company
Re insurance
Company.
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b. Treaty Reinsurance is a method of r einsur ance r equiring
the insurer and the reinsurer to for mulate and execute
a reinsurance contract . The reinsurer then cover s all the insur ance
policies coming within the sco pe of that contr act. Ther e ar e two
basic methods of tr eaty r einsur ance:
c. Quota Shar e Tr eaty R einsur ance, and
d. Excess of Loss Tr eaty R einsur ance.
e. 1) Function:-
Almost all insur ance com panies have a r einsur ance pr ogr am. The
ultimate goal of that pr ogr am is to r educe their ex posur e to loss by
passing the ex posur e to loss to a reinsurer or a gr ou p of r einsur er s.
Ther efor e, they ar e 'tr ansferring some of the risk to the reinsurer or a
gr ou p of r einsur er s'. Insur ance, which is r egulated at the state level
(in the USA), per mits an insurer only to issue policies with a
maximum limit of 10% of thei r surplus (net wor th), unless those
policies ar e r einsur ed.
2 ) Risk Transfer:-
With r einsur ance, the insurer can issue policies with higher limits
than it would other wise be allowed, ther efor e, being per mitted to tak e
on mor e risk because some of that risk is now tr ansferr ed to the
r einsur er. R einsur ance has gone f r om a r elatively unso phisticated
business to a highly so phisticated endeavor. The r eason for that is the
number of r einsur er s that suffer ed signif icant losses and became
f inancially im pair ed. Fr om 2000 onwar d, r einsur er s have become
much mor e r eliant on actuarial models and tight r eview of the
com panies they ar e willing to r einsur e. They would r eview their
f inancials closely, look at the ex perience of the pr o posed business to
be r einsur ed, r eview the under writer s that will write that business,
r eview their r ates, and much, much mor e. Almost all r einsur er s now
will visit the insur ance com pany and r eview under writing and claim
f iles and mor e.
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3 ) Income Smoothing:-
R einsur ance can hel p to mak e an insur an ce com pany¶s r esults
mor e pr edictable by absor bing lar ger losses and r educing the
amount of ca pital needed to pr ovide cover age.Fur ther mor e,the
risk factor is also diver sif ied with the r einsur er bearing some of the loss incurr ed.
4 ) Arbitrage:-
The insur ance com pany may be motivated by ar bitr age in
pur chasing r einsur ance cover age at a lower r ate than they char ge
the insur ed for the under lying risk , which can be in the ar ea of risk
associated with any for m of the asset that is being issued or loaned
against. It can be a car , a mor tgage, an insur ance (per sonal, f ir e,
business, etc.) and alik e.
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Malhotra Committee.
In 1993, Malhotr a Committee- headed by for mer Finance Secr etar y
and RBI Governor R.N. Malhotr a- was for med to evaluate the Indianinsur ance industr y and r ecommend its futur e dir ection. The Malhotr a
committee was setu p with the objective of com plementing the r efor ms initiated in the f inancial sector. The r efor ms wer e aimed at cr eating a
mor e eff icient and com petitive f inancial system suitable for the r equir ements of the economy k ee ping in mind the str uctur al changes curr ently under way and r ecognizing that insur ance is an im por tant par t
of the over all f inancial System wher e it was necessar y to addr ess the need for similar r efor ms.
In1994, the committee submitted the r e por t and some of the k ey r ecommendations included:
i) Structure
Government should tak e over the holdings of GIC and its subsidiaries
so that these subsidiaries can act as inde pendent corpor ations. All the insur ance com panies should be given gr eater f r eedom to o per ate.
ii) Competition Private Com panies with a minimum paid u p ca pital of R s.1 bn should
be allowed to enter the sector. No Com pany should deal in both Life
and Gener al Insur ance thr ough a single entity. For eign com panies may be allowed to enter the industr y in collabor ation with the domestic
com panies.Postal Life Insur ance should be allowed to o per ate in the r ur al mark et.
Only one State Level Life Insur ance Com pany should be allowed to o per ate in each state.iii) Regulatory Body
The Insur ance Act should be changed. An Insur ance R egulator y body should be set u p. Contr oller of Insur ance- a par t of the Finance
Ministr y- should be made inde pendent
iv) Investments
Mandator y Investments of LIC Life Fund in government securities to
be r educed f r om 75% to 50%. GIC and its subsidiaries ar e not to hold mor e than5% in any com pany (ther e curr ent holdings to be br ought
down to this level over a period of time)
v) Customer Service
LIC should pay inter est on delays in payments beyond 30 days.Insur ance com panies must be encour aged to set u p unit link ed pension
plans. Com puterization of o per ations and u pdating of technology to be carried out in the insur ance industr y
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The committee em phasized that in or der to im pr ove the customer
ser vices and incr ease the cover age of insur ance policies, industr y should be o pened u p to co m petition. But at the same time, the committee felt the need to exer cise caution as any failur e on the par t
of new player s could r uin the public conf idence in the industr y.
The committee felt the need to pr ovide gr eater autonomy to insur ance com panies in or der to im pr ove their per for mance and enable them to
act as inde pendent com panies with economic motives. For this purpose, it had pr o posed setting u p an inde pendent r egulator y body-
The Insur ance R egulator y and Develo pment Authority.R efor ms in the Insur ance sector wer e initiated with the passage of the
IRDA Bill in Par liament in December 1999. The IRDA since its incorpor ation as a statutor y body in April 2000 has fastidiously stuck to its schedule of f r aming r egulations and r egistering the private sector
insur ance com panies. Since being set u p as an inde pendent statutor y
body the IRDA has put in a f r amework of globally com pati ble r egulations. The other decision tak en simultaneously to pr ovide the su ppor ting systems to the insur ance sector and in par ticular the life
insur ance com panies was the launch of the IRDA online ser vice for issue and r enewal of licenses to agents. The a ppr oval of institutions
for im par ting tr aining to agents has also ensur ed that the insur ance
com panies would have a tr ained work for ce o f insur ance agents in place to sell their pr oducts.
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Regulators of IRDA.
IRDA was constituted by an act of par liament. The Authority is a ten
member team consisting of:
(a) a Chairman
(b ) five whole-time memb ers
(c ) four part-time memb ers
(1) Subject to the pr ovisions of Section 14 of IRDA Act, 1999 and any
other law for the time being in for ce, the Authority shall have the duty to
r egulate, pr omote and ensur e or der ly gr owth of the insur ance business
and r e-insur ance business.
(2) Without pr ejudice to the gener ality of the pr ovisions contained in sub -
section (1), the power s and functions of the Authority shall include, -
(a) issue to the a pplicant a cer tif icate of r egistr ation, r enew, modify,
withdr aw, sus pend or cancel such r egistr ation;
( b) pr otection of the inter ests of the policy holder s in matter s concerning
assigning of policy, nomination by policy holder s, insur able inter est,
settlement of insur ance claim, surr ender value of policy and other ter ms
and conditions of contr acts of insur ance;
(c) s pecifying r equisite qualif ications, code of conduct and pr actical
tr aining for inter mediar y or insur ance inter mediaries and agents;
(d) s pecifying the code of conduct for sur veyor s and loss assessor s;
(e) pr omoting eff iciency in the conduct of insur ance business;
(f ) pr omoting and r egulating pr ofessional or ganizations connected with
the insur ance and r e-insur ance business;
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(g) levying fees and other char ges for carr ying out the purposes of this
Act;
(h) calling for infor mation f r om, under taking ins pection of, conducting enquiries and investigations including audit of the insur er s,
inter mediaries, insur ance inter mediaries and other or ganizations
connected with the insur ance business;
(i) contr ol and r egulation of the r ates, advantages, ter ms and conditions
that may be offer ed by insur er s in r es pect of gener al insur ance business
not so contr olled and r egulated by the Tariff Advisor y Committee under
section 64U of the Insur ance Act, 1938 (4 of 1938)
j) s pecifying the for m and manner in which book s of account shall
be maintained and statement of accounts shall be r ender ed by
insur er s and other insur ance inter mediaries;
(k) r egulating investment of funds by insur ance com panies;
(l) r egulating maintenance of mar gin of solvency;
(m) adjudication of dis putes between insur er s and inter mediaries or insur ance inter mediaries;
(n) su per vising the functioning of the Tariff Advisor y Committee;
(o) s pecifying the per centage of pr emium income of the insur er to
f inance schemes for pr omoting and r egulating pr ofessional
or ganizations r eferr ed to in clause (f );
(p) s pecifying the per centage of life insur ance business and gener al
insur ance business to be under tak en by the insur er in the r ur al or social sector; and
(q) exer cising such other power s as may be pr escri bed
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Powers & Duties of IRDA.
Powers:
It issues the a pplicants in insur ance ar ena, a cer tif icate of
r egistr ation as well as r enewal, modif ication, withdr awal, sus pension or cancellation of such r egistr ations.
It pr otects the inter ests of the policy holder s in any insur ance com pany in the matter s r elated to the assignment of policy, nomination by policy holder s, insur able inter est, and r esolution of insur ance claim, submission value of policy and other ter ms and pr o posals in the contr act.
It also s pecif ies obligator y cr edentials, code of conduct and pr actical instr uctions for mediator as well as the insur ance
com pany. Apar t f r om this, it also def ines the code of conduct for the sur veyor s and loss assessor s involved with the insur ance
business.
One of the major functions of IRDA includes endor sing com petence in the insur ance business. Apar t f r om this, u pholding
and r egulating pr ofessional or ganizations in insur ance and r e -insur ance business is also a major duty of IRDA.
IRDA is also entitled to for asking infor mation, under taking
ins pection and investigating the audit of the insur er s, mediator s, insur ance inter mediaries and other or ganizations r elated to the
insur ance sector. It is also concerned with the r egulation of the r ates, pr of its,
pr ovisions and conditions that may be offer ed by insur er s inr es pect of gener al insur ance business if it is not contr olled or r egulated by the Tariff Advisor y Committee.
It is also entitled to su per vise the functioning of the Tariff Advisor y Committee.
IRDA s pecif ies the ter ms and pattern in which book s of accounts
ar e to be maintained and statement of accounts shall be pr ovided
by insur er s and other insur ance mediator s. It also r egulates investment of funds by insur ance com panies as
well as the maintenance of mar gin of solvency.
It is also em power ed to be involved in the ar bitr ation of disagr eements between insur er s and inter mediaries or insur ance inter mediaries.
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It is meant to s pecify the pr o por tion of pr emium income of the
insur er to f inance policies. IRDA also s pecif ies the shar e of life insur ance business and
gener al insur ance business to be acce pted by the insur er in the r ur al
or social sector.
Duties:
Sections 14 of the IRDA Act 1999 pr ovide that the authority shall have
the following duties to r egulate & pr omote & ensur e or der ly gr owth of insur ance business:
The duties of IRDA ar e as under :
1) Issue to a pplicant a cer tif icate of the r egistr ation, r enew, modify with dr aw sus pend or cancel such r egistr ation.
2) Pr otection of the inter est of the Policyholder in a matter consulting
as signing of policyholder insur able inter est, settlement of insur ance claim, surr ender value of policy & other ter m &
condition of contr act of insur ance.
3) Specifying qualif ication, code of conduct & pr actical tr aining for insur ance inter mediaries & agent.
4) Encour age eff iciency in the conduct of insur ance business.5) Ins pection of various activities of insur ance business.
6) Contr ol & r egulation of the r ates, advantages ter ms & con ditionthat may be offer ed by insur ance in r es pect of Gener al Insur ance
Business.7) Specifying the f ir m a manner in which book s of accounts shall be
maintain & settlement of account shall be r ender by insur er.
8) R egulating investment of fund by insur ance com pany.9) R egulating maintains of mar gin of solvency.
10) Solve the dis putes¶ (pr oblem) between insur er & agent or
public.11) Su per vising the functioning of the tariff (taxes) advisor y
committee.12) Specify the per centage of pr emium of the insur er.
13) Specify the per centage of the life insur ance business &gener al insur ance business to be under taking by the insur er in the r ur al & social sector.
14) To insur ed those insur ance customer r eceives their claim &they should have clear & corr ect infor mation about pr oduct &
ser vice which ar e maintained by insur ance com pany.15) To mak e the insur ed awar e of their r es ponsi bilities & duties.
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Feature of IRDA.
1. The insur ance sector in India has been thr own o pen to the private
sector. The second and thir d schedules of the Act pr ovide for
r emoval of existing corpor ations (or com panies) to carr y out the
business of life and gener al (non-life) insur ance in India.
2. An Indian insur ance com pany is a com pany r egister ed under the
Com panies Act, 1956, in which for eign equity does not exceed 26 per cent of the total equity shar eholding, including the equity
shar eholding of NRIs, FIIs and OCBs.3. After commencement of an insur ance com pany, the Indian
pr omoter s can hold mor e than 26 per cent of the total equity holding for a period of ten year s, the balance shar es being held by non- pr omoter Indian shar eholder s who will not include the equity
of the for eign pr omoter s, and the shar eholding of NRIs, FIIs and OCBs.
4. After the per missi ble period of ten year s, excess equity above the
pr escri bed level of 26 per cent will be disinvested as per a phased pr ogr ammed to be indicated by IRDA. The Centr al Government is em power ed to extend the period of ten year s in individual cases and also to pr ovide for higher ceiling on shar e holding of Indian
pr omoter s in excess of which disinvestment will be r equir ed.5. On for eign pr omoter s, the maximum of 26 per cent will always be
o per ational. They will thus be unable to hold any equity beyond this ceiling at any stage.
6. The Act gives statutor y status for the Interim Insur ance R egulator y Authority (IRA) set u p by the Centr al Government thr ough a R esolution passed in Januar y 1996.
7. All the power s pr esently exer cised under the Insur ance Act, 1938, by the Contr oller of Insur ance will be tr ansferr ed to the IRDA.
8. The IRDA Act also pr ovides for the a ppointment of Contr oller of
Insur ance by the Centr al Government when the R egulator y Authority is su per seded.
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9. The minimum amount of paid-u p equity ca pital is R s.100 cr or e in
case of life insur ance as well as gener al insur ance, and R s.200cr or e in the case of r e-insur ance.
10. Solvency mar gin (excess of assets over liabilities) is f ixed at not
less than R s.50 cr or e for life as well as gener al insur ance; for
r einsur ance solvency mar gin is stipulated at not less than R s.100cr or e in each case.
11. Insur ance com panies will de posit R s.10 cr or e as security de posit befor e star ting their business.
12. In the non-life sector , IRDA would give pr efer ence to com panies pr oviding health insur ance.
13. Safeguar ds for policy holder s¶ funds include s pecif ic pr ovision pr ohi biting investment of policy holder s¶ funds outside India and pr ovision for investment of funds in accor dance with policy
dir ections of IRDA, including social and inf r astr uctur e
investments.14. Ever y insur er shall pr ovide life insur ance or gener al insur ance
policies (including insur ance for cr o ps) to the per sons r esiding in
the r ur al sector , work er s in the unor ganized or infor mal sector or for economically vulner able or back war d classes of the society and
other categories of per sons as may be s pecif ied by r egula tions
made by IRDA.15. Failur e to fulf ill the social obligations would attr act a f ine of R s.25
lak h; in case the obligations ar e still not fulf illed, license would be
cancelled.
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Rol e of I R A
There is a three type of role is as follow:
1) Life Insurance.
2) General Insurance.
3) Pension Scheme.
1 ) Li fe Insurance:
Life insurance or life assurance is a contract between the policy owner
and the insurer, where the insurer agrees to pay a designated benef iciary a
sum of money upon the occurrence of the insured individual's or
individuals' death or other event, such as terminal illness or cr itical
illness. In return, the policy owner agrees to pay a sti pulated amount at
regular intervals or in lump sums. There may be designs in some
countr ies where bills and death ex penses plus cater ing for af ter funeral ex penses should be included in Policy Premium. In the United States, the
predominant form simply specif ies a lump sum to be paid on the insured's
demise.
As with most insurance policies, life insurance is a contract between the
insurer and the policy owner where by a benef it is paid to the designated
benef iciar ies if an insured event occurs which is covered by the policy.
Lif e InsuranceGeneral
insurance
Pension
Scheme..
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The value for the policyholder is derived, not f r om an actual claim event,
r ather it is the value derived f r om the 'peace of mind' ex perienced by the policyholder , due to the negating of adver se f inancial consequences caused by the death of the Life Assur ed.
To be a life policy the insur ed event must be based u pon the lives of the peo ple named in the policy.
2) G eneral Insurance.
All Insur ance other than µLife Insur ance¶ falls under the categor y of Gener al Insur ance. Gener al Insur ance includes of
insur ance of pr o per ty against f ir e, bur glar y etc, per sonal insur ance lik e Accident and Health Insur ance, and liability insur ance which cover s legal liabilities. Ther e ar e also other kinds of cover s such as Err or s and
Omissions insur ance for pr ofessionals, cr edit insur ance etc.
Non-life insur ance com panies have pr oducts that cover pr o per ty against
Fir e and r elated hazar ds, flood stor m and inundation, ear thquak e and so
on. Ther e ar e pr oducts that cover pr o per ty against r obber y, bur glar y etc.
The non-life com panies also offer policies covering machiner y against
br eak down, ther e ar e policies that cover the hull of ships and so on. A
Marine Car go policy cover s goods in tr ansit including by sea, air and
r oad. Fur ther , insur ance of motor vehicles against damages and theft for ms a major por tion of non-life insur ance business. Ther e ar e
gener al insur ance pr oducts that ar e in the natur e of pack age policies
offering a mixtur e of the cover s mentioned above. For exam ple, ther e ar e
pack age policies available for householder s, sho p k ee per s and also for
pr ofessionals such as doctor s, lawyer s, char ter ed accountan ts etc. Apar t
f r om offering standar d cover s, insur er s also offer customized and tailor -
made ones. Appr o priate gener al Insur ance cover s ar e necessar y for ever y
family. It is signif icant to pr otect one¶s pr o per ty, which one might have
acquir ed f r om one¶s har d earned income. A loss or damage to
one¶s pr o per ty can leave one shatter ed. Losses cr eated by disaster s such
as the tsunami, ear thquak es, cyclones etc have left many homeless and
insolvent. Such losses can be over whelming but insur ance could hel p to
lessen them. Pr o per ty can be cover ed, so also the peo ple
against Per sonal Accident. Most gener al insur ance cover s ar e annual
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contr acts. However , ther e ar e few pr oducts that ar e long-ter m. It is ver y
im por tant for pr o poser s to r ead and under stand the ter ms and c onditions
of a policy befor e they enter into an insur ance contr act. The pr o posal
for m needs to be f illed in com pletely and corr ectly by a pr o poser to mak e
sur e that the cover is adequate and the right one.
3 ) Pension Scheme.
In gener al, a pension is an arr angement to pr ovide peo ple with an income
when they ar e no longer earning a r egular income f r om
em ployment. Pensions should not be confused with sever ance pay; the
for mer is paid in r egular installments, while the latter is p aid in one lum psum.
The ter ms r etir ement plan or su per annuation r efer to a pension gr anted
u pon r etir ement. A pension cr eated by an em ployer for the benef it of an
em ployee is commonly r eferr ed to as an occu pational or em ployer
pension. Labor union, the government, or other or ganizations may also
fund pensions. Occu pational pensions ar e a for m of deferr ed
com pensation, usually advantageous to em ployee and em ployer
for tax r easons. Many pensions also contain anadditional insur ance as pect, since they often will pay benef its to sur vivor s
or disabled benef iciaries. Other vehicles (cer tain lotter y payouts, for
exam ple, or annuity) may pr ovide a similar str eam of payments.
The common use of the ter m pension is to descri be the payments a per son
r eceives u pon r etir ement, usually under pr e-deter mined legal and/or
contr actual ter ms. A r ecipient of a r etir ement pension is known as
a pensioner or r etir ee.
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Functions & Expectation of IRDA.Function:
As def ined by the IRDA Act, 1999, the br oad functions of IRDA ar e as
follows:
Ensur e or der ly gr owth of the Insur ance industr y
Pr otection of policyholder's inter est Issue consumer pr otection guidelines to insur ance com panies
Gr ant, modify, and sus pend license for insur ance com panies Lay down pr ocedur e for accounting policies to be ado pted by the
insur ance com panies Ins pect and audit of insur ance com panies and other r elated
agencies R egulation of ca pital adequacy, solvency, and pr udential
r equir ements of insur ance business R egulation of pr oduct develo pment and their pricing including f r ee pricing of pr oducts Pr omote and r egulate Self R egulating or ganizations in the
insur ance industr y R e-insur ance limit monitoring
Monitor investments Vetting of accounting standar ds, tr ans par ency r equir ements in
r e por ting Ensur e the health of the industr y by pr eventing sickness thr ough
a ppr o priate actionPublish infor mation about the industr y Pr escri be qualif ication and tr aining needs of agents
Monitor the char ges for various ser vices pr ovided by insur ance
com panies
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Expectations.
The law of India has following ex pectations f r om IRDA: -
To pr otect the inter est of and secur e fair tr eatment to policyholder s.
To bring about s peedy and or der ly gr owth of the insur ance industr y
(including annuity and su per annuation payments) , for the benef it of the common man, and to pr ovide long ter m funds for acceler ating
gr owth of the economy.
To set, pr omote, monitor and enfor ce high standar ds of integrity,
f inancial soundness, fair dealing and com petence of those it r egulates.
To ensur e that insur ance customer s r eceive pr ecise, clear and corr ect infor mation about pr oducts and ser vices and mak e them awar e of their r es ponsi bilities and duties in this r egar d.
To ensur e s peedy settlement of genuine claims, to pr event
insur ance f r auds and other mal pr actices and put in place effective grievance r edr essal machiner y.
To pr omote fairness, tr ans par ency and or der ly conduct in f inancial mark ets dealing with insur ance and build a r eliable management
infor mation system to enfor ce high standar ds of f inan cial soundness amongst mark et player s.
To tak e action wher e such standar ds ar e inadequate or ineffectively enfor ced.
To bring about o ptimum amount of self-r egulation in day to day
working of the industr y consistent with the r equir ements of
pr udential r egulation.
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Conclusion.
IRDA is im por tant to k ee p a check on private insur ance com panies and gr owth of Insur ance sector. It has been successful in monitoring,
nur turing and gr ooming insur ance sector in India.
If we want the com pany to work in a pr o per manner without any pr oblem then we have to obey the r ules of IRDA.
For Example: Without IRDA all com panies ar e lik e a car without a driver who can mak e to r un their Com panies without any guidance. So a driver
is ther e to contr ol a car to show car the right dir ection and r un without har ming other s. Lik e driver IRDA also shows all dir ections and r ules to
com panies by which they have to r un.
IRDA is successful in o pening the insur ance mark et for private and for eignCom panies after li ber alization, insuring t he or der ly gr owth of insur ance
sector and pr otecting the inter est of policyholder s.
The effectiveness of IRDA de pends substantially on the ability of its human R esour ces. Till now IRDA is successful in k ee ping a check on
f r aud com panies entering into the insur ance mark et.
IRDA in these year s is successful in earning the r es pect of a r egulator in
the hear ts of manager s of insur ance com panies.
After the for mation of ombudsmen committee by IRDA is successful in
r educing the grievances of the policyholder s.
Indian insur ance sector in s pite being o pened at the same time as of china is behind but it has big o ppor tunity in futur e and IRDA is working positively towar ds that o ppor tunity.
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Statistical & G raphical Data:
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G raphical Data:
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Bibliography.
www.ir dagov.com
www.scri bd.com
www.googal.com
www.investo pedia.com
IRDA Journals.
Books on:
Insur ance (Fund) Management.