STRUCTURE & FUNCTIONS OF IRDA

Under the guidance of: Mr. P.R.K. Murti

Presented by: K. Samhitha FS10-017

INTRODUCTION
The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the countrys GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country. Ensuring that Insurance markets serve the interest of each countrys citizens is the work of regulatory reform built on a set of pro-competitive principles designed to ensure competitive, solvent, and fair markets. This job is being done by IRDA-Insurance Regulatory and Development Authority of India.

INSURANCE IN INDIA- the milestones

Insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ). The

writings talk in terms of pooling of resources that could be re-distributed in times of

calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. 1818 saw the advent of life insurance business in India with the establishment of the

Oriental Life Insurance Company in Calcutta.

In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices .

Cont.
The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. Consolidated and amended by the Insurance Act, 1938. An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of India. In 1968, The Tariff Advisory Committee was set up.

Cont.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies. (In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national reinsurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.) In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector. The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 recommending a regulatory set-up for the insurance sector. Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry under the IRDA Act,1999.

IRDA
The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for

application for registrations. Foreign companies were allowed ownership of up

to 26%. The Authority has the power to frame regulations under Section 114A of the

Insurance Act, 1938 and has from 2000 onwards framed various regulations
ranging from registration of companies for carrying on insurance business to protection of policyholders interests.

MISSION & RATIONALE

Mission of IRDA a) To protect the interests of the policyholders b) To promote, regulate and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto c) Conduction of insurance businesses across India in an ethical manner. Expectations from IRDA The law of India has following expectations from IRDA: To protect the interest of and secure fair treatment to policyholders. To bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy. To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates. To ensure that insurance customers receive precise, clear and correct information about products and services and make them aware of their responsibilities and duties in this regard.

Cont.
To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery. To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players. To take action where such standards are inadequate or ineffectively enforced.

To bring about optimum amount of self-regulation in day to day working of the industry
consistent with the requirements of prudential regulation.

INCORPORATION
Establishment and incorporation of authority (1) The Authority shall be a body corporate by the name aforesaid having

perpetual succession and a common seal with power, subject to the

provisions of the Act, to acquire, hold and dispose of property, both movable and immovable, and to contract and shall, by the said name, sue or

be sued.
(2) The head office of the Authority shall be at such place as the Central Government may decide from time to time. (currently-HYD)

(3) The Authority may establish offices at other places in India.

STRUCTURE
As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority specify the composition of Authority

The Authority is a ten member team consisting of a) A Chairman; b) Five whole-time members; c) Four part-time members, (all appointed by the Government of India)
Tenure of office of chairperson and other members (1) The Chairperson and every other whole-time member shall hold office for a term of five years from the date on which he enters upon his office and shall be eligible for reappointment: No person shall hold office as a Chairperson after he has attained the age of sixty-five years: No person shall hold office as a whole-time member after he has attained the age of sixtytwo years. (2) A part-time member shall hold office for a term not exceeding five years from the date on which he enters upon his office.

Cont.
A member may (a) relinquish his office by giving in writing to the Central Government notice of not less than three months; or (b) be removed from his office in accordance with the provisions. Removal from office (1) The Central Government may remove from office any member who(a) is, or at any time has been, adjudged as an insolvent; or (b) has become physically or mentally incapable of acting as a member; or (c) has been convicted of any offence which, in the opinion of the Central Government, involves moral turpitude; or (d) has acquired such financial or other interest as is likely to affect prejudicially his functions as a member; or (e) has so abused his position as to render his continuation in office detrimental to the public interest. No such member shall be removed unless he has been given a reasonable opportunity of being heard in the matter.

ADVISORY COMMITTEE
Appointed a 23-member advisory committee drawn from varied fields of economics, insurance industry, chambers of commerce, accountancy, academics and agriculture.

The chairman of IRDA and members of the authority will be the ex-officio chairperson and ex-officio members respectively of the Insurance Advisory Committee

TARIFF ADVISORY COMMITTEE

The TAC was set up as a statutory body under the Insurance Act 1938 primarily to calculate premium for general insurance companies. The body lost its relevance due to the de-tariff regime.

Tariff Advisory Committee (TAC) today - controls and regulates the rates, advantages, terms and conditions that may be offered by insurers in respect of Indian General Insurance Business relating to Fire, Marine (Hull), Motor, Engg. and Workmen Compensation. Tariff Advisory Committee has been designated by IRDA as the data repository for the non-life insurance industry . The transaction level data on Motor, Health and other lines are being collected for the Repository presently. The Tariff Advisory Committee (TAC) keeps a close watch on the developments in the general insurance industry. With many years of experience in calculating premium for general insurance companies, the TAC is best suited to look into underwriting issues and recommend necessary action to resolve them. IRDA also wants TAC to organise training programmes for underwriters at the market level.

CHAIRMAN SELECTION PROCESS

Government of India has circulated to broad base IRDA chairman selection process. It is felt in the market that placing of retired civil servants as IRDA Chairman has served the purpose of administrative fiefdom of the regulator. Mostly, the regulator has become passive to market realities and most of the original public policy intentions have been systematically replaced by personal preferences. There seems to be no oversight of public policy erosions. There seem to be an attempt to correct the future course but people do not perceive any outcome to result as the market does not seem to throw up candidates of the stature of Howard Davies for Indian market. But a right leadership is the solution to the requirement of this booming market.

DUTIES, POWERS & FUNCTIONS

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA Subject to the provisions of the 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. 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;

Cont.
promoting efficiency in the conduct of insurance business; promoting and regulating professional organizations 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 organizations 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. 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 maintenance of margin of solvency;

Cont.

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 organizations(surveyor institute, Actuarial society of India, Insurance Brokers Association of India & TAC) 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 from time to time,

GRIEVANCE REDRESSAL CELL

This cell of IRDA looks into the complaints from the policyholders. It handles the complaints against life and non-life insurers separately. Only cases of delay/ non-response relating to policies and claims are taken up by the cell. As policy contracts in dispute require adjudication and since IRDA does not carry out any adjudication, a quasi-judicial channel is made available in the form of Insurance Ombudsman.

OMBUDSMAN
The institution of Insurance Ombudsman was created by a Government of India Notification dated 11th November, 1998 with the purpose of quick disposal of the grievances of the insured customers and to mitigate their problems involved in redressal of those grievances. This institution is of great importance and relevance for the protection of interests of policy holders and also in building their confidence in the system. The institution has helped to generate and sustain the faith and confidence amongst the consumers and insurers. The governing body of insurance council issues orders of appointment of the insurance Ombudsman on the recommendations of the committee comprising of Chairman, IRDA, Chairman, LIC, Chairman, GIC and a representative of the Central Government. Insurance Ombudsman has two types of functions to perform (1) conciliation, (2) Award making. The insurance Ombudsman is empowered to receive and consider complaints in respect of personal lines of insurance from any person who has any grievance against an insurer

CONCLUSION & RECOMMENDATIONS

The initial phase of the insurance industry experienced high growth fuelled by a buoyant economy. As the industry moved from its infancy towards maturity, the regulatory architecture played an important role by guiding and steering the industry on the right

track. It has helped in building a robust insurance industry and made favourable
initiatives to give the industry an additional boost. However, as the industry moved into the second decade, and post the global financial turmoil, the expectations from IRDA changed. There was an opportunity to develop a roadmap for the industry in consultation with all stakeholders, including insurers and industry bodies. However, in its quest to drive stability and improve systems and processes in the industry, the regulator came out with

stringent regulations in quick succession over the last few years that have had a negative
impact on the growth of the insurance sector. Hence, the following recommendations/suggestions would go a long way in making IRDA a more efficient regulator.

Cont.
At a time when the insurance industry is facing agent attrition, it is important to create a professional agent force and attract the right talent for distribution of insurance products. Bancassurance is another critical distribution channel that has gained significance, especially over the last few years. Liberalisation of the bancassurance sector in a phased manner and optimising the architecture to improve penetration and growth from a longterm perspective could be significant for the future of the bancassurance channel. Over the past couple of years, the lifeline of the insurance sectorproductshave been the worst hit. Frequent changes in product designs have led to a negative growth trend for the industry. Ideally, IRDA should put in place a broad framework for product design in consultation with insurers. In any relationship, communication is the most important factor for long term association. Both insurers and the regulator should have a constructive engagement on a regular basis for the development of the insurance sector in India. A well laid-out governance structure will help IRDA regularly interact with industry representatives. What IRDA, in consultation with industry bodies, can do is create a regulatory roadmap for the next 3-5 years and provide an adequate time-frame for implementation of any regulation. It can move to a principle based regulatory regime from the current rulebased regulatory framework. And this agenda of self-regulation can be driven by the LIC & GIC.

Cont. Hence the Insurance market waits for revision of the insurance act & the perceptions of IRDA.

THANK YOU!!!