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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 insurance sector in India.

  • Jan 16, 2020

The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous regulatory body that protects the interests of the policyholder. They oversee the growth of the insurance sector in India, the requirements that different types of insurance policies project, and help maintain a speedy development. The IRDAI was formed under the IRDAI Act in 1999, with various functions and responsibilities conferred upon them.

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 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 makes certain 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 organisations 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 organisations involved with the insurance business.

9. The rates, advantages, terms and conditions that may be offered by insurers with respect to 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 organisations 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 frauds.

What is IRDAI?

IRDAI is an abbreviation that 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 insurance business and control the rates or any other charges related to insurance.

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 mechanism 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.

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?

The insurance industry is divided into two main categories:

1.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.

2.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 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 organised 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 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 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 the 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 in a fair manner, 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 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 who 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 conduct audits of insurance companies, mediator parties and other organisations 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

Here are a few points of difference between IRDAI and SEBI:

Established - 1999 Established - 1992
Looks after the interests of insurance holders Looks after the interests of investors
Provides certificate of registration to insurance companies for issuing insurance policies Provides certificate of registration to bankers and brokers for issuing deeds.
Looks after the insurance industry Looks after the securities and commodities industry
Frames terms and conditions as per IRDAI (Insurance Regulatory and Development Authority of India Act) 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:

1. 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.

2. 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.

3. 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.

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 denies to answer. You can also raise any queries about the insurance policy and insurer in case of a fraud. In either way, the role of IRDAI is very significant for complete transparency and making changes to the rules and regulations from time to time.

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- A Consumer Education Initiative series by Kotak Life

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