IRDA project


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IRDA project

  3. 3. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA ACKNOWLEDGEMENT This project ―INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA”is a result of co-operation, hard work and good wishes of manypeople. I would like to thank our project guide Prof.MRUNMAYI THATTE for her involvement in the projectwork and timely assessment that provided me inspiration andvalued guidance throughout my study. I am highly indebted to Dr. Mrs. Shakuntala A. Singh,Principal K.G. Joshi College of Arts & N.G. Bedekar Collegeof Commerce, for giving us an opportunity to do a project. Iwould like to thank Prof. Mr.D.M. Murdeshwar , courseco-ordinator, for his friendly guidance and constantencouragement. I would like to express gratitude towards my parents,teachers of K.G. Joshi College of Arts & N.G. BedekarCollege of Commerce, the library staff and college friendswhose co-operation, encouragement and efforts have helped mein giving the final shape and structure to the project. My thanks and appreciations also go to my college matesand to all those people who have willingly helped me out withtheir abilities. 3
  5. 5. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA INTRODUCTION Insurance Regulatory and Development Authority (IRDA) isan autonomous apex statutory body which regulates and developsthe insuranceindustry in India. It was constituted by a Parliament of India actcalled Insurance Regulatory and Development Authority Act, 1999 and dulypassed by the Government of India.Head Insurance Regulatory and Development Authority,Office : 3rd Floor, Parisrama Bhavan, Basheer Bagh, HYDERABAD 500 004, Andhra Pradesh (INDIA ). In India, insurance has a deep-rooted history. It finds mention in the writingsof Manu ( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya( Arthasastra ). 1818 saw the advent of life insurance business in India with theestablishment of the Oriental Life Insurance Company in Calcutta. The BombayMutual (1871), Oriental (1874) and Empire of India (1897) were started in theBombay Residency. This era, however, was dominated by foreign insuranceoffices which did good business in India. The Indian Life Assurance CompaniesAct, 1912 was the first statutory measure to regulate life business. In 1928, theIndian Insurance Companies Act was enacted to enable the Government to collectstatistical information about both life and non-life business transacted in India byIndian and foreign insurers including provident insurance societies. The InsuranceAmendment Act of 1950 abolished Principal Agencies. An Ordinance was issuedon 19th January, 1956 nationalizing the Life Insurance sector and Life InsuranceCorporation came into existence in the same year. The LIC absorbed 154 Indian,16 non-Indian insurers as also 75 provident societies—245 Indian and foreigninsurers in all. The LIC had monopoly till the late 90s when the Insurance sectorwas reopened to the private sector. This were the stages before IRDA existed i.e.the journey of Insurance in India before IRDA came into existence. They stated that foreign companies be allowed to enter by floating Indiancompanies, preferably a joint venture with Indian partners. In 1993, theGovernment set up a committee under the chairmanship of RN Malhotra, formerGovernor of RBI, to propose recommendations for reforms in the insurance sector. 5
  6. 6. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA ESTABLISHMENT OF IRDA Following the recommendations of the Malhotra Committee report, in 1999,the Insurance Regulatory and Development Authority (IRDA) was constituted asan autonomous body to regulate and develop the insurance industry. The IRDAwas incorporated as a statutory body in April, 2000. The key objectives of theIRDA include promotion of competition so as to enhance customer satisfactionthrough increased consumer choice and lower premiums, while ensuring thefinancial security of the insurance market.The IRDA opened up the market in August 2000 with the invitation for applicationfor registrations. Foreign companies were allowed ownership of up to 26%. TheAuthority has the power to frame regulations under Section 114A of the InsuranceAct, 1938 and has from 2000 onwards framed various regulations ranging fromregistration of companies for carrying on insurance business to protection ofpolicyholders‘ interests. In December, 2000, the subsidiaries of the General Insurance Corporationof India were restructured as independent companiesand at the same time GIC was converted into a national re-insurer. Parliamentpassed a bill de-linking the four subsidiaries from GIC in July, 2002.Today there are 24 general insurance companies including the ECGC andAgriculture Insurance Corporation of India and 23 life insurance companiesoperating in the country. The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to thecountry‘s GDP. A well-developed and evolved insurance sector is a boon foreconomic development as it provides long- term funds for infrastructuredevelopment at the same time strengthening the risk taking ability of the country. 6
  7. 7. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIAMISSION STATEMENT OF IRDA  To protect the interest of and secure fair treatment to policyholders;  To bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy;  To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates; To ensure 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. Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA.. Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. Without prejudice to the generality of the provisions contained in sub- section (1), the powers and functions of the Authority shall include, - 7
  8. 8. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; Protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents Specifying the code of conduct for surveyors and loss assessors; Promoting efficiency in the conduct of insurance business; Promoting and regulating professional organizations connected with the insurance and re-insurance business; Levying fees and other charges for carrying out the purposes of this Act; Calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business; Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938); Specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries; Regulating investment of funds by insurance companies; Regulating maintenance of margin of solvency; Adjudication of disputes between insurers and intermediaries or insurance intermediaries; Supervising the functioning of the Tariff Advisory Committee; Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause (f); Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and Exercising such other powers as may be prescribed 8
  9. 9. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA STRUCTURE OF IRDAAs per the section 4 of IRDA Act 1999, Insurance Regulatory andDevelopment Authority (IRDA, which was constituted by an act ofparliament) specify the composition of AuthorityThe Authority is a ten member team consisting of (a) Chairman; (b) five whole-time members; (c) four part-time members, all appointed by the Government of India.The present structure is same as above with the following 9
  10. 10. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA This been structure of the committee, IRDA has been excelling in its management of the whole Insurance market. IRDA has been modifying its rules, regulations and policies for better development of Insurance in the Indian market. It publishes its changes reports in official gazettes and its own websites. Its websites are-,,, Through this websites they combine all their activities in a readable version. The IRDA performs various functions; legislates or imposes rules, regulations(laws); penalties; changes policies; this is showcased in above sites with A – Z details. Not only this but it also showcases reports of all Insurance companies in a statistical data form, warnings to insurance companies, public disclosures and the meetings/arrangements on various Insurance topics. The main part comes with its Journal which showcases Insurance issue topics, thinkings by various personalities on the topics, key areas where the Insurance companies should develop, research work, statistical data of the companies, points on the events organized by IRDA every month. Through this Journal, IRDA has been trying to develop Insurance in India. Agood example will be – It tried to aware companies to insure persons sufferingfrom AIDS, other topics include grievance management, policy serving as a FineArt, Policyholder Service Strategy, Need for Innovation(G V Rao argues that whilethere is a great deal of enthusiasm for filing products, it may not be backed by asufficient market research), consumer orientation, need of simplicity (Joydeep Royemphasizes that the biggest innovation waiting to happen will be to renderinsurance policies more comprehensible to the lay person. He further says that theindustry is in need of innovation in insurance products which will offer consumerssimple and easy-to-understand choices.), the concept IBNR, undoing uncertainty,vital points for success, concept of Nuclear Insurance. 10
  11. 11. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIAThe President’s speech on IRDA as during Finance Minister – Mr. PRANAB MUKHERJEEIt gives me great pleasure to be here today for the board meeting of InsuranceRegulatory Development Authority (IRDA). It is a matter of pride that thefinancial regulatory framework in India is evolving in a manner which isconducive to development of a robust financial sector, ensures the independence ofthe regulators and enables the sector to grow in a healthy manner in line with therequirements of a growing economy.We have travelled a long distance since the time Insurance was nationalized in1956. As we look back from the time the IRDA Act, 1999 was enacted by theParliament, it is heartening to note that the objectives for which the IRDA wascreated, have been largely achieved; and that the industry has been making steadyprogress. The growth in premium underwriting has witnessed strong CAGR of22.3% during the decade 2001-2011. Insurance penetration and density at 5.1% in2010 is a marked improvement from 2.71% in 2001.The public confidence in theindustry has improved and is positive. The future looks bright for the insurancesector.Asia excluding Japan will contribute nearly a quarter of global growth in next 5years and within Asia, India will be the fastest growing general insurance market,with an average expected growth of 15%. A welcome feature is that the share oflife insurance premium in the gross domestic savings with the household is about18% and is increasing over the years. There are strong underwriting growthdrivers. The demand for insurance products is likely to increase due to growth ofhousehold savings and purchasing power.The insurance sector has been an important contributor to the infrastructuredevelopment of the country. The total investments of the insurance industry ininfrastructure (as on 31st March, 2011) were to the tune of Rs 198,369 crore, ofwhich 78% has come from public sector insurance companies.I am happy to note that the Planning Commission and IRDA are working togetherto develop necessary framework for infrastructure financing. I am sure that IRDAwill ensure all what‘s required to ensure that the growth potential of the insurancesector is fully realized. 11
  12. 12. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIAThere are a few concerns that need to be addressed. Notwithstanding India‘s rapidgrowth in recent decades, it has largely remained an underinsured market withfinancial vulnerability across most of the income segments. The protection level, asmeasured by level of sum insured to Gross Domestic Product, at 55% is still low,pointing to the need for promoting long term savings and protection. Further, theinsurance market is structurally challenged in terms of profitability. The industryprofitability is driven by the investment income, with continued deterioration in thecore business economies. No Company in India has yet achieved a sustainablebalance between growth and profitability.The IRDA, through its regulations, has been ensuring policy holders‘ protection.Initiatives such as dematerialized accounts, declining risk pool for third partymotor pool, promotion of rural and social sector obligations, micro insurancepolicies, Institution of ombudsman and Integrated Grievance RedressalMechanism, to name a few have strengthened the insurance sector tremendously.These efforts have to continue in the near future. IRDA, I feel has a crucial role atthis moment to see that the sector develops in a healthy manner and the reach ofinsurance is maximized.There are two potential scenarios for the market profitability (i) more holisticcompetition with new business models (ii) aggressive price based competition. It isthe first option rather than aggressive competition in premium underwriting, thathas been the case so far. While de-tariffing has resulted in significant lowering ofpremiums for the consumers, the adverse impact is being felt on the insurancecompany‘s balance sheet. Underwriting performance is the biggest driver ofsuperior returns and is the key differentiator between the top performers and therest. To ensure prudent underwriting and curbing unhealthy and suicidalcompetition among the companies through undercutting premiums is somethingthat the Regulator will need to address suitably.The focus area for an insurance company should be to strive towards a properbusiness mix, distribution mix along with underwriting excellence, operationexcellence and claims excellence. It is imperative that (i) companies adopt thegranular growth approach and realign resources differentially by channel, productand geography, (ii) strengthen core distribution capabilities (iii) deeper retentionthrough Customers lifecycle management, (iv) invest in technical excellence and(v) driving comprehensive expenses management. It is time for the IRDA toexamine promotion of Digital channels and incentivize E-Governance and E-Policy so as to extend insurance coverage especially among the youth. 12
  13. 13. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIAIRDA has made progress in ensuring policyholder‘s protection. In continuing thiswork, IRDA should be expressively punitive to companies who resort to mis-selling or violate the initially agreed terms and conditions. I feel there is a case formoving to a ‗use and file‘ system for approving products or mix it with the existing‗file and use‘ policy, in order to speed up the product approval process which hasbeen the concern in the sector for some time. The regulatory environment shouldbe conducive to changes with regulator seeking broad guidelines as opposed tomicro management.Indian market, despite newer models of distribution is still largely dependent onthe agents and agency model of insurance. Can we think of a system where in themass market/OTC vanilla products with low ticket size are incentivized by havinga second level of agents with lesser entry restrictions? This will ensure wideningthe reach of Insurance especially in semi-urban and rural areas. The lowpenetration in general insurance is primarily because of low penetration in retailinsurance product segment.The efforts of IRDA in promoting rural and social sector insurance are steps in theright direction. In this regard I have instructed the LIC as well as four PublicSector Insurance Companies to have their presence in all district headquarters andupto the Tier IV cities as classified by Census. In addition, IRDA may think ofsetting up a pool which should be specifically meant to take up insurance literacyand awareness. This is one area I am concerned and concerted efforts are needed tomake people realize the importance of insurance especially as old-age security.IRDA should have a clear vision in insurance sector in India in this changing socialeconomic scenario and have a consistent long term policy framework so that theindustry can flourish.To conclude, I would emphasize that though the journey has begun well, it is onlyhalf-complete. It is now up-to both the Department of Financial Services andIRDA to work in a manner that insurance becomes an effective tool fortransforming the lives of individuals and the society at large. 13
  14. 14. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIAIRDA AS A COMPARISON WITH CHINA’S INSURANCE REGULATORY DEVELOPMENT AUTHORITY INDIA’S IRDA is an autonomous body formed under Indian parliament act All the documents and financial statements are kept in IRDA I R D A i s a n a u t o n o m o u s b o d y Thereis no such help give n by IRDA There is no compulsory insurance operation in India Main aim of IRDA is to protect the Interest of policyholder. 14
  15. 15. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA CHINA’SChina Insurance RegulatoryC o m m i s s i o n exercises vertically managementof all the agent offices stationed in various localities.I ts main aim is to manage the insurance market andmaintains the legal and stable operation of insuranceoperations in the country.I t a l s o u n d e r t a k e so t h e r j o b s d e l e g a t e db y the State CouncilIt examines and approvest h e s e t u p o f representative offices ofoverseas insurance institutions in China.It supervises policy-oriented insurance and compulsoryinsurance operations.The financial statements and documents that are collectedby the regulator are deposited in people‘s bank of china.China Insurance Regulatory Commission is a ministerialinstitution directly under the State Council. 15
  16. 16. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA FINDING’S ON THE BASES OF COMPARISON’S1. Despite opening up at roughly the same time in the late nineties, the insurancesector in China has raced ahead of India.2. Standard & Poors latest Asia Insurance review puts the Chinese market ahead of India due to more positive regulatory environment, higher asset quality and better performing companies. There are 79 insurance companies in China, compared to the 30 odd firms in India.3. Connie Wong, senior analyst, S&P, said, "Compared to China, although regulations have been proactive, they have been less effective in India, especially on issues like solvencyrequirements. As a result, insurance companies in China have better underwriting and capitalization than India.‖4. Low levels of market sophistication in the life industry and the impending de- tariffing in general insurance are the reasons for placing India in the high-risk category. Compared to this, though China is placed as high in terms of economic risk, it is placed at moderately high in terms of industry risk.5. Wong said apart from favorable norms on foreign investment, other positive factor for China was that it had progressed towards risk-based solvency requirement.6. While all the life insurance companies made losses in fiscal 2005, two companies inChina have reported profits. Indian sector reported much better investment yields ataround 6%. 16
  17. 17. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA QUESTIONNAIRE ASKED TO COMPANIES1. Does IRDA interfere in the adjudication of disputes in your company? Yes2. If yes are you satisfied with the solution/suggestions provided by IRDA? Yes3. Are you satisfied with the working of IRDA as a regulator of insurance sector in India? Yes4. Are you satisfied with the working of tariff advisory committee? Yes5. is IRDA providing proper training for intermediaries and agents? Yes6. Is IRDA successful in insuring orderly growth of insurance sector India? Yes The answers found were satisfactory, then what led to backing of Insurance in India was answered by some experts. They suggested the following – 1.IRDA should intervene in the commission system of insurance companies and agents should be given salaries with commission. 2. IRDA official should also visit local branches of companies. 3. IRDA should make strong regulations for the documentation of the policy. 17
  18. 18. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIAIt was found that – 1. In china there is policy oriented insurance and compulsory insurance operations. So that there is more insurance awareness in china than in India. In India IRDA can make such operation for insurance awareness. 2. China Insurance Regulatory Commission exercises vertically management of all the agent offices stationed in various localities. 3. C h i n a I n s u r a n c e R e g u l a t o r y C o m m i s s i o n a p p r o v e s t h e s e t u p o f r e p r e s e n t a t i v e offices of overseas insurance institutions in China. It can also apply to India. 4. IRDA staff needs training and skills upgrading. Because the insurance industry has been Government monopoly in the past, most of the staff, despite their background in the insurance industry or Government agencies, lacks sufficient supervision and regulatory experience and skills. 18
  19. 19. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA CONCLUSIONIRDA is important to keep a check on private insurance companies and growth of insurance sector.It has been successful in monitoring, nurturing and grooming insurance sector in India.If we want the company to work in a proper manner without any problem then we have to obey therules of IRDA.Without IRDA all companies are like a car without a driver who can make torun their Companies without any guidance. So a driver is there to control a car to show car theright direction and run without harming others. Like driverI R D A a l s o s h o w s a l l directions and rules to companies by which they have to run. A. I R D A i s s u c c e s s f u l i n o p e n i n g t h e i n s u r a n c e m a r k e t f o r p r i v a t e a n d f o r e i g n companies after liberalization, insuring the orderly growth of insurance sector and protecting the interest of policyholders. B. T h e e f f e c t i v e n e s s o f I R D A d e p e n d s s u b s t a n t i a l l y o n t h e a b i l i t y o f i t s h u m a n resources. C. Till now IRDA is successful in keeping a check on fraud companies entering into the insurance market. D. IRDA in these years is successful in earning the respect of a regulator in the hearts of managers of insurance companies. E. After the formation of ombudsmen committee by IRDA is successful in reducing the grievances of the policyholders. F. Indian insurance sector in spite being opened at the same time as of china is behind but it has big opportunity in future and IRDA is workin g p o s i t i v e l y t o w a r d s t h a t opportunity. 19
  20. 20. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA WEBLIOGRAPHY1. 1011. www.nasscom.in3. www.ibai.org4. www.thehindu.com5. www.irdaindia.org6. . 20