Indian Insurance Industry, Historical Framework of Insurance, Insurance Sector reforms in India, IRDA-Duties and Powers and Act 1999.

1. Risk Management and Insurance
18MBAFM402
Unit-3
Introduction to Insurance
Prof. Kiran Kumar M., East West Institute of Technology.
1
5/24/2020
Online Learning Session-1

2. Learning Outcomes
• Understanding of Indian Insurance Industry.
• Understanding about Historical Framework of Insurance.
• Learning about Insurance sector Reforms in India.
• Understanding about IRDA and Its Duties and Powers.
• Learning about IRDA Act-1999.
Prof. Kiran Kumar M., East West Institute of Technology.
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5/24/2020

3. Indian Insurance Industry
• The insurance industry of India consists of 57 insurance companies of which 24
are in life insurance business and 33 are non-life insurers.
• Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector
company. Apart from that, among the non-life insurers there are six public sector
insurers. In addition to these, there is sole national re-insurer, namely, General
Insurance Corporation of India (GIC Re).
• Other stakeholders in Indian Insurance market include agents (individual and
corporate), brokers, surveyors and third party administrators servicing health
insurance claims.
Prof. Kiran Kumar M., East West Institute of Technology.
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5/24/2020

4. Historical Framework of Insurance
• Insurance in India began in the year 1870; The first policy issued was in 1870 by
'The European & The Albert'
• The first Indian insurance company was 'Bombay Mutual Assurance Society Ltd.'
formed in 1870.
• As the ‘Swadeshi' movement was catching up many more Indian companies were
formed.
• The insurance companies were nationalized in 1956.
• There were 170 insurance companies and 75 provident fund securities which got
merged and on 1st of Sept 1956 Life Insurance Corporation of India was born.
Prof. Kiran Kumar M., East West Institute of Technology.
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5/24/2020

5. Historical Framework of Insurance Cont.
• In 1993, the Malhotra Committee, headed by the former RBI Governor R.
N. Malhotra was appointed. This committee submitted the report a year later
and recommended 'privatization'.
• The Insurance Regulatory & Development Authority (IRDA) thus came in
being & is now regulates all insurance business in India.
• Currently there are 24 players in India.
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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6. Insurance sector Reforms in India
• Insurance Sector Reforms In 1993, Malhotra Committee - headed by former Finance
Secretary & RBI Governor R.N. Malhotra.
• Objective - to create more efficient & competitive financial system. Key recommendations
of the reform;
• 1. Structure: A government stake 50% in insurance companies.
• 2. Competition: Private Companies with a minimum paid up capital of Rs.1bn should be
allowed to enter the sector.
• No Company should deal in both life and general insurance through a single entity.
• Foreign companies may be allowed to enter the industry in collaboration with the domestic
companies.
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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7. Insurance sector Reforms in India Cont.
• 3. Regulatory Body: The insurance act should be changed. An insurance
regulatory body should be set up.
• Controller of insurance-a part of the Finance Ministry – should be made
independent.
• 4. Investments: Mandatory Investments of LIC Life Fund in government
securities to be reduced from 75% to 50%.
• GIC and its subsidiaries are not to hold more than 5% in any company.
• 5. Customer Service: LIC should pay interest on delay on payment beyond 30
days. Insurance companies must be encouraged to set up unit link pension plans.
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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8. IRDA-Duties and Powers
Duties
• The Authority shall have the duty to regulate, promote and ensure orderly growth
of the Insurance business and reinsurance business subject to the provisions of any
other provisions of the act.
Powers & Functions to
• Promoting efficiency in the conduct of insurance business;
• Promoting and regulating professional organizations connected with the insurance
and reinsurance business
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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9. IRDA and Its Duties and Powers Cont.
• Levying fees and other charges on insurance companies, Agents, Insurance
Brokers, Surveyors and Third party Administrator
• To settle the disputes between insurers and intermediaries or insurance
intermediaries
• Supervising the functioning of the Tariff Advisory Committee.
• Regulating investment of funds by insurance companies.
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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10. IRDA Act-1999
• Insurance Regulatory and Development Authority (IRDA) is an autonomous apex statutory
body which regulates and develops the insurance industry in India.
• It was constituted by a Parliament of India act called Insurance Regulatory and
Development Authority Act, 1999 and duly passed by the Government of India.
• The agency operates from its headquarters at Hyderabad, Telangana where it shifted from
Delhi in 2001. It serves as an Authority to protect the interests of holders of insurance
policies, to regulate, promote and ensure orderly growth of the insurance industry and for
matters connected therewith.
• It plays a prominent role in regulating investment of funds by insurance companies. Further,
regulating maintenance of margin of solvency, adjudication of disputes between insurers
and intermediaries or insurance intermediaries.
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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11. IRDA Act-1999 Cont.
• The IRDA Act, 1999 was passed as per the major recommendation of the Malhotra
Committee report (7 Jan, 1994) which recommended establishment of an
independent regulatory authority for insurance sector in India
• As stated in the act mission of IRDA is "to protect the interests of the
policyholders, to regulate, promote and ensure orderly growth of the insurance
industry and for matters connected therewith or incidental thereto.“
• As per current guidelines issued by IRDA, Insurance Companies are not permitted
to invest in Indian Depository Receipts (IDR), while they are permitted to invest in
Equity shares/ Bonds/ Debentures.
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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12. Functions Of IRDA
The duties, powers and functions of IRDA are laid down in Section 14 of
IRDA Act 1999 are:
• 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.
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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13. Functions Of IRDA Cont.
• 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
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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14. Functions Of IRDA Cont.
• 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.
• 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.
• Regulating investment of funds by insurance companies.
5/24/2020Prof. Kiran Kumar M., East West Institute of Technology.
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15. Summary
• Understood the Indian Insurance Industry.
• Understood about Historical Framework of Insurance.
• Learnt about Insurance sector Reforms in India.
• Understood about IRDA and Its Duties and Powers.
• Learnt about IRDA Act-1999.
Prof. Kiran Kumar M., East West Institute of Technology.
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5/24/2020
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