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Role of IRDAI in the Insurance Sector

IRDA is an autonomous regulatory body that protects the interests of the insurance policyholder. They oversee the growth of the insurance sector in India.

  • 142,051 Views | Updated on: Jan 15, 2024

The Insurance Regulatory and Development Authority of India (IRDAI) plays a vital role in regulating and developing the insurance sector in India. Established in 1999 as an autonomous and statutory body, the IRDAI serves as the primary regulator for the insurance industry in the country and abroad. Its main objective is to safeguard the interests of policyholders and ensure the growth and stability of the insurance industry.

The IRDAI operates under the Ministry of Finance and is responsible for overseeing the functioning of insurance companies, intermediaries, and other entities involved in the insurance sector. It operates with the mission to protect the rights of policyholders, promote fair and transparent practices, and foster the development of a robust and sustainable insurance market in India.

What is IRDAI?

IRDAI stands for the Insurance Regulatory and Development Authority of India. The insurance business in India is regulated by them, and they supervise the functioning of Life Insurance and General Insurance companies that are operating in the country.

IRDAI has set various rules and regulations for the operation of the insurance industry. Its sole objective is to defend the interest of the policyholders and ensure the growth and evolution of the insurance industry holistically. IRDAI regularly issues notices to insurance companies in case there are any changes in the rules and regulations. It leads the insurance companies to foster efficiency in the conduct of the insurance business and control the rates or any other charges related to insurance.

What is the IRDA rule?

The IRDA rule comprises a set of guidelines, regulations, and norms that govern various aspects of the insurance industry. These rules are formulated to establish a robust framework for insurers, intermediaries, and policyholders.

Let us examine some key areas covered by the IRDA rule:

Licensing and Registration

The IRDA regulates the licensing and registration of insurers, intermediaries, and insurance agents. It sets the eligibility criteria, qualifications, and capital requirements for obtaining licenses in the insurance business.

Policyholder Protection

The IRDA places significant emphasis on safeguarding the interests of policyholders. It mandates insurance companies to maintain a high standard of service, transparency in policy terms and conditions, and timely claim settlements. The rule also establishes guidelines for policy-related disclosures and resolves grievances through an integrated grievance redressal mechanism.

Solvency Margin

The IRDA rule mandates insurers to maintain a solvency margin, ensuring their financial stability and ability to fulfill policyholder claims. The solvency margin is the excess of assets over liabilities, and it acts as a buffer to protect policyholders’ interests.

Product Approval

Insurance products need to be approved by the IRDA before being introduced in the market. This ensures that the products meet the required standards, are suitable for the target customers, and offer reasonable terms and conditions.

Investment Guidelines

The IRDA specifies guidelines on investment activities by insurers, ensuring prudential investment practices and risk diversification. These guidelines help insurers manage their investment portfolios responsibly, reducing the potential risks associated with investments.

Market Conduct and Anti-Fraud Measures

The IRDA rule promotes fair market conduct, prohibiting fraudulent activities, misrepresentation, and unfair trade practices. It establishes mechanisms to detect and deter fraudulent behavior, safeguarding the industry’s integrity and building trust among consumers.

What is the IRDAI Act?

The IRDAI Act provides a complete regulation of the insurance sector in India (all the insurance business in India is regulated by IRDAI). The IRDAI plays a key role in the development of regulatory mechanisms of insurance in the insurance sector.

A committee was established by the Government of India to examine the structure of the insurance sector and to advocate revisions to the rules and regulations to make it more effective and efficient.

IRDAI was presented in the parliament in 1999. The bill was discussed and debated before it finally became the Insurance Regulatory and Development Authority of India (IRDAI) Act of 1999.

role of IRDA

Here are the Roles of the IRDAI in the insurance sector:

1. IRDAI issues a certificate of registration to the life insurance company and also renews, modifies, withdraws, suspends, and cancels the registration.

2. The regulatory body secures the policyholder’s interests in areas like assigning of policy, nomination by policyholders, insurable interest, settlement of insurance claim, surrender value of the policy, and other terms and conditions applicable to an insurance contract.

3. It specifies the requisite qualifications, code of conduct, and practical training required for insurance intermediaries and agents.

4. IRDAI ensures that the code of conduct is followed by surveyors and loss assessors.

5. The autonomous body promotes efficiency in the conduct of the insurance business.

6. It also promotes and regulates professional organizations connected with the insurance and reinsurance business.

7. It levies fees and other charges for carrying out the purposes of the IRDAI Act.

8. IRDAI carries out functions like inspection, conducting inquiries and investigations, including an audit of the insurers, insurance intermediaries, and other organizations involved with the insurance business.

9. The rates, advantages, terms, and conditions that may be offered by insurers with respect to the general insurance business are also controlled and regulated by the regulatory body.

10. It also specifies the form and manner in which books of account should be maintained, and the statement of accounts should be rendered by insurers and insurance intermediaries.

11. IRDAI monitors the investment of funds by insurance companies and governs the maintenance of the margin of solvency.

12. It also judges the disputes between insurers and intermediaries or insurance intermediaries.

13. It supervises the functioning of the Tariff Advisory Committee.

14. IRDAI specifies the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause (f).

15. It specifies the percentage of life insurance and general insurance business to be undertaken by the insurer in the rural or social sector.

16. With so many roles, the IRDAI maintains the standard of the industry and takes measures to eliminate insurance fraud.

What is the New Rule of IRDAI?

In a bid to enhance transparency and combat fraudulent activities in the insurance sector, the Insurance Regulatory and Development Authority of India (IRDAI) has implemented a significant new rule in 2023.

According to the latest regulation, it is now mandatory for individuals to submit Know Your Customer (KYC) documents when purchasing any new insurance policies. This requirement applies to various types of insurance, including health, auto, travel, and home insurance.

Let’s delve deeper into the implications of this new rule and understand its significance.

Ensuring KYC Compliance

The IRDAI’s decision to enforce KYC compliance for all new insurance policies comes as a response to the growing need for enhanced customer protection and fraud prevention. KYC norms have long been in place across various financial sectors, and their extension to the insurance industry is a step towards strengthening the overall framework of the sector.

Under the new rule, individuals who wish to purchase any new insurance policy must provide valid KYC documents as a part of the application process. These documents typically include proof of identity, proof of address, and, in some cases, photographs. The submission of KYC documents helps insurance providers verify the identity of policyholders, maintain accurate records, and prevent fraudulent activities such as identity theft and money laundering.

What is Regulation 31 of IRDA?

Regulation 31 of the Insurance Regulatory and Development Authority of India (IRDA) is a crucial regulatory provision that aims to safeguard the interests of policyholders and promote transparency in the insurance industry. By understanding the essence of Regulation 31, individuals can gain insights into the rights and protections afforded to them as insurance consumers.

  • The primary objective of Regulation 31 is to ensure that insurance brokers establish and maintain robust internal systems that can effectively handle the challenges and demands of their business. By doing so, insurance brokers can provide efficient and reliable services to their clients while adhering to regulatory standards.
  • The regulation recognizes that insurance brokerage firms vary in terms of size, clientele, and scope of operations. Therefore, it emphasizes the importance of adapting internal systems accordingly, ensuring that the systems are proportionate to the specific characteristics of the brokerage business.
  • One of the key elements of Regulation 31 is the emphasis on the adequacy of internal systems. Adequate internal systems refer to the structures, processes, and controls put in place by insurance brokers to manage their operations, risks, and compliance obligations effectively. These systems encompass various aspects, such as governance, risk management, compliance, information technology, human resources, and customer service.
  • Under Regulation 31, insurance brokers are required to conduct an assessment of their business operations to determine the appropriate level of internal system adequacy. This assessment should take into account factors such as the number of employees, the volume and complexity of transactions, the types of insurance products offered, the geographical spread of operations, and any specific risks associated with the business.
  • Based on this assessment, insurance brokers must design and implement internal systems that can address these factors adequately.
  • Insurance brokers must ensure that their internal systems facilitate efficient and secure data management. With the increasing reliance on technology in the insurance industry, brokers must have robust information technology systems in place to handle data storage, processing, and security.
  • This includes protecting sensitive customer information, maintaining backups, implementing cybersecurity measures, and ensuring compliance with relevant data protection laws and regulations.
  • Furthermore, Regulation 31 emphasizes the significance of effective risk management systems within insurance brokerage firms. Brokers must identify, assess, and manage risks associated with their operations to protect the interests of policyholders. This includes implementing risk mitigation strategies, monitoring risk exposure, and establishing contingency plans to minimize potential disruptions to their business.
  • Compliance is another critical aspect addressed by Regulation 31. Insurance brokers must establish mechanisms to ensure compliance with relevant laws, regulations, and codes of conduct.
  • The requirement for insurance brokers to have adequate internal systems serves multiple purposes. It not only helps protect the interests of policyholders but also contributes to the overall stability and integrity of the insurance industry.
  • By maintaining robust internal systems, insurance brokers can enhance their operational efficiency, minimize risks, improve customer service, and demonstrate their commitment to regulatory compliance.

What are the Rights and Duties of IRDAI?

The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous regulatory body established by the Indian government to oversee and regulate the insurance industry in the country. It was formed under the provisions of the Insurance Regulatory and Development Authority Act 1999 and has been entrusted with the responsibility of safeguarding the interests of policyholders and promoting the growth and development of the insurance sector in India.

Regulation

  • Fostering operational efficiency within the insurance industry;
  • Overseeing and supervising professional associations affiliated with insurance and re-insurance enterprises;
  • Imposing fees and various assessments to facilitate the objectives of this legislation;
  • Soliciting information, conducting inspections, inquiries, and audits of insurers, intermediaries, insurance intermediaries, and related entities engaged in insurance operations;
  • Exercising control and regulation over the rates, benefits, terms, and conditions offered by insurers in relation to general insurance activities not governed by the Tariff Advisory Committee under Section 64U of the Insurance Act, 1938 (4 of 1938);
  • Prescribing the specific format and method for maintaining accounting records and submitting financial statements by insurers and other insurance intermediaries;
  • Supervising investment practices of insurance companies;
  • Ensuring the maintenance of adequate solvency margins.

Duties

  • Resolving conflicts arising between insurers and intermediaries or insurance intermediaries;
  • Overseeing the operations of the Tariff Advisory Committee;
  • Determining the proportion of the insurer’s premium income allocated towards supporting initiatives aimed at fostering and overseeing professional organizations mentioned in clause (f);
  • Establishing the percentage of the insurer’s engagement in life insurance and general insurance activities within rural or social sectors, and
  • Wielding additional authorities as designated by the appropriate regulations.

What is IRDAI and its Function?

The primary function of IRDAI is to protect the interests of policyholders while maintaining the stability and efficiency of the insurance market. It achieves this by performing various roles and responsibilities:

Regulation and Supervision

IRDAI formulates and enforces regulations and guidelines that govern the conduct of insurance companies, intermediaries, and other entities operating in the insurance sector. It grants licenses to insurance companies, sets capital requirements, and oversees their functioning to ensure compliance with applicable laws.

Policyholder Protection

One of the key objectives of IRDAI is to safeguard the interests of policyholders. It sets norms for the fair treatment of policyholders, including grievance redressal mechanisms. IRDAI ensures that insurers uphold their commitments toward policyholders and operate transparently and ethically.

Product Approval

IRDAI reviews and approves insurance products and policies before they are introduced in the market. This process ensures that the products offered are fair and transparent and provide adequate coverage to policyholders. The authority also regulates premium rates to prevent unfair pricing practices.

Financial Stability

IRDAI monitors the financial health and solvency of insurance companies to ensure their ability to meet policyholder claims and obligations. It establishes prudential norms and conducts regular inspections and audits to assess the financial soundness of insurers.

Market Development

The IRDAI works towards promoting the development and expansion of the insurance sector in India. It encourages innovation, diversification, and technological advancements in insurance products and services. The authority also facilitates the entry of new players and promotes healthy competition within the industry.

Consumer Awareness

IRDAI plays an active role in creating awareness among the public about insurance products, their benefits, and the need for insurance. It conducts campaigns, publishes educational materials, and implements initiatives to enhance financial literacy and empower consumers to make informed decisions.

Intermediary Regulation

The IRDAI regulates insurance intermediaries such as agents, brokers, and third-party administrators. It establishes qualification requirements, a code of conduct, and guidelines for their operations, ensuring their adherence to ethical practices and professionalism.

International Cooperation

IRDAI collaborates with international insurance regulators and organizations to exchange knowledge, best practices, and regulatory experiences. This cooperation helps in harmonizing insurance regulations, addressing cross-border challenges, and promoting global standards within the Indian insurance industry.

What is an Insurance Ombudsman?

You must approach your insurance company for any query or distress concerning your policy. However, if you feel your issue is not resolved, you can approach the Insurance Ombudsman, which plays the role of grievance redressal forum for policyholders. It is a scheme launched by the Central Government for impartial, efficient, and cost-effective settlement of grievances of a policyholder.

You Can Employ Insurance Ombudsman in Case Of:

1. Claim settlement delay

2. Dispute over insurance premium

3. Total or partial rejection of the claim by the insurance company

4. Conflict over policy terms and conditions

5. Disputes over legal aspects of the policy

6. Disputes related to policy services

7. Any breach of rules or regulations of the Insurance Act, 1938

8. You can lodge a complaint in writing, duly signed by the complainant or by employing any legal heirs or nominees. You can complain either in person or via email/post/fax along with a hard copy.

What are the types of insurance policies regulated by IRDAI?

As part of the regulatory role, the IRDAI oversees various types of insurance policies offered by insurance companies operating in the country. These policies cater to the diverse needs of individuals, businesses, and other entities.

Let us now explore some of the main types of insurance policies regulated by the IRDAI, shedding light on the key features and benefits they offer to policyholders. Whether you are seeking personal coverage or safeguarding your business interests, understanding these insurance policies can help you make informed decisions to mitigate risks and secure your future.

Life Insurance

As the name implies, life insurance governs the plans that safeguard your life. It is a contract between an insurance policyholder and an insurance company wherein the insurer agrees to pay a sum of money in exchange for premium payments if the covered person passes away or after the designated maturity period. Further, life insurance is of two types - term life insurance and whole life insurance.

Non-Life Insurance (Also Commonly Known as General Insurance)

Everything else that is not covered under life insurance falls under non-life or general insurance. This includes - health insurance, vehicle insurance, two-wheeler insurance, home insurance, business insurance, travel insurance, etc.

Understanding The Role of IRDAI in the Indian Insurance Sector

The Insurance Industry in India, established back in the early 1800s, has developed over the decades with better transparency and emphasis on protecting the interest of the policyholders. Here are the roles IRDAI plays in the Indian Insurance Sector:

1. Protecting the interest of the policyholder.

2. Assist in advancing the growth of the insurance industry in an organized manner for the benefit of the common man.

3. Grant, renew, revoke, modify, or suspend the registration certificate of an insurance company.

4. Safeguard the policyholder in matters concerning the grant of policies, settlement of a claim, selection of a nominee by the policyholder, surrender of policy value and other such terms and conditions of the policy.

5. Provide long-term funds to accelerate the nation’s economy.

6. Enforce high standards of integrity and competence among policy providers.

7. Ensure that genuine claims are settled efficiently.

8. Prevent malpractices and policy fraud by providing a grievance redressal forum for policyholders.

9. Promote fairness and transparency of insurance in financial markets.

10. To build a reliable management system to ensure that high standards are maintained, and financial stability is observed by the policy providers.

11. Take appropriate actions when high standards are not maintained.

12. To ensure an optimal level of self-regulation in the insurance industry.

The Objective of IRDAI

The primary objective of the IRDAI is to implement the provisions under the Insurance Act. The mission statement of IRDAI is:

1. To safeguard the interest of the policyholder and ensure his/her fair treatment.

2. To govern the insurance industry impartially and to make sure the financial sanity of the industry remains intact.

3. To routinely formulate regulations to ensure the insurance industry functions without any uncertainty.

Establishment and History of IRDAI

The Government of India was the regulatory body for the insurance industry until the year 2000. However, in order to establish a stand-alone body, the IRDAI was built following the recommendation of the Malhotra Committee Report in 1999. By August 2000, the IRDAI began accepting applications for registrations and allowed companies, through invites from different countries, to invest as much as 26% in the Indian market.

It has defined several rules and regulations under the Insurance Act of 1938. These regulations range from the registration of insurance companies to operating in the country to protect the interest of policyholders. As of September 2020, there are 24 Life Insurance companies and 31 General Insurance companies who are registered with the IRDAI.

How Does IRDAI Work?

IRDAI, known to be the apex body of the insurance sector, ensures that it frames rules and regulations without any uncertainty or ambiguity towards any insurance company. To ensure integrity and financial soundness in the industry, the primary work of the IRDAI revolves around the interest of the policyholder. Let us catch a look at the various roles of the IRDAI:

1. To issue the certificate of registration to new insurance companies.

2. Establish rules and regulations to take care of the interests of the policyholders.

3. To monitor claim settlements fairly and ensure that no claim is denied by the insurance company under their free will.

4. To regulate the code of conduct of the insurance company and of those associated with the insurance industry.

5. Address issues and provide solutions in case of disputes which have risen via the IRDAI ombudsman.

6. Regulate and control the rate of insurance to impede undesirable and superfluous price hikes in insurance premiums, which might cause distress to the policyholder.

7. The IRDAI is also accountable for setting a minimum percentage limit of insurance companies for both Life Insurance and General Insurance.

8. IRDAI is also responsible for granting licenses to insurance agents. It issues licenses to individuals to clear the required exam. It was integrated with the IRDAI regulations and comprised the rules for applying for and acquiring an insurance agent license.

Features and Benefits of IRDAI

Given below are some of the leading features and benefits of the Insurance Regulatory and Development Authority of India (IRDAI).

1. Acts as a regulatory body for the insurance industry.

2. Safeguards the interests of the policyholder.

3. Rules and regulations are established by the IRDAI under Section 114A of the Insurance Act of 1938.

4. IRDAI has the authority to grant certificates of registration to new insurance companies that wish to operate in India.

5. IRDAI oversees the activities of the insurance industry to guarantee the persistent development of both the insurance company and the policyholder.

6. IRDAI can control and regulate insurance rates, terms and conditions, and advantages that are offered by the insurance providers to the policyholders.

7. IRDAI also undertakes inspections and conducts audits of insurance companies, mediator parties and other organizations who are associated with the insurance business to keep an eye out for malpractices and safeguard policyholders against fraud.

8. IRDAI can specify the code of conduct, training and qualifications for insurance agents.

IRDAI Guidelines for Claim Settlement

Here are a few IRDAI guidelines for claim settlement that you should be aware of:

1. As per regulation 27(i), the insurance company or insurer should either settle a claim or reject it within thirty days of receiving all the documents required.

2. As per regulation 27(ii), any document not listed under the policy shall not be treated as absolutely necessary unless foul play is suspected. Furthermore, all the additional documents that are asked for must be taken as a one-time call rather than as per time-specific requirements.

3. Regulation 27(iv) states that in order to make a claim, the insurer must provide a certain time period within which all the documents need to be submitted. Additionally, if the policyholder fails to provide these documents within the required window and asks for a claim after, then the settlement can be done provided there is a valid cause for the delay

4. As per regulation 27(v), every claim that is settled must be in accordance with the policy’s terms and conditions.

Difference Between IRDAI and SEBI on their Functions

The IRDAI and SEBI are two vital regulatory authorities in India that oversee different sectors of the financial market. While the IRDAI focuses on regulating the insurance industry, the SEBI is responsible for overseeing the securities market. Their distinct functions and responsibilities contribute to maintaining the overall stability, integrity, and growth of the Indian financial market, thereby safeguarding the interests of investors and policyholders. Let us find out more about it here.

IRDA

SEBI

Established - 1999

Established - 1992

Looks after the interests of insurance holders

Look after the interests of investors

Provide a certificate of registration to insurance companies for issuing insurance policies

Provides a certificate of registration to bankers and brokers for issuing deeds.

Provides a certificate of registration to bankers and brokers for issuing deeds.

Provides a certificate of registration to bankers and brokers for issuing deeds.

Provides a certificate of registration to bankers and brokers for issuing deeds.

Frames terms and conditions as per SEBI (Securities and Exchange Board of India Act)

New Rules and Guidelines for Health and Mediclaim Insurance by IRDAI:

The IRDAI is the primary authority in charge of developing new health insurance policies and recommendations. In 2020, the regulator released new IRDAI rules for health and medical insurance, which are as follows:

Claims Rejection

The insurer cannot reject the claim if the policyholder has renewed the policy for eight years without an interruption or lapse. The moratorium period will be in effect throughout this time. Except in fraud cases or when the claim is brought against a policy exclusion, the insurer cannot appeal the claim denial to the IRDAI.

Inclusion of Telemedicine

The medical service has altered with the advent of digitization, and one can now visit a doctor via online consultations. The Insurance Regulatory and Development Authority of India (IRDAI) has ordered insurers to incorporate telemedicine consultations in their policies.

Claim Settlement

If an insurer fails to settle a claim within a reasonable time, the insurer is obligated to pay interest on the claim amount. It should ensure that the claim is settled within 30 to 45 days of the policyholder submitting the final document.

Wrapping Up

IRDAI is a regulatory body that is responsible for everything right and wrong any insurance company does. You can either contact them or let them know about your grievances if the insurance company refuses to answer. You can also raise any queries about the insurance policy and insurer in case of fraud. Either way, the role of IRDAI is very significant for complete transparency and making changes to the rules and regulations from time to time.

Key takeaways

  • The IRDA rule comprises a set of guidelines, regulations, and norms that govern various aspects of the insurance industry.
  • Insurance products need approval from the IRDA before being introduced in the market.
  • The IRDA specifies guidelines on investment activities by insurers, ensuring prudential investment practices and risk diversification.
  • The IRDAI’s decision to enforce KYC compliance for all new insurance policies comes as a response to the growing need for enhanced customer protection and fraud prevention.
  • IRDAI operates with the mission to protect the rights of policyholders, and promote fair and transparent practices.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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