ANNUAL REPORT                         2011-12    INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY                         IN...
yeercee efJeefve³eecekeÀ Deewj efJekeÀeme He´eefOekeÀjCe                                                                  ...
ANNUAL REPORT 2011-12                                                  CONTENTSMISSION STATEMENTTEAM AT IRDAOVERVIEW      ...
ANNUAL REPORT 2011-12                                        PART - III                 STATUTORY AND DEVELOPMENTAL FUNCTI...
ANNUAL REPORT 2011-12IV.4 Promotion of Official Language                                                   .....   115IV.5 ...
ANNUAL REPORT 2011-12I.17 Company Wise Gross Direct Premium income in India : Non-Life Insurers     .....   36I.18 Premium...
ANNUAL REPORT 2011-12I.49 TPA Infrastructure                                                                  .....    63I...
ANNUAL REPORT 2011-12I.9    Duration Wise Break-up of Claims Pending - Group Policies                      .....    30I.10...
ANNUAL REPORT 2011-1220.   Solvency Ratio of Life Insurers                                                   .....   15821...
ANNUAL REPORT 2011-1252. Incurred Claims Ratio - Private Sector Non-Life Insurers                                   ..... ...
ANNUAL REPORT 2011-12                                                 LIST OF ANNEX1.    Insurance Companies Operating in ...
MISSION STATEMENT To protect the interest of and secure fair treatment to policyholders;    To bring about speedy and o...
ANNUAL REPORT 2011-12         xvii
ANNUAL REPORT 2011-12PART TIME MEMBERS        xviii
ANNUAL REPORT 2011-12         xix
ANNUAL REPORT 2011-12         xx
ANNUAL REPORT 2011-12         xxi
ANNUAL REPORT 2011-12NAME                                        DESIGNATION                            ACCOUNTS DEPARTMEN...
ANNUAL REPORT 2011-12NAME                                              DESIGNATION                             CONSUMER AF...
ANNUAL REPORT 2011-12NAME                                      DESIGNATION                        HUMAN RESOURCES DEPARTME...
ANNUAL REPORT 2011-12NAME                                        DESIGNATIONMANISH MISRA                                As...
ANNUAL REPORT 2011-12NAME                                           DESIGNATION                                NON-LIFE DE...
ANNUAL REPORT 2011-12                                                     OVERVIEWThe Indian Economy:                     ...
ANNUAL REPORT 2011-12supported by rapid credit growth or high commodity                Indian insurance sector:prices. Tho...
ANNUAL REPORT 2011-12in 2010 and further slipping to 3.40 per cent in 2011.             insurance agents vide its circular...
ANNUAL REPORT 2011-12Motor Insurance, the Authority decided to regulate the            pegged to the cost inflation index, ...
ANNUAL REPORT 2011-12Formation of Indian Motor Third Party Declined Risk                worthiness of the policyholder, wh...
ANNUAL REPORT 2011-12changes to the retention levels of 1999-2000, and                    30. Section 35 of the Insurance ...
ANNUAL REPORT 2011-1232. The regulations have been prepared based on a                 as the starting point to sensitise ...
ANNUAL REPORT 2011-12protection of the interests of the policyholders by providing       industry and this facilitates bot...
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Irda ar 2011_12

  1. 1. ANNUAL REPORT 2011-12 INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY INDIAHead Office Delhi Office3rd Floor, Parishram Bhavan Gate No. 3, 1st Floor, Jeevan TaraBasheerbagh, Hyderabad – 500 004 Parliament Street, New Delhi – 110 001INDIA INDIAPhone : +91-40-2338 1100 / 1300 Phone : +91-11-2374 7648Fax : +91-40-6682 3334 Fax : +91-11-2374 7650 Website: www.irda.gov.in E-mail: irda@irda.gov.in
  2. 2. yeercee efJeefve³eecekeÀ Deewj efJekeÀeme He´eefOekeÀjCe INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY œ¸¸£Š¸Ÿ¸›¸ œ¸°¸ ¬¸¿™ž¸Ä ¬¸¿. 101/1/‚¸£&”ú/‡¬¸”ú/‡‚¸£-2011-12/10/›¸¨¸Ÿ¸-12 12 ›¸¨¸Ÿ¤¸£, 2012 ¬¸¢¸¨¸, ‚¸¢˜¸ÄˆÅ ˆÅ¸¡¸Ä ¢¨¸ž¸¸Š¸, ¢¨¸î¸ Ÿ¸¿°¸¸¥¸¡¸ ÷¸ú¬¸£¸ ÷¸¥¸, ]¸ú¨¸›¸™úœ¸ ¢¤¸¢¥”¿Š¸, ¬¸¿¬¸™ Ÿ¸¸Š¸Ä, ›¸¡¸ú ¢™¥¥¸ú - 110 001 ªúŸ¸¸›¸, ퟸ ¤¸úŸ¸¸ ¢¨¸¢›¸¡¸¸Ÿ¸ˆÅ ‚¸¾£ ¢¨¸ˆÅ¸¬¸ œÏ¸¢š¸ˆÅ£μ¸ ‚¢š¸¢›¸¡¸Ÿ¸, 1999 ˆÅú š¸¸£¸ 20 ˆ½Å „œ¸¤¸¿š¸¸½¿ ˆ½Å ‚›¸º¬¸¸£, 31 Ÿ¸¸¸Ä 2012 ˆÅ¸½ ¬¸Ÿ¸¸œ÷¸ íº¡¸½ ¨¸«¸Ä ˆ½Å ¢¥¸¡¸½ œÏ¸¢š¸ˆÅ£μ¸ ˆÅú ¨¸¸¢«¸ÄˆÅ ¢£œ¸¸½’Ä ˆÅú ‡ˆÅ œÏ¢÷¸, ‚¢š¸¬¸»¢¸÷¸ ¤¸ú.¢¨¸.¢¨¸.œÏ¸. (¨¸¸¢«¸ÄˆÅ ¢£œ¸¸½’Ä ¢¨¸¨¸£¢μ¸¡¸¸½¿, ¢¨¸¨¸£μ¸¸½¿ ‚¸¾£ ‚›¡¸ ¢¨¸¢©¸«’¡¸¸½¿ ˆÅ¸½ œÏ¬÷¸º÷¸ ¢ˆÅ¡¸¸ ]¸¸›¸¸) ¢¨¸¢›¸¡¸Ÿ¸, 2000 ˆ½Å ¢¨¸¢í÷¸ œÏ¸³Åœ¸ Ÿ¸½¿ ž¸½]¸ £í½ íÿ— ž¸¨¸™ú¡¸, (]¸½. í¢£ ›¸¸£¸¡¸μ¸) ‚š¡¸®¸ LETTER OF TRANSMITTAL th Ref. No. 101/1/R&D/SD/AR-2011-12/10/Nov-12 12 November, 2012 The Secretary, Department of Financial Services Ministry of Finance 3rd Floor, Jeevan Deep Building Parliament Street New Delhi - 110 001 Sir, In accordance with the provisions of Section 20 of the Insurance Regulatory and Development Authority Act, 1999, we are sending herewith a copy of the Annual Report of the Authority for the financial year ended 31st March, 2012 in the format prescribed in the IRDA (Annual Report – Furnishing of returns, statements and other particulars) Rules, 2000. Yours faithfully, (J HARI NARAYAN) ChairmanHeefjÞece YeJeve, leermeje leue, yeMeerjyeeie, nwojeyeeo - 500 004. Yeejle Parishram Bhavan, 3rd Floor, Basheerbagh, Hyderabad - 500 004. INDIA  +91-40-6682 0957, HewÀkeÌme : +91-40-6682 3334 : Ph.: +91-40-6682 0957, Fax : +91-40-6682 3334 F&-cesue : chairman@irda.gov.in Jesye: www.irda.gov.in E-mail: chairman@irda.gov.in Web.: www.irda.gov.in
  3. 3. ANNUAL REPORT 2011-12 CONTENTSMISSION STATEMENTTEAM AT IRDAOVERVIEW ..... 1 PART - I POLICIES AND PROGRAMMESI.1 General Economic Environment ..... 15I.2 World Insurance Scenario ..... 16I.3 Appraisal of Indian Insurance Market ..... 22I.4 Review ..... 46 I.4.1 Protection of Interests of Policyholders ..... 46 I.4.2 Maintenance of Solvency Margins of Insurers ..... 50 I.4.3 Monitoring of Reinsurance ..... 51 I.4.4 Insurance Pools ..... 54 I.4.5 Monitoring of Investments by the Insurers ..... 57 I.4.6 Health Insurance ..... 61 I.4.7 Business in the Rural and Social Sector ..... 64 I.4.8 Financial Reporting and Actuarial Standards ..... 66 I.4.9 Anti-Money Laundering/Counter-Finance of Terrorism ..... 67 I.4.10 Crop Insurance ..... 69 I.4.11 Micro Insurance ..... 70 I.4.12 Directions, Orders and Regulations issued by the Authority ..... 73 I.4.13 Right to Information Act ..... 74 PART - II REVIEW OF WORKING AND OPERATIONSII.1 Regulation of Insurance and Reinsurance Companies ..... 75II.2 Intermediaries Associated with the Insurance Business ..... 77II.3 Litigations, Appeals and Court Pronouncements ..... 88II.4 International Co-operation in Insurance ..... 90II.5 Public Grievances ..... 92II.6 Insurance Association and Insurance Councils ..... 95II.7 Functioning of Ombudsmen ..... 99 v
  4. 4. ANNUAL REPORT 2011-12 PART - III STATUTORY AND DEVELOPMENTAL FUNCTIONS OF THE AUTHORITYIII.1 Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration ..... 101III.2 Protection of the interests of policyholders in matters concerning assigning of policy, nomination by policyholders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance ..... 102III.3 Specifying requisite qualifications, code of conduct and practical training for intermediaries or Insurance Intermediaries and agents ..... 102III.4 Specifying the code of conduct for surveyors and loss assessors ..... 104III.5 Promoting efficiency in the conduct of insurance business ..... 105III.6 Promoting and regulating professional organizations connected with the insurance and reinsurance business ..... 107III.7 Levying fees and other charges for carrying out the purposes of the Act ..... 107III.8 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 ..... 107III.9 Control and regulation of 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 under section 64U of the ..... 108 Insurance Act, 1938 (4 of 1938)III.10 Specifying the form and manner in which books of accounts shall be maintained and statements of accounts shall be rendered by Insurers and other insurance intermediaries ..... 109III.11 Regulating investment of funds by insurance companies ..... 110III.12 Regulating maintenance of margin of solvency ..... 110III.13 Adjudication of disputes between Insurers and Intermediaries or Insurance Intermediaries ..... 111III.14 Supervising the functioning of the Tariff Advisory Committee (TAC) ..... 112III.15 Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause (6) ..... 112III.16 Specifying the percentage of life insurance business and general insurance business to be undertaken by the Insurers in the rural and social sector ..... 112III.17 Exercising such other powers as may be prescribed ..... 113 PART - IV ORGANISATIONAL MATTERSIV.1 Organisation ..... 115IV.2 Meetings of the Authority ..... 115IV.3 Human Resources ..... 115 vi
  5. 5. ANNUAL REPORT 2011-12IV.4 Promotion of Official Language ..... 115IV.5 Research & Development ..... 116IV.6 Status of Information Technology ..... 116IV.7 Accounts ..... 119IV.8 IRDA Journal ..... 120IV.9 Acknowledgements ..... 120 LIST OF BOX ITEMS1. State-wise Life Insurance Penetration and Density of Individual New Business ..... 202. Persistency of Life Policies and Servicing of Orphan Policies ..... 263. Initiatives on the Development of Health Insurance ..... 444. Financial Literacy and Consumer Education on Insurance ..... 475. Supervision of Market Conduct ..... 496. Formation of Indian Motor Third Party Declined Risk Insurance Pool ..... 587. Productivity of the Tied Agents (Life Insurance) – A Market Observation ..... 788. Surveyors & Loss Assessors - Recent Initiatives of IRDA ..... 879. Insurance Information Bureau (IIB) ..... 118 LIST OF TEXT TABLESI.1 Real Growth in Premium During 2011 ..... 16I.2 Insurance Penetration and Density in India ..... 18I.3 Registered Insurers in India ..... 23I.4 Premium Underwritten : Life Insurers ..... 24I.5 Market Share : Life Insurers ..... 24I.6 New Policies Issued : Life Insurers ..... 24I.7 Paid-up Capital : Life Insurers ..... 27I.8 Commission Expenses : Life Insurers ..... 27I.9 Commission Expense Ratio : Life Insurers ..... 28I.10 Operating Expenses : Life Insurers ..... 28I.11 Operating Expense Ratio : Life Insurers ..... 28I.12 Individual Death Claims : Life Insurers ..... 29I.13 Group Death Claims : Life Insurers ..... 31I.14 Number of Life Insurance offices ..... 32I.15 Distribution of Offices of Life Insurers ..... 32I.16 Gross Direct Premium Income in India of Non-Life Insurers ..... 34 vii
  6. 6. ANNUAL REPORT 2011-12I.17 Company Wise Gross Direct Premium income in India : Non-Life Insurers ..... 36I.18 Premium (Within India) Underwritten by Non-Life Insurers - Segment Wise ..... 36I.19 Ratio of Outside India Premium to Total Premium ..... 37I.20 Gross Direct Premium From Business Outside India : Non-Life Insurers ..... 37I.21 Number of New Policies Issued : Non-Life Insurers ..... 37I.22 Paid Up Capital : Non-Life Insurers and Reinsurer ..... 37I.23 Underwriting Losses : Non-Life Insurers ..... 39I.24 Commission Expenses : Non-Life Insurers ..... 39I.25 Operating Expenses : Non-Life Insurers ..... 40I.26 Net Incurred Claims : Non-Life Insurers ..... 40I.27 Incurred Claims Ratio : Non-Life Insurers ..... 40I.28 Investment Income : Non-Life Insurers ..... 41I.29 Net Profits/Losses : Non-Life Insurers ..... 41I.30 Dividends Paid : Non-Life Insurers ..... 41I.31 Number of Non-Life Insurance Offices ..... 42I.32 Net Retained Premium on Indian Business as per cent of Gross Direct Premium (Excluding GIC) ..... 46I.33 Reinsurance Placed Within India and Outside India as per cent of Gross Direct Premium in India ..... 51I.34 Reinsurance Ceded Outside India on Indian Business ..... 52I.35 Net Retentions of Non-Life Insurers ..... 52I.36 Share of Member Companies in the Indian Terrorism Pool ..... 55I.37 Premium Rates for Terrorism Risk Insurance ..... 56I.38 Expected Ultimate Liabilities as per GAD Estimate ..... 56I.39 Due Dates for Net Settlements Amongst the Pool Members (IMTPIP) ..... 56I.40 Motor Insurance Third Party Claims (IMTPIP) ..... 57I.41 Market Share of Pool Members ..... 57I.42 Total Investments of the Insurance Sector ..... 59I.43 Total Investments of Life Insurers : Instrument-wise ..... 60I.44 Investments of Life Insurers : Fund-wise ..... 60I.45 Growth of Investments: Fund-wise ..... 61I.46 Total Investments of Non-Life Insurers : Instrument-wise ..... 61I.47 Health Insurance Premium ..... 62I.48 TPA Licenses Renewed ..... 63 viii
  7. 7. ANNUAL REPORT 2011-12I.49 TPA Infrastructure ..... 63I.50 Third Party Administrators - Claims Data ..... 64I.51 New Business under Micro Insurance Portfolio ..... 71I.52 Micro Insurance Agents of Life Insurers ..... 71I.53 Individual Death Claims Under Micro Insurance Portfolio ..... 71I.54 Group Death Claims Under Micro Insurance Portfolio ..... 72I.55 Duration-Wise Settlement of Death Claims in Micro Insurance – Individual Category ..... 72I.56 Duration-Wise Settlement of Death Claims in Micro Insurance – Group Category ..... 72I.57 List of Central Public Information Officers ..... 73II.1 Details of Individual Agents of Life Insurers ..... 77II.2 Details of Corporate Agents of Life Insurers ..... 78II.3 Individual New Business Performance of Life Insurers - Channel Wise ..... 82II.4 Group New Business Performance of Life Insurers - Channel Wise ..... 83II.5 New Business Premium (Individual and Group) of Life Insurers - Channel Wise ..... 84II.6 Number of Licenses Issued to Surveyors and Loss Assessors ..... 85II.7 Grievances Relating to Surveyors and Loss Assessors ..... 86II.8 Details of Cases Filed ..... 88II.9 Number of Cases of Petitions Disposed / Dismissed ..... 88II.10 Status of Grievances : Life Insurers ..... 92II.11 Unfair Business Practice - Complaints ..... 93II.12 Status of Grievances - Non-Life Insurers ..... 93II.13 Disposal of Complaints by Ombudsmen during 2011-12 ..... 99III.1 Penalties Levied by the Authority ..... 101 LIST OF CHARTSI.1 Insurance Density in Select Countries - 2011 ..... 17I.2 Insurance Penetration in Select Countries - 2011 ..... 17I.3 Insurance Density in India ..... 19I.4 Insurance Penetration in India ..... 19I.5 Premium Underwritten by Life Insurers ..... 23I.6 First Year Premium - Life Insurers ..... 25I.7 Total Premium- Life Insurers ..... 25I.8 Duration Wise Break-up of Claims Pending - Individual Policies ..... 30 ix
  8. 8. ANNUAL REPORT 2011-12I.9 Duration Wise Break-up of Claims Pending - Group Policies ..... 30I.10 Number of Life Insurance Offices ..... 33I.11 Geographical Distribution of Life Insurance Offices ..... 33I.12 Gross Direct Premium of Non-Life Insurers (Within & Outside India) ..... 35I.13 Gross Direct Premium Income of Non-Life Insurers ..... 38I.14 Segment-Wise Non-Life Premium ..... 38I.15 Number of Non-Life Insurance Offices ..... 42II.1 Individual New Business Premium of Life Insurers - Channel Wise ..... 82II.2 Group New Business Premium of Life Insures - Channel Wise ..... 83II.3 New Business Premium of Life Insurers (Individual & Group) ..... 84II.4 Classification of Life Complaints ..... 92II.5 Classification of Non-Life Complaints ..... 94II.6 Class Wise Non-Life Complaints ..... 94 LIST OF STATEMENTS1. International Comparison of Insurance Penetration ..... 1232. International Comparison of Insurance Density ..... 1243. First Year Life Insurance Premium ..... 1254. Total Life Insurance Premium ..... 1265. Individual New Business Performance of Life Insurers - Channel Wise ..... 1276. Group New Business Performance of Life Insurers - Channel Wise ..... 1297. State Wise Individual New Business Underwritten ..... 1318. State Wise Group New Business Underwritten ..... 1359. State Wise Life Insurance Penetration and Density of Individual New Business ..... 14210. Individual Business (Within India) - Business in Force (Number of Policies) ..... 14311. Individual Business (Within India) - Business in Force (Sum Assured) ..... 14412. Linked and Non-Linked Premium of Life Insurers ..... 14513. Linked and Non-Linked Commission of Life Insurers ..... 14714. Individual Death Claims ..... 14815. Group Death Claims ..... 15016. Duration Wise Settlement of Death Claims - Individual Category ..... 15217. Duration Wise Settlement of Death Claims - Group Category ..... 15318. Assets Under Management of Life Insurers ..... 15419. Equity Share Capital of Life Insurers ..... 157 x
  9. 9. ANNUAL REPORT 2011-1220. Solvency Ratio of Life Insurers ..... 15821. Life Insurers - Policyholders Account ..... 15922. Life Insurers - Shareholders Account ..... 16323. Life Insurers - Balance Sheet ..... 16724. Life Insurance Corporation of India - Policyholders Account (Non-Participating) ..... 17125. Life Insurance Corporation of India - Shareholders Account (Non-Participating) ..... 17226. Life Insurance Corporation of India - Balance Sheet (Non-Participating) ..... 17327. Individual Business (within India) - Details of Forfeiture/Lapsed Policies in respect of Individual Non-Linked Business ..... 17428. Persistency of Life Insurance Policies ..... 17529. Details of Individual Agents of Life Insurers ..... 17630. Details of Corporate Agents of Life Insurers ..... 17731. Average Number of Policies Sold by Individual and Corporate Agents ..... 17832. Average New Business Premium for Individual and Corporate Agents ..... 17933. Average Premium Per Policy for Individual and Corporate Agents ..... 18034. State Wise Distribution of Offices of Life Insurers ..... 18135. Region Wise Distribution of Offices of Life Insurers ..... 18336. State Wise Number of Districts covered by Life Insurers ..... 18437. State Wise Distribution of Individual Agents ..... 18538. New Business Under Micro Insurance Portfolio ..... 18739. Death Claims Under Micro Insurance Portfolio - Individual Category ..... 18840. Death Claims Under Micro Insurance Portfolio - Group Category ..... 19041. Duration Wise Settlement of Micro Insurance Claims - Individual Category ..... 19242. Duration Wise Settlement of Micro Insurance Claims - Group Category ..... 19343. Company Wise Number of Micro Insurance Agents ..... 19444. Gross Direct Premium of Non-Life Insurers (Within & Outside India) ..... 19545. Segment Wise Gross Direct Premium of Non-Life Insurers (Within India) ..... 19646. Segment Wise Net Premium Income (Earned) ..... 19747. Health Insurance other than Travel-Domestic/Overseas & Personal Accident: Gross Premium and Number of Persons Covered ..... 19848. Personal Accident Insurance: Gross Premium and Number of Persons Covered ..... 20049. Channel Wise Gross Direct Premium of Non Life Insurers ..... 20250. State Wise Gross Direct Premium Income of Non Life Insurers ..... 20351. Incurred Claims Ratio - Public Sector Non-Life Insurers ..... 204 xi
  10. 10. ANNUAL REPORT 2011-1252. Incurred Claims Ratio - Private Sector Non-Life Insurers ..... 20553. Underwriting Experience and Profits of Public Sector Companies ..... 20654. Underwriting Experience and Profits of Private Sector Companies ..... 20755. Assets Under Management of Non-Life Insurers ..... 21056. Equity Share Capital of Non-Life Insurers ..... 21157. Solvency Ratio of Non-Life Insurers ..... 21258. Public Sector Non-Life Insurers - Policyholders Account ..... 21359. Public Sector Non Life Insurers - Shareholders Account ..... 21560. Public Sector Non-Life Insurers - Balance Sheet ..... 21661. Private Sector Non-Life Insurers - Policyholders Account ..... 21762. Private Sector Non-Life Insurers - Shareholders Account ..... 22563. Private Sector Non-Life Insurers - Balance Sheet ..... 22764. Health Insurers - Policyholders Account ..... 22965. Health Insurers - Shareholders Account ..... 23066. Health Insurers - Balance Sheet ..... 23167. Export Credit Guarantee Corporation Ltd. (ECGC) - Policyholders Account ..... 23268. Export Credit Guarantee Corporation Ltd.(ECGC) - Shareholder Account ..... 23369. Export Credit Guarantee Corporation Ltd. (ECGC) – Balance Sheet ..... 23470. Agriculture Insurance Company of India Ltd. (AIC) - Policyholders Account ..... 23571. Agriculture Insurance Company of India Ltd. (AIC) - Shareholders Account ..... 23672. Agriculture Insurance Company of India Ltd. (AIC) – Balance Sheet ..... 23773. General Insurance Corporation (GIC) - Policyholders Account ..... 23874. General Insurance Corporation (GIC) - Shareholders Account ..... 23975. General Insurance Corporation (GIC) – Balance Sheet ..... 24076. State Wise Number of Offices of Non-Life Insurers ..... 24177. State Wise Number of Districts Covered by Non-Life Insurers ..... 24378. State Wise Number of Registered Brokers ..... 24479. Third Party Administration – No. of Claims Received & Duration Wise Settlement of Claims ..... 24580. Status of Grievances - Life Insurers ..... 24781. Status of Grievances - Non-Life Insurers ..... 24882. Performance of Ombudsmen at different centres- Life Insurance ..... 24983. Performance of Ombudsmen at different centres - Non-Life Insurance ..... 25084. Performance of Ombudsmen at different centres - Life and Non-Life Insurance Combined ..... 251 xii
  11. 11. ANNUAL REPORT 2011-12 LIST OF ANNEX1. Insurance Companies Operating in India ..... 2552. Fee Structure for Insurers and Various Intermediaries ..... 2573. (i) Indian Assured Lives Mortality (1994-96) (Modified) Ultimate ..... 258 (ii) Mortality Rates of Annuitants in LIC of India ..... 2594. Life Insurance Products cleared during the financial year 2011-12 ..... 2605. List of Micro Insurance Products of Life Insurers ..... 2656. Non-Life Insurance Products cleared during the financial year 2011-12 ..... 2667. Health Insurance Products cleared during the financial year 2011-12 ..... 2688. Obligatory Cessions received by GIC ..... 2709. Circulars / Orders / Notifications issued by the Authority during the financial year 2011-12 ..... 27110. Regulations framed under the IRDA Act, 1999 ..... 276 xiii
  12. 12. MISSION STATEMENT 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 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.
  13. 13. ANNUAL REPORT 2011-12 xvii
  14. 14. ANNUAL REPORT 2011-12PART TIME MEMBERS xviii
  15. 15. ANNUAL REPORT 2011-12 xix
  16. 16. ANNUAL REPORT 2011-12 xx
  17. 17. ANNUAL REPORT 2011-12 xxi
  18. 18. ANNUAL REPORT 2011-12NAME DESIGNATION ACCOUNTS DEPARTMENTPRASSAD RAO KALAYRU Deputy DirectorBISWAJIT SAMADDAR Assistant DirectorSHYAM SUNDAR MOHAKUD Junior OfficerSANEETHA K A Assistant ACTUARIAL DEPARTMENTJ MEENAKUMARI Joint DirectorJ ANITA Deputy DirectorP K MAITI Deputy DirectorN S K PRABHAKAR Deputy DirectorC SRINIVASA KUMAR Deputy DirectorMANOJ KUMAR Deputy DirectorSUSAN ITTYERAH Senior Assistant DirectorDNKLNK CHAKRAVARTHI Assistant DirectorMBVN MURTHY Assistant DirectorSANTOSH KUMAR MISHRA Assistant DirectorYOGITA RAWAT Assistant DirectorASHUTOSH KUMAR RAJESH Assistant DirectorB SOMESWARA RAO Junior OfficerR SANGEETHA Junior OfficerLEKSHMI PILLAI Junior OfficerSARATCHANDRA AssistantSUJOY SAHA Assistant ADMINISTRATION DEPARTMENTRAKESH K BAJAJ Joint DirectorB RAGHAVAN Senior Assistant DirectorMANJU ARORA Senior Assistant DirectorK CHITTIBABU Assistant DirectorHARI Junior OfficerA RAMA SUDHEER Junior Officer (PS to ED(Admn))SUSH PAL AssistantINDRADEEP SAH AssistantBH SURYANARAYANA SASTRY AssistantA B SONI AssistantSHASHI PAL Record Keeper xxii
  19. 19. ANNUAL REPORT 2011-12NAME DESIGNATION CONSUMER AFFAIRS DEPARTMENTYEGNA PRIYA BHARAT Joint DirectorKGPL RAMA DEVI Deputy DirectorR SRINIVASAN Officer on Special DutyKAMAL CHOWLA Assistant DirectorMATHANGI SARITHA Assistant DirectorK SRINIVAS Assistant DirectorMANOJ KUMAR ASIWAL Assistant DirectorNEERAJ MANI TRIPATHI Assistant CHAIRMAN’S SECRETARIATV S NARENDRA CHANDRA Junior OfficerV V N KIRANKUMAR SHARMA Assistant FINANCE AND ACCOUNTS (LIFE) DEPARTMENTRAJ KUMAR SHARMA Deputy Director & CAOSHARDUL SURESH ADMANE Senior Assistant DirectorAKANKSHA GUPTA Assistant DirectorMOHAMMAD AYAZ Assistant DirectorRAMBABU GORLI Assistant DirectorAMEER HASSAN Assistant FINANCE AND ACCOUNTS (NON-LIFE) DEPARTMENTS N JAYASIMHAN Joint DirectorAMMU VENKATA RAMANA Deputy DirectorDr RAVINDER KAUR Assistant DirectorSANJAY MOHAN SHARMA Assistant DirectorTRILOKI NATH AssistantB BALAKRISHNA AssistantANURAG BAJPAI Assistant HEALTH DEPARTMENTNILAMADHAB BEHERA Deputy DirectorJYOTI AJIT VAIDYA Deputy DirectorR PARDHA SARADHI Assistant DirectorJAMUNA CHOUDHARY Assistant DirectorMURTHY LAKSHMI NARASIMHA DASARI Assistant Director xxiii
  20. 20. ANNUAL REPORT 2011-12NAME DESIGNATION HUMAN RESOURCES DEPARTMENTT VENKATESWARA RAO Deputy DirectorSAGEENA A Assistant DirectorP MAJUMDER Junior Officer INSPECTION DEPARTMENTM PULLA RAO Senior Joint DirectorMUKESH SHARMA Joint DirectorS P CHAKRABORTY Deputy DirectorG R SURYA KUMAR Deputy DirectorK MAHIPAL REDDY Deputy DirectorNANDAN KUMAR Assistant DirectorVIKAS JAIN Assistant DirectorBHASKER P KHADAKBHAVI Assistant DirectorG SIVARAMAKRISHNA Assistant DirectorNEELESH GUPTA Assistant DirectorBASKAR THEERTHARAMAN Assistant DirectorV SARVOTHAMUDU Officer on Special DutyV SATYA SRINIVAS Officer on Special DutyY SRINIVASU Officer on Special DutyB V SASTRY Officer on Special DutyP KANTHISREE Junior OfficerAJEET ORAON Assistant INTERMEDIARIES DEPARTMENTSURESH MATHUR Senior Joint DirectorT S NAIK Joint DirectorSUDHA RAMANUJAM Deputy DirectorDEEPAK KHANNA Deputy DirectorSATISH V HEGDE Officer on Special DutyNIMISHA SRIVASTAVA Senior Assistant DirectorD SRINIVASA MURTHY Senior Assistant DirectorSUNITHA L V S Assistant DirectorMUKESH KUMAR Assistant DirectorD GYANA PRASUNA Assistant DirectorRAJESWAR GANGULA Assistant DirectorNEETU SHAHADADPURI Assistant DirectorP HIMAKIRAN Assistant Director xxiv
  21. 21. ANNUAL REPORT 2011-12NAME DESIGNATIONMANISH MISRA Assistant DirectorK RAMBABU Assistant DirectorTATI KIRAN AssistantRAVINDRA DAS AssistantDOMALA RAJANIKANTH AssistantGANDI VENKATA RAMANA Assistant INVESTMENT DEPARTMENTRAMANA RAO ADDANKI Joint DirectorR KUMAR Deputy DirectorSURESH NAIR Senior Assistant DirectorR UMA MAHESWARI Senior Assistant DirectorMAHESH AGARWAL Senior Assistant DirectorA KESHAVA RAO Junior Officer (PS to Member (F&I))RAKESH SARODEY Assistant INFORMATION TECHNOLOGY DEPARTMENTA R NITHIAYANANTHAM Joint DirectorSANJEEV KUMAR JAIN Joint DirectorDEEPAK KUMAR GAIKWAD Deputy DirectorSANJAY KUMAR VERMA Deputy DirectorVINAY KUMAR MATHANGI AssistantKLN RAGHAVA KUMAR Assistant LEGAL DEPARTMENTH ANANTHAKRISHNAN Joint DirectorALEEM AFAQUE Assistant DirectorNARENDRA SINGH Assistant LIFE DEPARTMENTV JAYANTH KUMAR Joint DirectorD V S RAMESH Deputy DirectorSUDIPTA BHATTACHARYA Deputy DirectorGAUTAM KUMAR Deputy DirectorS KARTIKEYA SARMA Assistant DirectorR LALITHA KUMARI Assistant DirectorK SRIDHAR RAO Assistant DirectorH BABU YOGISH Assistant DirectorV CHITRA Assistant DirectorB ARUNA Junior Officer (PS to Member (Life))SIVA PRASAD YEDDU Assistant xxv
  22. 22. ANNUAL REPORT 2011-12NAME DESIGNATION NON-LIFE DEPARTMENTRANDIP SINGH JAGPAL Joint DirectorPANKAJ KUMAR TEWARI Deputy DirectorSHIKSHA SHAHA Senior Assistant DirectorK SRIDHAR Assistant DirectorCH B CHANDRASEKHARA RAO Assistant DirectorANIL KUMAR THATIPALLI Assistant DirectorPARAMESHWAR LIMBAJIRAO SHELKE Assistant DirectorS DAKSHINAMOORTHY Assistant DirectorSHRIHARI ALLAMSETTY Assistant DirectorSUKESH KUMAR Assistant DirectorM L SOUJANYA Junior Officer (PS to Member (Non-life))B S VENKATESH Junior OfficerAKASH DANGWAR Assistant OFFICIAL LANGUAGE IMPLEMENTATIONJYOTI BHAGAT Assistant Director SECTORAL DEVELOPMENT DEPARTMENTDr MAMTA SURI Joint DirectorDr R K SINHA Officer on Special DutyA V RAO Deputy DirectorB PADMAJA Senior Assistant DirectorMUNSHI M NIZAMUDDIN Assistant DirectorK ANAND RAO Assistant DirectorDASIKA S MURALIMOHAN Assistant ON DEPUTATION TO INSURANCE INFORMATION BUREAUJAYA KUMAR Deputy DirectorM MADHUSUDHAN Assistant DirectorSWATI BAJAJ Assistant DirectorMUKESH KEWALRAMANI Assistant DirectorVIKAS KUMAR KAPOOR Junior OfficerDEVENDRA KUMAR Junior OfficerISHTIAQUE ALAM AssistantVIKAS S RANE Assistant ON CONTRACTU JAWAHAR LAL Editor, IRDA Journal xxvi
  23. 23. ANNUAL REPORT 2011-12 OVERVIEWThe Indian Economy: and business” remains the largest component with 17.9 per cent share in the Indian economy. The same has1. Against the backdrop of adverse macro-economic increased gradually over the last few years, viz. 2007-08factors, the Indian economy measured in terms of Gross (16.1 per cent), 2008-09 (16.9 per cent), 2009-10 (17.1Domestic Product (GDP) registered a growth rate of 6.5 per cent) and 2010-11 (17.4 per cent).per cent in 2011-12, which is the lowest annual growthrate of last decade. Further, this growth rate also Global Economic Environment:happened to be lower than even that of year 2008-09, 4. According to the latest World Economic Outlook (WEO)the year when the financial crisis began. In that year, the published by the International Monetary Fund (IMF), theIndian economy grew at 6.7 per cent. The hardening of world economy is projected to grow at the rate of 3.5 perinterest rate, moderation in demand (both domestic and cent in the year 2012, which is lower when compared toexternal), slowdown in consumption expenditure, the 5.3 per cent and 4.0 per cent growth achieved duringespecially in interest rate sensitive commodities, subdued 2010 and 2011 respectively. The slowdown in the globalbusiness confidence and global economic uncertainty economy, which started in the advanced economies,collectively contributed to the weakening of the Indian mainly of Europe, has spread to major emergingeconomy. While the slowdown in the economy remained economies too including China, India and Brazil.across the board, the industrial sector appeared to be theworst hit. The sector reported a meagre growth rate of 5. As per projections of the IMF, the euro area would2.6 per cent during 2011-12, as compared to 6.8 per cent continue to reel under recession in 2012 as a result ofin the previous year. With this, the sector grew at an the sovereign debt crisis, problems in the banking sectoraverage growth rate of 6.3 per cent in the last five years and fiscal consolidation efforts of various governments.(2007-08 to 2011-12). The slowdown in industrial Due to recession in the European economy, the advancedproduction appeared to be almost across all sub-sectors. economies as a group are expected to grow only at the rate of 1.5 per cent in 2012 and 2 per cent in 2013.2. The agricultural sector too grew at a substantially Similarly, the real GDP growth in the emerging andlower rate of 2.8 per cent in 2011-12, as compared to 7.0 developing economies is projected to slow down fromper cent achieved in the previous year. However, the 6.25 per cent in 2011 to 5.75 per cent in 2012. Lack ofsame is only marginally lower than the average growth demand from advanced economies and uncertaintyrate of the past five years (2007-08 to 2011-12) at 3.3 per emerging from euro zone has caused the slowdown incent. The agricultural sector exceptionally out-performed emerging and developing economies as well. The majorin 2010-11 on account of a very good monsoon. The risks to the global economy are further escalation of euroservices sector continued to grow at a faster rate in area crisis, increase in oil prices due to geopolitics and2011-12. It witnessed a growth of 8.5 per cent (previous volatility in the financial markets.year 9.2 per cent). Amongst the various service sectors,the growth rate in the “financing, insurance, real estate 6. Many policy initiatives are needed to ensure recoveryand business” services stood at 9.6 per cent in 2011-12, of the global economy, says the IMF Report. In the shortas compared to 10.4 per cent of previous year. The term, these include efforts to address the euro area crisis,average annual growth rate of this segment continued to a temperate approach to fiscal restraint in response tobe in double digit (10.7 per cent) during the period of past weaker activity, continuation of accommodative monetaryfive years, viz. 2007-08 to 2011-12. policies and ample liquidity to the financial sector. In the long term, the most important policy initiatives include3. The share, in terms of real GDP, of the services sector fundamental reforms in the financial sector, progress within the Indian economy continued to rise consistently. The fiscal consolidation including ambitious reform ofshare went up further to 66.8 per cent in 2011-12 entitlement programs, and structural reforms to boost(65.5 per cent in 2010-11), because of better performance potential output.of this sector in absolute as well as in relative (toagricultural and industrial sector) sense. Within the 7. Many of the emerging and developing economiesservices sectors, the “financing, insurance, real estate have had an unusually good run over the past decade, 1
  24. 24. ANNUAL REPORT 2011-12supported by rapid credit growth or high commodity Indian insurance sector:prices. Though credit growth is a manifestation of financial 10. As at end-September 2012, there are fifty-twodeepening, it cannot continue to expand at its present insurance companies operating in India; of which twentypace without raising serious concerns about the quality four are in the life insurance business and twenty-sevenof bank lending. Similarly, commodity prices cannot are in non-life insurance business. In addition, Generalcontinue to grow at the elevated pace witnessed over the Insurance Corporation (GIC) is the sole national reinsurer.past decade, other than exhibiting short-term spikes The life insurance industry recorded a premium incomerelated to geopolitical tensions. The key near-term of `2, 87,072 crore during 2011-12 as against `2, 91,639challenge for emerging and developing economies is how crore in the previous financial year, registering a negativeto appropriately calibrate macroeconomic policies to growth of 1.57 per cent. While private sector insurersaddress the significant downside risks from advanced posted 4.52 per cent decline (11.08 per cent growth ineconomies while keeping in check overheating pressures previous year) in their premium income, Life Insurancefrom strong activity, high credit growth, volatile capital Corporation (LIC), the fully state owned insuranceflows, still elevated commodity prices, and renewed risks company, recorded 0.29 per cent decline (9.35 per centto inflation and fiscal positions from energy prices. For growth in previous year), in its total premium underwritten.economies that have largely normalized macroeconomic While the renewal premium accounted for 60.31 per centpolicies, the near-term focus should be on responding to (56.66 per cent in 2010-11) of the total premium receivedlower external demand from advanced economies. Other by the life insurers, first year premium contributed theeconomies should continue to rebuild macroeconomic remaining 39.69 per cent (43.34 per cent in 2010-11).policy and strengthen prudential policies and frameworks. During 2011-12, the growth in renewal premium was 4.77 per cent (6.23 per cent in 2010-11). First year premiumInsurance markets: registered a decline of 9.85 per cent in comparison to8. As per the World Insurance Report, published by the growth of 15.02 per cent during 2010-11.reinsurance major “Swiss Re”, the global direct premium 11. In the non-life segment, the insurers underwrote grossduring 2011 dropped by 0.8 per cent against a surge at direct premium of `52,876 crore in India for the year2.7 per cent growth witnessed in the previous year. 2011-12 as against `42,576 crore in 2010-11, registeringGlobally, life insurance premium accounted for 57 per a growth of 24.19 per cent as against an increase of 22.98cent of total insurance premium. This share is higher in per cent recorded in the previous year. The public sectoradvanced economies than in the emerging markets. insurers exhibited growth in 2011-12 at 21.50 per cent;During 2011, global life insurance premium dropped by as against the previous year’s growth rate of 21.84 per2.7 per cent to USD 2627 billion. The premium volume cent. The private sector general insurers registered afell in Western Europe, China and India, whereas, it rose growth of 28.06 per cent, which is higher than 24.67 perin Middle East and Latin America. cent achieved during the previous year.9. On the other hand, the premium in non-life insurance Penetration and Density:business grew by 1.9 per cent. Latin America reported 12. The potential and performance of the insurance sectorremarkably high growth. The Report mentions that the is universally assessed with reference to two parameters,year 2011 witnessed exceptionally high catastrophe viz., insurance penetration and insurance density. Theselosses in Japan, Australia, and the United States, while two are often used to determine the level of developmentEuropean countries generally enjoyed low catastrophe of the insurance sector in a country. Insurance penetrationclaims. In 2011, total economic losses to Society due to is defined as the ratio of premium underwritten in a givendisasters (both insured and uninsured) reached an year to the Gross Domestic Product (GDP). The insuranceestimated USD 370 billion, compared to USD 226 billion penetration in India, which surged consistently tillin 2010. The earthquake in Japan, the country’s worst on 2009-10, has slipped since 2010-11 on account ofrecord in terms of magnitude, alone accounted for 57 per slowdown in life insurance premium as compared to thecent of global economic losses. The insured losses from growth rate of the Indian economy. Life insurancenatural catastrophes appeared to be to the tune of penetration had consistently gone up from 2.15 per centUSD 110 billion. in 2001 to 4.60 in 2009, before slipping to 4.40 per cent 2
  25. 25. ANNUAL REPORT 2011-12in 2010 and further slipping to 3.40 per cent in 2011. insurance agents vide its circular dated 13th March, 2008,However, penetration of the non-life insurance sector in in addition to NGOs registered as societies that werethe country has remained near constant in the range of already permitted to act as agents under the Micro0.55-0.75 per cent over the last 10 years (0.71 per cent Insurance Regulations.in 2010 and 0.70 in 2011). 16. With a view to giving a further fillip to micro insurance13. Insurance density is defined as the ratio of premium business, the Authority has reviewed comprehensivelyunderwritten in a given year to the total population the extant regulatory architecture of the micro insurance(measured in USD for convenience of comparison). India business and issued an exposure draft on 26th July, 2012has reported consistent increase in insurance density proposing modifications to the existing IRDA (Microevery year since the sector was opened up for private Insurance) Regulations, 2005. The intent of the review iscompetition in the year 2000. However, for the first time to create an encouraging regulatory environment forin 2011, there was a fall in insurance density. The life promoting micro insurance business in the country.insurance density in India has gone up from USD 9.1 in Towards this end, the existing standalone delivery2001 to USD 49.0 in 2011 though it reached the peak of channel is proposed to be strengthened; encourageUSD 55.7 in 2010. The insurance density of non-life sector diversity in the products offered by insurance companiesreached the peak of USD 10.0 in 2011 from its level of under this stream; customize products to meet the needsUSD 2.4 in 2001. of the targeted sections of society; expand the coverageMicro insurance: to include micro, small and medium enterprises; and strengthen regulatory oversight.14. In an effort to ensure a balanced and speedyexpansion of insurance coverage in the country, the 17. In the life insurance business of the micro insurance,Authority has put in place the regulatory framework laying the Individual New Business premium in the year stooddown the obligations of insurers to the rural and social at `115.68 crore for 46.20 lakh new policies, the groupsectors. These regulations impose obligations on insurers business premium amounted to `109.82 crore coveringtowards the rural population - to sell a specified 1.02 crore of lives. LIC contributed most of the businesspercentage of policies and underwrite specified procured in this portfolio by garnering `106.03 crore ofpercentage of gross premium underwritten for life and individual premium from 38.26 lakh lives and `98.32 crorenon-life insurance companies respectively; and cover a of group premium underwriting 94.44 lakh lives.specified number of lives/assets belonging to people Revision in Motor Third Party Premium Rates:below poverty line or those pursuing certain traditionaloccupations. These obligations have been linked to the 18. Till the end of year 2006, the general insurancenumber of years of having been in operations of the business in India was tariff-based which was beingrespective insurer. The Government of India had set up administered by the erstwhile Tariff Advisory Committeea consulting group in 2003 to examine the existing (TAC). The TAC vide its circular no TAC/7/06 dated 4thinsurance schemes for the rural poor; and on the basis December 2006 decided that the rates, terms, conditionsof the group’s recommendations, the Authority issued & regulations applicable to fire, engineering, motor,IRDA (Micro insurance) Regulations, 2005. workmen’s compensation and other classes of business which were under tariffs would be withdrawn from15. Since notification of the Micro Insurance Regulations 1st January 2007. Subsequently, by virtue of power vestedin November, 2005, the Authority has been monitoring in the Authority under Section 14(2)(i) of the IRDA Act,the progress of micro insurance business and examining 1999, the Authority notified that the Tariff generalthe possibilities of offering a facilitative approach to the regulations (other than those relating to rating), terms,industry so that the micro insurance business could take conditions, clauses, warranties, policy and endorsementoff as a class of business to further extend insurance wordings applicable to respective policies would continuepenetration amongst various sections of the society. to be followed.Towards this direction, the Authority permitted Non-Governmental Organizations (NGOs) registered as Non 19. With effect from 1 st January, 2007, tariffs wereProfit Companies, including NGOs registered under withdrawn from the non-life insurance market. However,Section 25 of the Companies Act, 1956 to act as micro keeping in mind the mandatory nature of the Third Party 3
  26. 26. ANNUAL REPORT 2011-12Motor Insurance, the Authority decided to regulate the pegged to the cost inflation index, average claim amounts,premium rates in this segment with effect from 1st January, frequency and expenses involved in servicing the motor2007 vide circular no.034/IRDA/De-tariff/Dec-06 dated TP business.4th December, 2006 which was later modified vide circular Provisioning for Third Party Liability:dated 23rd January, 2007. The premium rates for motorTP were revised for the first time since 2002 after a 21. Authority during the financial year undertook Actuarialdetailed analysis of Motor TP rates and discussions with valuation of the Indian Motor Third Party Insurance Poolvarious apex associations of transporters. Further, to (IMTPIP) in order to assess adequacy of the reservesredress grievances of non-availability of Motor Third Party which are to be calculated as per the IRDA Regulations.Insurance, especially for commercial vehicles, the The actuarial report established that the ultimate lossAuthority in consultation with the Consultative Committee ratios are 172.3 per cent, 181.81 per cent and 194.15 perconstituted under Section 110G of the Insurance Act, cent for the years 2007-08, 2008-09 and 2009-101938 issued direction under Section 34 of the Insurance respectively. Against this estimate, the pool hadAct, 1938 vide circular no.035/Motor-TP/Dec-06 dated maintained reserves at 126 per cent for all these years4th December, 2006 and constituted the Indian Motor Third which was considered to be insufficient. Hence, theParty Insurance Pool (IMTPIP). Authority, under Section 14 of the IRDA Act, 1999 issued directions to the non-life insurers to maintain a solvency20. The motor TP premium rates which were set effective ratio of not less than 130 per cent for all lines of businessfrom 1st January, 2007 were not revised by the Authority as on 31st March, 2012 for the IMTPIP losses being valuedtill the end of year 2010-11. Due to the huge operating at an ultimate loss ratio of not less than 159 per cent forlosses in this segment over the years, all non-life all the years the pool was underwriting business. It alsoinsurance companies through the General Insurance directed the insurers not to declare dividends to theCouncil approached the Authority for upward revision of shareholders without the prior specific approval of thepremium rates for motor third party insurance cover. After Authority for any year wherein the solvency ratio isseveral rounds of deliberations with all stakeholders, and reported below 150 per cent. It also directed theconsiderable actuarial analysis, the IRDA issued an companies to submit a financial plan as approved by theExposure Draft in January 2011 with the proposed revised Board of Directors, to the Authority within a period of twopremium rates. The Authority also invited all the months, indicating a course of action proposed to correctstakeholders to provide their comments on the draft the deficiency for the said three year period up to Marchproposal. After receiving responses, the Authority then 2014.held a series of discussions with the Transporters’Associations and Insurers. Subsequently, the Authority 22. During the year, one of the significant measures takennotified the revised premium rates for motor third party by IRDA was to dismantle the IMTPIP. The Authorityinsurance cover vide notification dated 15th April, 2011. chose to prescribe the clean-cut method which is a well-The revised rates came into operation with effect from accepted principle of settling long-tail outstanding25th April, 2011. Though the insurance companies had liabilities. By this method the motor third party poolrequested for 85 per cent hike in the premium rates across liabilities could be determined and settled for all times onall segments of vehicles, after considering the concerns/ 31st March, 2012. This would thereby de-risk the generalrequests/suggestions of various stakeholders, the insurance industry. The long-tail outstanding liabilitiesAuthority decided to hike the premium rates only to the could be determined on actuarial principles. This is atune of 10 per cent in respect of two wheelers and private quick and efficient way of settling liabilities. On the othercars; and 68.5 per cent in respect of the commercial hand, the run-off method of settling claim would havevehicles. It was also notified that long intervals between meant that the actual and true liability would berate revision puts an avoidable strain on policyholders as ascertained and shared amongst all the players in thewell as on the insurance companies and therefore the proportion agreed at the beginning. However this wouldrates would be reviewed and adjusted annually in line have meant that the companies would have to keep theirwith the formula notified by the Authority. As per the books open till the settlement of last claim and so theprescriptions, the revision in the premium rates has been process could run through many years. 4
  27. 27. ANNUAL REPORT 2011-12Formation of Indian Motor Third Party Declined Risk worthiness of the policyholder, which shall have no conflictInsurance Pool: of interest with the policyholder.23. The Authority issued an Order in December 2011 and 26. No specific trade credit insurance policy can be soldcreated a declined risk pool for Liability Only Commercial to a single prospect. Trade credit insurance shall not offerVehicle Third Party Insurance with effect from 1st April, indemnity which is more than 80 per cent of the trade2012. The purpose of creating the Indian Motor Third receivables of the buyer or 90 per cent of the cost incurredParty Declined Risk Insurance Pool for Commercial by seller for previous year, whichever is lower. Thevehicles (Act only Insurance) is (a) Equitable and fair prerequisites for an insurance company to underwritesharing by all insurers; (b) No supply side constraints; (c) credit insurance include defined internal underwriting,Simple to administer; and (d) To bring claims management risk management and claims settlement guidelinesefficiency. The Pool shall apply to the commercial vehicles approved by the Board of Directors for writing this classfor standalone third party liability insurance. No of business. The regulatory guidelines also specifycomprehensive motor insurance policy or part thereof creation of premium, claims, Incurred But Not Reportedshall be ceded to the Pool. All existing general insurers (IBNR) and Incurred But Not Enough Reported (IBNER)and every newly registered general insurer shall reserves on actuarial basis. The guidelines also specifyautomatically be admitted as member of the Indian Motor that the insurer should have qualified, experienced andThird Party Declined Risk Insurance Pool (Declined Risk trained employees for dealing with trade credit insurance.Pool) and specialist insurers not licensed for motor The Authority has also specified additional reportinginsurance business shall not be members of the declined requirements to monitor the performance of this line ofrisk pool. GIC shall act as the pool administrator of the business. In this connection, the Authority has alsoDeclined Risk Pool. devised the reporting formats for capturing the credit24. The premium for declined risk pool shall be insurance business figures so as to have the informationdetermined in accordance with the actuarial principles at hand for further analysis of the business. Thesewhich shall be used by all the insurers and shall be notified reporting formats will help in taking further steps to ensureby the Authority from time to time. that the trade credit insurance serves its purpose in a more effective manner and its ambit is expanded toTrade Credit Insurance: ensure that credit insurance is accessible by a wider set25. The Authority issued trade credit insurance guidelines of buyers and sellers in the market.during 2010-11 in order to ensure orderly growth of this Reinsurance:sector on sound insurance principles. The salient featuresof the guidelines include definition of various terms 27. The Authority framed the General Insurance-associated with trade credit insurance and the scope of Reinsurance Regulations, 2000 and Life Insurance-cover under trade credit insurance policy. The guidelines Reinsurance Regulations, 2000 under powers granted tospecify basic requirements of a trade credit insurance it under Section 114A of the Insurance Act, 1938 andproduct which include that the policyholder should Sections 14 and 26 of the IRDA Act, 1999 on mattersnecessarily be a supplier of goods and services; and the pertaining to reinsurance. In view of the emerging marketcover should provide for indemnity for loss suffered due practices and trends, the Authority decided to review theto non-receipt of trade receivables. The guidelines also regulations. Accordingly, a Committee was constituted inspecify conditions on trade credit insurance from insurer’s February 2011 under the Chairmanship of Shri Yogeshperspective and policyholder perspective which include Lohia to formulate / amend the said regulations. Thethat this policy cannot be issued to banks/financiers/ Committee was also mandated to make recommendationslenders or where they are a beneficiary of the claim or in the light of the proposed amendments to the Insurancewhere the proceeds of the claim are assigned to them. A Act, 1938. The proposed amendments to the regulationsTrade Credit Insurance policy can be sold to a seller on include incorporating additional definitions / modifyinga whole turnover basis. There shall be pre-credit limits existing definitions, retentions being linked to quality offor each buyer fixed by the insurer and also an overall risk, expanding the scope of reinsurance programs tolimit under the policy. An insurer is required to appoint a include Alternative Risk transfer (ART) techniques, poolscredit management agency for assessing credit etc., prescribing additional disclosures, prescribing 5
  28. 28. ANNUAL REPORT 2011-12changes to the retention levels of 1999-2000, and 30. Section 35 of the Insurance Act, 1938 lays down theprescribing additional returns, to be filed with the Authority, prescriptions for amalgamation and transfer of lifefiling of insurer’s reinsurance treaty duly approved by the insurance business. The said section stipulates that noBoard, amongst others. life insurance business of an insurer shall be transferred or amalgamated with the life insurance business of anyHealth Insurance Regulations: other insurer except in accordance with a scheme28. Health Insurance continues to be one of the most prepared under the said section and approved by therapidly growing sectors in the Indian insurance industry. Authority. The Authority is working on laying down theThe growth of health insurance industry lies mainly in regulations for amalgamation and transfer of life insurancebetter customer orientation in terms of servicing the companies. The regulations propose to lay down thecustomers, standardization of procedures and definitions procedural framework for the same. The regulatoryacross the industry. Standardization provides simple yet framework for amalgamation and transfer of life insurance companies would be broadly on the same lines as in theinnovative products, better understanding of the terms case of non-life insurance companies already notified byby the public, less complaints and easy penetration in the the Authority. However, provisions of Sections 35 to 37market. Increased awareness about the benefits of Health of the Insurance Act, 1938 have been duly incorporatedinsurance, particularly in urban areas has occurred due in the proposed regulations. The Regulations propose ato rise in medical costs and also as a result of popular three stage process whereunder subsequent to the grantGovernment schemes. Simultaneously, this has led to of ‘in-principle’ approval, the applicant companies shallincrease in both number of complaints and queries under ensure compliance with various regulatory provisions asthe Right to Information Act (RTI) from the general public may be applicable to them. Thereafter, the Authority shallon Health insurance. This in turn has steered the regulator grant its final approval to the proposed scheme ofto take a number of corrective measures for strengthening Amalgamation upon confirmation that all regulatoryprotection of health insurance policyholders and for the compliances are in place.orderly growth of the sector. The Authority has also taken Issuance of Capital by Insurance Companies:up key initiatives including constitution of the HealthInsurance Forum, standardizing of claims formats and 31. The section 6AA of the Insurance Act, 1938 requiresother documents. With the objective to track the business that no promoter shall at any time hold more than twenty-progress of health insurance industry as also to regulate six per cent or such other percentage as may bethe health insurance industry in India, IRDA has prescribed, of the paid-up equity capital in an Indianformulated IRDA (Health Insurance) Regulations, 2012, insurance company after a period of ten years from the date of the commencement of the said business by suchwhich are presently in the advanced stage of discussions Indian insurance company or within such period as mayfor notification. be prescribed by the Central Government. The sectionAmalgamation of insurance companies: further provides that any excess over and above this percentage shall be divested by the promoters in a29. The Insurance Act, 1938 lays down the framework phased manner. Further, the manner and procedure forfor amalgamation of life insurance companies. Given that divesting the excess share capital is required to bea similar provisions are not available in case of non-life specified in the regulations made by the Authority. Toinsurance companies, this anomaly is proposed to be facilitate the process of divestment and laying down therectified in the Insurance Amendment Bill, 2008, to manner and procedure of such divestment, the Authorityaddress the statutory/regulatory gap with respect to the has notified the regulations on issuance of capital by lifenon-life insurance companies. Pending the amendment, insurance companies. The regulations lay down thethe Authority has laid down the framework for amalgamation manner and procedure for divestment of such excessof non-life insurance companies through notification of stake by the life insurance companies and the frameworkthe necessary regulations in this regard. While laying for eligibility of the applicant companies to raise fundsdown the regulatory framework, the Authority has been through public issues. The regulations also lay down theguided by the need for protection of the policyholders’ disclosures specific to the life insurance companies thatinterests. shall form part of the offer document. 6
  29. 29. ANNUAL REPORT 2011-1232. The regulations have been prepared based on a as the starting point to sensitise all insurers of the needconsultative process with the Securities and Exchange for moving towards the risk based capital regime fromBoard of India (SEBI). The sub-group of the SEBI the current fixed factor based formula approach.Committee on Disclosures and Accounting Standards Initiatives on Implementation of IFRS:(SCODA) had finalized the disclosure requirements withrespect to insurance companies based on the international 36. The Ministry of Corporate Affairs in its road map forbest practices. The report of the sub-group was adopted convergence of Indian Accounting Standards toby SCODA and then the Board of SEBI. These International Financial Reporting Standards (IFRS) hadrecommendations now form the basis for the disclosure specified that all insurance companies shall convert theirrequirements which have been stipulated in the opening balance sheet as at 1st April, 2012 in complianceregulations. with the standards (IFRS). This commitment was made by the Ministry of Corporate Affairs in consultation with33. The IRDA had notified the regulations for issuance the Authority for convergence to IFRS by the said date.of capital by life insurance companies on 14th November, The recommendation of the Authority was based on the2011. It is now proposed to issue similar regulations for premise that various standards issued by Internationalissuance of capital by non-life insurance companies laying Accounting Standard Board (IASB) particularly ondown the eligibility criteria for the applicant non-life insurance contracts and valuation of financial assetsinsurance company and minimum disclosure requirements (IFRS-9) would be finalised by IASB and would be in placeto be complied with in the offer document while going for well before the start of the financial year 2012-13.public listing. These requirements are in addition to thosestipulated by SEBI under the Issue of Capital and 37. The Authority is of the view that in the absence of aDisclosure Regulations, 2009. proper understanding of the implication of various issues, in the short and long run, it would be too premature toEconomic Capital: migrate to the IFRS standards as committed on an earlier34. The framework for assessment of Economic Capital occasion. IASB has not been able to adhere to the timeplays an important role in the entire risk management line of June, 2011 for finalisation of the Exposure Draftmechanism of insurance companies, which enables on Insurance Contracts. IASB is further going to comeinsurers to determine the right amount of capital to be out with a limited revised Exposure Draft on Insuranceallocated to each and every risk encountered by individual Contracts. Even after its eventual finalisation, IASBinsurers in carrying out the insurance business. Economic provides a time period of 18 months for its implementation.Capital reflects the individual company’s specific risk This means, the standard on Insurance Contracts will notprofile; and provides the framework for quantification of be implemented before March, 2014.optimum capital to be allocated against each risk based 38. In view of the above circumstances, the Authority hason company specific internal models. written to Ministry of Corporate Affairs to revisit the 201235. Keeping in view the importance and necessity of date of compliance with IFRS standards for the insuranceassessment of ‘Economic Capital’ in the insurance sector, sector, and defer it till such date as IASB comes out withthe Authority has mandated both life and non-life the revised standard on insurance contracts and valuationinsurance companies to submit the Economic Capital of financial assets. In the meantime, the Ministry ofreport annually. The computation is based on a one year Corporate Affairs in consultation with National Advisorytime horizon calibrated on a Value at Risk (VaR) level of Committee on Accounting Standards (NACAS) has99.50 per cent with risks categorized as Insurance, notified Converged Standards (IND-AS). However, theOperational, Market, Liquidity and Credit risks for life date of implementation of these standards is yet to beinsurers; and Underwriting, Market, Expense, Operational notified.and Liquidity risks, for non life insurers. Insurers are Insurance Information Bureau:allowed to reduce the total economic capital requirementto the extent of diversification effect which has been 39. Insurance Information Bureau (IIB) was formed incapped at 30 per cent of the Economic Capital for life October 2009 with the objective of providing efficientinsurers. This move of the Authority can be considered functioning of the insurance sector as well as the 7
  30. 30. ANNUAL REPORT 2011-12protection of the interests of the policyholders by providing industry and this facilitates both IRDA as well as thereliable, timely and accurate information. IIB aims to act insurance companies to carry out “root-cause” analysisas a single point of official reference for the entire of grievances to identify systemic and policy relatedinsurance industry data and also to ensure that data is issues. This has also enabled the Authority to identify theavailable to various shareholders including insurance concerns of policyholders and to initiate corrective action.companies, intermediaries, market players, researchers, The Authority is visiting/revisiting areas such as grouppolicyholders and general public for real time decision insurance, tying and bundling insurance with variousmaking. IIB collects transactional data (Motor, Health, goods and services, and the need to use plain languageFire, Marine and Engineering) from all insurers in online in insurance policies.mode. IIB publishes periodical reports on Motor, Health Initiatives towards policyholder protection:and other lines of business. The industry “aggregates”data published by IIB enables companies to set internal 41. With a view to protecting the interests of policyholders,benchmarks. In addition to periodical reports, IIB the Authority has taken a number of initiatives. Guidelinespublishes many ad-hoc reports from time to time. relating to distance marketing have been issued by IRDA which address challenges relating to mis-selling usingGrievance Redressal: distance marketing mode, a fallout of the advancement40. The Consumer Affairs Department of IRDA handles in technology. While the benefits of having new and fasterpolicyholder grievances, apart from carrying out channels need to be reaped, the loopholes created byawareness campaigns on insurance. The department them need plugging and this is precisely what thelooks into complaints from policyholders against life and guidelines are aimed at. IRDA has issued guidelines tonon-life insurance companies. Prospects and policyholders agents for ensuring persistency of life insurance policiesare advised to first file their complaints with the respective to ensure that servicing of policies by agents is sustained.insurance companies. If the insurance companies do not 42. Carrying forward its discussion paper on the proposedattend to the complaints received within the stipulated Guidelines on Prospect Product Matrix for the Lifeturnaround time of 15 days or in case the complainants Insurance industry, the Authority has put up the draft ofare not satisfied with the resolution, they may escalate the guidelines and the inputs received from thethe complaint to IRDA. The Authority facilitates the stakeholders are under the active examination of theprocess of resolution by taking up the matter with the Authority.insurance companies to strengthen the redressalframework. IRDA also examines the complaints from a 43. IRDA has taken several initiatives to protect theregulatory perspective and takes steps as deemed fit. interests of policyholders. Policyholders have the right toThe IRDA Grievance Call Centre (IGCC) receives and expect insurance companies to keep the promises theyregisters complaints through a toll free number. The IGCC make. When there is an error of omission or commissioninterfaces with the Integrated Grievance Management not consistent with expected or defined service levels,System (IGMS), the online system for grievance there is a deficiency, in service which results in givingmanagement that not only offers a gateway for scope for a grievance. Apart from providing a tool forcomplainants to register and track grievances but is also monitoring disposal of grievances by insurancea tool for the Authority to monitor disposal of grievances companies, the Integrated Grievance Managementby insurance companies. Further, the requirement of System (IGMS), enables IRDA to monitor market conductinsurance companies to have Board approved grievance issues and take necessary steps to ensure betterredressal policies; compliance requirements relating to protection of policyholders. The Authority has beenIRDA guidelines for grievance redressal and the carrying out a sustained campaign to create awarenessrequirement under the corporate governance guidelines about insurance grievance redressal systems, rights andto have a policyholder protection committee as a duties of policyholders, etc., through various media. Inmandatory committee have gone a long way in protecting an attempt to improve general public’s understanding ofthe interests of policyholders. In addition, the IGMS insurance which helps them in making informed choicesprovides a central repository of complaints across the about the use of insurance services, the Authority has 8

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