Insurance comes under the ambit of a contract under which the insured party is compensated for the damage or loss caused by unforeseen events which are not in the control of the concerned party. Various insurance policies are available, the most common being the health, life, and automobile insurance policies. The Insurance Regulatory and Development Authority of India or IRDA (referred to as ‘the Authority’ hereinafter) is the apex authority that regulates India’s business of insurance. Its sole mission is to ensure fair practices so as to prevent loss to the policyholders. The authority supervises the growth of the insurance sector in the country as well as ensures a speedy development. The Authority was established under the Insurance Regulatory and Development Authority of India Act, 1999 (referred to as ‘the Act’ hereinafter) wherein numerous responsibilities as well as functions are allotted to them. The headquarter of the Authority is located at Hyderabad, which performs most of the significant functions, including safeguarding the policyholders’ financial stability and scrutinizing market conduct of several entities regulated through the concerned Act.
Through this paper, a study has been conducted to understand the roles and functions of the Authority as well as look into its establishment and composition. Further, the effect of the authority over various stakeholders and the market has been discussed briefly.
Table of Contents
Establishment and Composition of IRDA
The Insurance Regulatory and Development Authority of the country was set up as a result of the recommendations given through a report presented by the Malhotra Committee, supervised by Mr. R.N. Malhotra who is a former governor of the RBI. Initially, the Authority was established at the capital city in the year 2000, but at a later point of time in the year 2001, its headquarters was moved to Hyderabad, presently in Telangana. The major recommendations made by the committee revolved around granting permission to the private companies, foreign investors as well as regulatory authorities working independently to enter into the insurance market in India.
The composition of the Authority has been specifically provided in the Insurance Regulatory and Development Authority Act, 1999. As per the provisions, the following should be the members of the Authority:[1]
- A chairman,
- A maximum number of five full-time members,
- A maximum number of four part-time members.
The ten-member team is chosen from the individuals who demonstrate qualities such as extraordinary knowledge in the arena of understanding financial markets, actuarial science general as well as life insurance, economics, accountancy, law and any other field that could be fruitful to the Authority. In addition to that, the knowledge of the persons should be backed by adequate experience in the field. The team is to be appointed by the Government of India. The present chairperson of the Insurance Regulatory and Development Authority of Indian (IRDAI) is Mr. Subhash Chandra Khuntia. He assumed the office in the year 2018.
The tenure of the chairperson and full-time members is of five years and they are eligible for reappointment. However, an individual is not allowed to hold the office of the chairperson after he has reached the age of 62 years. Similar to that, no individual, who has been appointed as a full-time member is allowed to continue his term in the office after he has reached the age of 62 years.[2] In case, any of the appointed members of the Authority dies or resigns, it will continue to operate in the same manner.
https://legalreadings.com/mrtp-act-1969-and-amendment-1991/
Roles and Functions of IRDA
The powers granted, duties assigned and functions entrusted to the Authority have been specified under Section 14 of the Act. As per the provisions, it is the duty of the Authority to regulate, endorse, as well as ensure systematic growth and development of the insurance and reinsurance business in India. Some of the other major functions and roles of the Authority has been further discussed briefly:
- To safeguard the interests of the policyholders in matters regarding insurable interests, allocating policies, surrendering the policy value, settling the claims of insurance and other terms as well as conditions regarding the insurance contracts.
- To enumerate the required code of conduct, qualifications as well as practical training meant for insurance intermediaries, intermediary and agents. Moreover, the Authority has the duty to explain the code of conduct which needs to be followed to the loss assessors as well as the surveyors.
- To lay down the form and manner in which the books of accounts need to be retained along with the manner in which accounting statements must be rendered by the insurers.
- To regulate and stimulate the professional organizations associated with the insurance as well as reinsurance business.
- To provide an applicant with the certificate upon registration, modification, renewal, suspension, withdrawal or cancellation of that registration.
- To adjudicate upon any disputes arising among the intermediaries of insurance and the insurers and to make sure that the efficiency as well as the proficiency while conducting the business in the field of insurance remains intact.
In addition to the functions mentioned above, there are certain roles and responsibilities that need to be fulfilled by the Authority in order to ensure smooth functioning of the insurance market and to secure benefits to the policyholders. Some of the responsibilities involve:
- Ensuring fair treatment to the policyholders of the insurance and serving their interests in order to promote the development of the insurance sector which in turn would lead to the growth of economy.
- Endorsing and applying high standards of fair dealing, veracity and improving the capability of all those organizations that are administered by the Authority.
- Making sure that the information related to the products as well as services that have been provided is true. Furthermore, the policyholders should be made aware of the various plans and policies which are brought into effect by the insurance sector.
- Ensuring speedy trials in case of any dispute and preventing fraud or any other wrongdoing.
- Promoting self- regulation in day-to-day activities and initiating new standards whenever required.
Effect of the Authority
The Authority has a great impact on the insurance market in India. The insurance sector needs to be closely scrutinized by the Authority in order to make sure that the interests of the insured persons are served. Every activity of the insurance sector is regulated by IRDA. The key purpose to establish the Authority is to safeguard the interests of the insured individuals and so far, it has been serving the purpose effectively. The market has transformed tremendously due to the impact of the Authority with relation to awareness of the customers, insurance services, marketing, etc.
In addition to the abovementioned impacts, the introduction of the Authority has also led to an increase in overall competition in the insurance sector. In the beginning, very minimal competition was there as no private companies were allowed to operate in the insurance market. However, after the introduction of privatization and globalization, competition in the insurance sector has enormously increased as foreign players are also permitted to operate in the market now.
Since insurance policies provide security against various kinds of risks or contingencies, it has grown popular among the public as a medium to save and invest. The Authority has aided in redirecting the fund flow from post offices as well as banks towards the insurance industry. Moreover, due to the introduction of Unit-Linked Insurance Plans by the Authority which provides dual benefit of protection and investment to the insurance holders, more individuals are inclined towards using this plan. This has impacted the share market in a good way as more people are now indirectly associated with its activities.
The economic development of the country is also promoted by the Authority as the money invested by the individuals in several kinds of insurance policies has channelized the country funds from non-economic activities to economic activities and has made the fund available to the government for investing it in developmental activities. In addition to that, with the introduction of the Authority, responsibility of the government has been increased as they need to ensure more accountability, uniformity as well as responsibility in the field of insurance. Thus, it can be said that various organisations, share market, customers etc. are greatly impacted after the introduction of the Authority.
Conclusion
Insurance is a vital aspect of the economy which necessitates modifications from time to time as per the requirements of the people. With the introduction of the regulatory authority, the interests of the insurance policy holders are safeguarded. The authority makes sure that the individuals have knowledge of the policies and investment opportunities available to them. The main objectives behind the establishment of the authority includes upholding the development of the insurance sector, ensuring speedy dispute resolution mechanism, preventing fraud or other malpractices, ensuring fair conduct in the market and protecting as well as promoting the interests of the stakeholder. So far, the authority had a positive impact on various stakeholders including the customers, government, share market etc.
REFERENCES
[1] The Insurance Regulatory and Development Authority of India Act, 1999, s. 4.
[2] The Insurance Regulatory and Development Authority of India Act, 1999, s 5(1).
BY SAKSHI RATHI | NATIONAL LAW UNIVERSITY, ODISHA