Académique Documents
Professionnel Documents
Culture Documents
© 2013 Insurance Regulatory and Development Authority of India. All Right Reserved.
SUBMITTED TO:
DR. PARUL DESHWAL
(Associate Professor, HOD)
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STUDY IN THE FIELD OF INSURANCE
SPECIFICALLY RELATING TO INSURANCE
REGULATORY AND DEVELOPMENT AUTHORITY OF
INDIA
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ACKNOWLEDGEMENT
This satisfaction that accompanies the successful completion of this project would be in
complete without the mention of the people who made it possible, without whose constant
guidance and encouragement would have made efforts go in vain. We consider ourselves
privileged to express gratitude and respect towards all those who guided us through the
completion of this project.
We convey our gratitude to our assignment guide DR. Parul Deshwal (Associate
Professor), for providing encouragement, constant support and guidance which was of a
great help to complete this assignment.
We would like to thank our Parents for financing our study in this college as well as to
constantly keep on encouraging us to learn. There guidance and impact on our lives is
gratefully acknowledged.
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CERTIFICATE OF COMPLETION
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OBJECTIVE
The objective of the project is to study the role and impact of IRDAI (Insurance regulatory
department of India) in developing the scope of Insurance in India. This includes the study
of the powers and functions of the IRDA, growth of life and non-life insurers in India,
insurance penetration, density and policies issued.
METHODOLOGY
The present work entitled “Role of IRDA in Indian Insurance sector” is based on secondary
data. The sources of data were collected from annual reports of the IRDA, LIC, RBI
Bulletins, Economic surveys and other annual reports of the non-banking financial
institutions. The data collected for the study were processed and analysed by using suitable
statistical technique. The study covers the period from 2001-02 to 2016-2017.
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CHAPTER-1
(INTRODUCTION)
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INTRODUCTION
The IRDA Act, 1999 was passed as per the major recommendation of the Malhotra
Committee report (1994) which recommended the establishment of an independent regulatory
authority for insurance sector in India. Later, it was incorporated as a statutory body in April,
2000. The IRDA Act, 1999 also allows private players to enter the insurance sector in India
besides a maximum foreign equity of 26 per cent in a private insurance company having
operations in India. Considering some of the emerging requirements of the Indian insurance
industry, IRDA was amended in 2002. 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." Indian insurance industry
is regulated by the terms and conditions of the IRDA. Indian law has certain expectations
from the IRDA to perform in the Indian insurance industry. IRDA should protect the interest
of policyholders by ensuring fair treatment by the insurance companies. The growth of
insurance companies in a speedy and orderly manner should be taken care by the IRDA. It
should monitor and implement quality competence and fair dealing of the insurance
companies in the industry. IRDA should make sure that the insurers are providing precise and
correct information about the products offered by them for the insurance customers. IRDA
should also ensure speedy settlement of genuine claims of the policyholders and prevent
malpractices in the process of claims settlement. IRDA controls all the Insurance business in
India. They are setting structure and boundaries for the insurance companies to act upon.
Starting from licensing to approving the products, IRDA directs the companies in India. They
also protect customer interests in the country. 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. IRDA needs to remove this
disparity to open up investment opportunity by Insurance Companies and thereby also
enhance the liquidity of IDRs (Contributed by Sanjay Banka, FCA FCS) Hence, the present
work made an attempt to study the Role of IRDA in Indian Insurance sector.
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ABOUT
The Insurance Regulatory and Development Authority of India (IRDAI) is the controlling
body of the Indian insurance and reinsurance industries. It is the lawful authority which
regulates and promotes healthy insurance business in India. It works to protect the interest of
the policyholders and ensures orderly growth. It is also entitled to ensure speedy settlement of
claims while preventing fraud and abuse at the same time. The IRDAI maintain the orderly
conduct in the insurance part of the financial market by bringing transparency.
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● 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 the day-to-day working of the
industry consistent with the requirements of the prudential regulation.
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MISSION STATEMENT
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ROLE OF IRDAI
IN INSURANCE SECTOR
The IRDA Act, 1999 was passed as per the major recommendation of the Malhotra
Committee report (1994) which recommended the establishment of an independent regulatory
authority for insurance sector in India. Later, it was incorporated as a statutory body in April,
2000. The IRDA Act, 1999 also allows private players to enter the insurance sector in India
besides a maximum foreign equity of 26 per cent in a private insurance company having
operations in India. Considering some of the emerging requirements of the Indian insurance
industry, IRDA was amended in 2002. 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." Indian insurance industry
is regulated by the terms and conditions of the IRDA. Indian law has certain expectations
from the IRDA to perform in the Indian insurance industry. IRDA should protect the interest
of policyholders by ensuring fair treatment by the insurance companies. The growth of
insurance companies in a speedy and orderly manner should be taken care by the IRDA. It
should monito or and implement quality competence and fair dealing of the insurance
companies in the industry. IRDA should make sure that the insurers are providing precise and
correct information about the products offered by them for the insurance customers. IRDA
should also ensure speedy settlement of genuine claims of the policyholders and prevent
malpractices in the process of claims settlement. IRDA controls all the Insurance business in
India. They are setting structure and boundaries for the insurance companies to act upon.
Starting from licensing to approving the products, IRDA directs the companies in India. They
also protect customer interests in the country. 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. IRDA needs to remove this
disparity to open up investment opportunity by Insurance Companies and thereby also
enhance the liquidity of IDRs (Contributed by Sanjay Banka, FCA FCS) Hence, the present
work made an attempt to study the Role of IRDA in Indian Insurance sector.
© 2013 Insurance Regulatory and Development Authority of India. All Right Reserved.
POWERS TO REGULATION
● Section 26 (1) of IRDAI Act, 1999 and 114A of Insurance Act, 1938 vests power in the
Authority to frame regulations, by notification.
● Section 25 of IRDAI Act, 1999 lays down for establishment of Insurance Advisory
Committee consisting of not more than twenty-five members excluding the ex-officio
members. The Chairperson and the members of the Authority shall be the ex-officio
members of the Insurance Advisory Committee.
● The objects of the Insurance Advisory Committee shall be to advise the Authority on
matters relating to making of regulations under Section 26.
● Accordingly, the draft regulations are first placed in the meeting of Insurance Advisory
Committee and after obtaining the comments/recommendations of IAC, the draft
regulations are placed before the Authority for its approval.
● Every Regulation approved by the Authority is notified in the Gazette of India.
● Every Regulation so made is submitted to the Ministry for placing the same before the
Parliament.
● The Authority has issued regulations and circulars on various aspects of operations of
the Insurance companies and other entities covering.
● Protection of policyholders’ interest.
● Procedures for registration of insurers or licensing of intermediaries, agents, surveyors
and third-Party Administrators.
● Fit and proper assessment of the promoters and the management.
● Clearance /filing of products before being introduced in the market.
● Preparation of accounts and submission of accounts returns to the Authority.
● Actuarial valuation of the liabilities of life Insurance business and forms for filing of the
actuarial report.
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SCOPE OF IRDAI
The Insurance Regulatory and Development Authority has been authorized to register the
new insurance companies in India. The list of new insurance companies also includes the
collaborations of the renowned insurance companies overseas with the existing Indian
companies. The insurance companies in India are required to approach the Insurance
Regulatory and Development Authority for the purpose of renewal of the of the insurance
registration. The Insurance Regulatory and Development Authority are allowed to
withdraw registration of the companies and even cancel the registration of a company if
required. It is also authorized to modify the registration procedure for a company.
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CHAPTER – 2
(PROFILE)
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HISTORY
(Insurance)
In India, insurance has a deep-rooted history. It finds mention in the writings of Manu
( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings
talk in terms of pooling of resources that could be re-distributed in times of calamities such as
fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance.
Ancient Indian history has preserved the earliest traces of insurance in the form of marine
trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing
from other countries, England in particular.
1818 saw the advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In
1829, the Madras Equitable had begun transacting life insurance business in the Madras
Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades
of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India
(1897) were started in the Bombay Residency. This era, however, was dominated by foreign
insurance offices which did good business in India, namely Albert Life Assurance, Royal
Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard
competition from the foreign companies.
In 1914, the Government of India started publishing returns of Insurance Companies in India.
The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate
life business. In 1928, the Indian Insurance Companies Act was enacted to enable the
Government to collect statistical information about both life and non-life business transacted
in India by Indian and foreign insurers including provident insurance societies. In 1938, with
a view to protecting the interest of the Insurance public, the earlier legislation was
consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for
effective control over the activities of insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a
large number of insurance companies and the level of competition was high. There were also
allegations of unfair trade practices. The Government of India, therefore, decided to
nationalize insurance business.
An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and
Life Insurance Corporation came into existence in the same year. The LIC absorbed 154
Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign
insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was
reopened to the private sector.
The history of general insurance dates back to the Industrial Revolution in the west and the
consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a
legacy of British occupation. General Insurance in India has its roots in the establishment of
Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the
Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes
of general insurance business.
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1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton
of India. The General Insurance Council framed a code of conduct for ensuring fair conduct
and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set minimum solvency
margins. The Tariff Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general
insurance business was nationalized with effect from 1st January, 1973. 107 insurers were
amalgamated and grouped into four companies, namely National Insurance Company Ltd.,
the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United
India Insurance Company Ltd. The General Insurance Corporation of India was incorporated
as a company in 1971 and it commence business on January 1sst 1973.
This millennium has seen insurance come a full circle in a journey extending to nearly 200
years. The process of re-opening of the sector had begun in the early 1990s and the last
decade and more has seen it been opened up substantially. In 1993, the Government set up a
committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose
recommendations for reforms in the insurance sector.The objective was to complement the
reforms initiated in the financial sector. The committee submitted its report in 1994 wherein ,
among other things, it recommended that the private sector be permitted to enter the
insurance industry. They stated that foreign companies be allowed to enter by floating Indian
companies, preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999, the Insurance
Regulatory and Development Authority (IRDA) was constituted as an autonomous body to
regulate and develop the insurance industry. The IRDA was incorporated as a statutory
body in April, 2000. The key objectives of the IRDA include promotion of competition so
as to enhance customer satisfaction through increased consumer choice and lower
premiums, while ensuring the financial security of the insurance market.
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HISTORY
(IRDAI)
The IRDA opened up the market in August 2000 with the invitation for application for
registrations. Foreign companies were allowed ownership of up to 26%. The Authority has
the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from
2000 onwards framed various regulations ranging from registration of companies for carrying
on insurance business to protection of policyholders’ interests.
In December, 2000, the subsidiaries of the General Insurance Corporation of India were
restructured as independent companies and at the same time GIC was converted into a
national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July,
2002.
Today there are 31 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 24 life insurance companies operating 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 the country’s GDP. A
well-developed and evolved insurance sector is a boon for economic development as it
provides long- term funds for infrastructure development at the same time strengthening the
risk taking ability of the country.
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COMPOSITION OF IRDAI
As per Sec. 4 of IRDAI Act, 1999, the composition of the Authority is:
a) Chairman;
b) Five whole-time members;
c) Four part-time members,
(appointed by the Government of India)
The statutory advisory committee regulates the functioning of the Insurance Regulatory and
Development Authority. The organization has also setup the Insurance Law Reforms
Committee that includes prominent personalities like Dr K.C. Misra, Mr. T. Viswanathan, N.
Govardhan, and Mr. Liaquat Khan.
Mr. N. Rangachari, who is assisted by Mr. C.S. Rao, heads the Insurance Regulatory and
Development Authority. Mr. K. K. Srinivasa has chosen to become a non-life member of the
organization. The head office of the Insurance Regulatory and Development Authority is
located at -
Parisrama Bhavan,
Basheer Bagh, Hyderabad- 500004
Andhra Pradesh.
IRDAI’s Head Office is at Hyderabad. All the major activities of IRDAI including ensuring
financial stability of insurers and monitoring market conduct of various regulated entities is
carried out from the Head Office.
IRDAI’s Regional Offices are at New Delhi & Mumbai. The Regional Office, New Delhi
focuses on spreading consumer awareness and handling of Insurance grievances besides
providing required support for inspection of Insurance companies and other regulated entities
located in the Northern Region. This office is functionally responsible for licensing of
Surveyors and Loss Assessors. Regional Office at Mumbai handles similar activities, as in
Regional Office Delhi, pertaining to Western Region.
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FUNCTIONS AND DUTIES OF IRDAI
Section 14 of IRDAI Act, 1999 lays down the duties, powers and functions of
IRDAI
➢ 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, -
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CHAPTER -3
(DATA ANALYSIS)
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LIFE INSURANCE
Insurance cover that serves two major purposes: (1) to substitute for the insured's income if
he or she dies, and (2) to qualify the insured for favorable tax treatment. The policy holders
buy insurance cover from an insurance company, and pay specific periodic amounts
(premiums) for the term (duration or life) of the policy. If the insured dies before the this term
is completed, a guaranteed sum (the face amount of the policy) is paid to one or more named
beneficiaries. If the insured survives the term then, depending on the type of the policy, he or
she may receive the full or a part of the face amount of the policy.
For young families, a life insurance policy creates an 'instant estate' before they have enough
time to accumulate other assets. And it provides liquidity to the named beneficiary (or
beneficiaries) long before the deceased's estate matters (which often call for substantial
expense) are settled. Four main types of life insurance policies are (1) Term life insurance, (2)
Whole life insurance, (3) Endowment life policy, and (4) Annuity. Life insurance has its
origins in the old practice of saving money for one's own funeral costs, and is called also life
assurance.
REGULATIONS
A life insurer, for the purpose of these Regulations, shall invest and at all times keep
invested, the Investment Assets forming part of the Controlled Fund as under:
a. all funds (excluding Shareholders’ funds held beyond solvency margin, held in a
separate custody account) of Life insurance business and One Year Renewable
pure Group Term Assurance Business (OYRGTA), and non-unit reserves of all
categories of Unit linked life insurance business, as per Regulation 5
b. all funds of Pension, Annuity and Group Business [as defined under Regulation 2
(1)(e) of IRDAI (Actuarial Report and Abstract for life insurance business)
Regulations] as per Regulation 6; and
c. the unit reserves portion of all categories of Unit linked funds, as per Regulation 7
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GUIDELINES
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LIST OF INSURERS
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GENERAL INSURANCE
REGULATIONS
1. All rated debentures (including bonds) and other rated & secured debt instruments as per
Note appended to Regulations 4 to 9. Equity shares, preference shares and debt
instruments issued by All India Financial Institutions recognized as such by Reserve
Bank of India – investments shall be made in terms of investment policy guidelines,
benchmarks and exposure norms, limits approved by the Board of Directors of the
insurer.
2. Bonds or debentures issued by companies, rated not less than AA or its equivalent and A1
or equivalent ratings for short term bonds, debentures, certificate of deposits and
commercial papers by a credit rating agency, registered under SEBI (Credit Rating
Agencies) Regulations 1999
3. Subject to norms and limits approved by the Board of Directors of the insurer’s deposits
[including fixed deposits as per Regulation 3 (a) (8)] with banks (e.g. in current
account, call deposits, notice deposits, certificate of deposits etc.) included for the
time being in the Second Schedule to Reserve Bank of India Act, 1934 (2 of 1934)
and deposits with primary dealers duly recognized by Reserve Bank of India as such.
4. Collateralized Borrowing & Lending Obligations (CBLO) created by the Clearing
Corporation of India Ltd and recognized by the Reserve Bank of India and exposure
to Gilt, G Sec and liquid mutual fund forming part of Approved Investments as per
Mutual Fund Guidelines issued under these regulations and money market instrument
/ investment.
5. Asset Backed Securities with underlying Housing loans or having infrastructure assets as
underlying as defined under ‘infrastructure facility’ in Regulation 2 (h) as amended
from time to time.
6. Commercial papers issued by All India Financial Institutions recognized as such by
Reserve Bank of India having a credit rating of A1 by a credit rating agency
registered under SEBI (Credit Rating Agencies) Regulations 1999
7. Money Market instruments as defined in Regulation 2(j) of this Regulation, subject to
provisions of approved investments.
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Explanation: All conditions mentioned in the ‘note’ appended to Regulation 4 to 9 shall be
complied with.
GUIDELINES
Every application for registration of llO by the applicant shall be accompanied by,
The applicant shall not be eligible to make an application if its;
i. Application for registration as llO has been rejected by the Authority at any time
during the preceding two financial years as on the date of requisition for
registration application; or
ii. The Certificate of Registration as llO, has been cancelled or withdrawn by the
Authority in the preceding two financial years as on the date of application for
registration as llO.
vI
A certificate of approval from the appropriate authority as prescribed in the Special
Economic Zones Act, 2005 for conducting insurance business in the IFSC.
iii. A certified copy of the Certificate of lncorporation, Memorandum of Association and
Articles of Association of the applicant or a corresponding document which
details the manner of formation of Company and conduct of its business; Certified
copies of the published annual report of applicant for the last five years preceding
the year of filing of application for registration of llO.
v. Certified copy of approval from the board of directors of the applicant through a
resolution, in support of the commitment to set up such llO. the name, address,
occupation and contact details of the Directors, Chief Executive Officer of the
applicant and the person proposed to be in-charge of the operations in proposed
llO.
vi. A copy of the registration certificate issued by the Authority (in case of lndian insurers
or lndian reinsurers). Business Projections of the llO for the next 5 years;
ln addition to the above, applicant from a Foreign Country shall submit the following;
viii A copy of the Certificate of Registration issued by its home country Regulatory or
Supervisory Authority to transact insurance or reinsurance business, as the case
may be. ix. A statement indicating infusion of the assigned capital of lndian
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Rupees Ten Crore (Rs. 10 Crore) or more. x. A copy of the certificate from its
home country regulatory or supervisory Authority that, the applicant has
necessary permission to open an llO in SEZ, lndia. xi. A note on the regulatory
architecture of the country where the applicant is incorporated and licensed along
with its reporting and compliance structure; xii. a certificate from a practising
chartered accountant or a practising company secretary certifying that all the
requirements relating to processing fees, assigned capital, NOF and other
requirements have been complied with by the applicant.
● BUSINESS FIGURES
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LIST OF INSURERS
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SEGMENT INDUCED LIST
RE-INSURANCE
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Reinsurance is insurance that is purchased by an insurance company. In the classic case,
reinsurance allows insurance companies to remain solvent after major claims events, such as
major disasters like hurricanes and wildfires. In addition to its basic role in risk management,
reinsurance is sometimes used for tax mitigation and other reasons. The company that
purchases the reinsurance policy is called a "ceding company" or "cedent" or "cedant" under
most arrangements. The company issuing the reinsurance policy is referred simply as the
"reinsurer".
REGULATIONS
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GUIDELINES
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LIST OF INSURERS
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HEALTH INSURANCE
Health insurance is insurance that covers the whole or a part of the risk of a person incurring
medical expenses, spreading the risk over a large number of persons. By estimating the
overall risk of health care and health system expenses over the risk pool, an insurer can
develop a routine finance structure, such as a monthly premium or payroll tax, to provide
the money to pay for the health care benefits specified in the insurance agreement. The
benefit is administered by a central organization such as a government agency, private
business, or not-for-profit entity. According to the Health Insurance Association of
America, health insurance is defined as "coverage that provides for the payments of
benefits as a result of sickness or injury. It includes insurance for losses from accident,
medical expense, disability, or accidental death and dismemberment".
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INTERNATIONAL INFLUENCE OF IRDA
The Insurance Regulatory and Development Authority of India (IRDAI) was constituted as
an autonomous body to regulate and develop the Indian Insurance industry. The IRDA was
incorporated as a statutory body in April, 2000 following the opening of the Insurance sector
for private participation. The key objectives of the IRDA include promotion of Insurance
sector and also to enhance customer satisfaction through increased consumer choice, while
ensuring the financial security of the Insurance market.
A well-developed and evolved insurance sector is a boon for economic development as it
provides long-term funds for infrastructure development at the same time strengthening the
risk taking ability of the country.
The IRDAI has been extending support to the delegates of developing/ less developed
countries in the form of providing technical inputs based on their requirement, with an
objective to improve and enhance their knowledge on various aspects of Insurance.
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REGISTERED INSURERS IN INDIA
At end of September 2011, there are forty-nine insurance companies operating in India; of
which twenty-four are in the life insurance business and another twenty-four are in general
insurance business. In addition, GIC is the sole national re-insurer. Of the forty-nine
companies presently in operations, eight are in the public sector: two specialized insurers,
namely ECGC and AIC, one in life insurance, four in general insurance and one re-insurance.
The remaining forty one companies are in the private sector.
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GROWTH TRENDS
Growth trends in registered life in private and non life insurer have been increased over the
last one and half decade. The no. of registered life insurer increased from 4 to 24 including 1
public sector insurer i.e. LIC, but the increase in private sector insurer is more significant
during from 2000 to 2011. Non-life insurer has also increased to 25 (including 1
re-insurance) industries as in September 2011.
Most of the private players in the Indian insurance industry are a joint venture between a
dominant Indian company and foreign insurers. In a fragmented industry, new players are
gnawing away the market share of larger players. The existing smaller players have
aggressive plans for network expansion as their foreign partners are keen to capitalize on the
enormous potential that is latent in the Indian life insurance market.
However, it is concluded that since the establishment of the IRDA the no. of life and non-life
insurance insurers have registered and started their business in insurance arena. The details of
the registered insurers are given in the above table 1 and 2.
Table 3 vivid the growth of life offices both in public and private sector, it reveals that there
was a considerable decrease in the No. of life offices in the country. During under the study
period private insurer closed 593 offices, where as LIC established 121new offices. Hence,
the No. of life insurance offices declined from 12018 as on 31 March 2010 to 11546 as on 31
March 2011.However, it is concluded that there was a declined in the life offices in terms of
per cent when compared with the private insurer.
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INSURANCE PRICING
With reference to minutes of 97th meeting of the Board of the Authority, the following note
on Motor Third Party Insurance pricing for the year 2017-18 is being placed before the Board
in its 98th meeting for information of the Authority.
1. In terms of Section 14 (2) (I) of IRDA Act, 1999, IRDAI determines the premium
chargeable for Motor Third Party Insurance every year. This is done after going
through a process of first putting up a draft exposure note, calling for feedback of all
stakeholders within 15 days and after the same is examined, publication of the final
rates.
2. For the year 2017-18 too, IRDAI carried out the exercise of determining the premium
rates. IRDAI had appointed a Consultant Actuary to arrive at the premium rates based
on the premium and claims paid data provided by insurers to Insurance Information
Bureau (IIB). The consultant submitted his report along with the schedule of rates.
3. IRDAI published the exposure draft on 3rd March, 2017 and called for
feedback/comments within 15 days. After examining the feedback, the final rates
were published on 28th March, 2017.
5. The schedule of rates arrived at for 2017-18 clearly indicated that considerable
loading was required for goods carrying commercial vehicles (public carriers), in
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particular the heavier ones. In some cases, the loading indicated was even beyond
100%. However, keeping the interests of the transporters as well as public interest in
view, in the first instance itself IRDAI restricted the loading of premium in these
categories to 50% though much more was warranted. An exposure draft was then put
up giving the proposed rates.
7. In spite of this reduction, the transporters were not happy and wanted a meeting with
IRDAI, which the Ministry of Roads and Transport, Govt of India initiated.
Consequently, IRDAI met with a huge contingent of transporters on 3rd April, 2017 at
IRDAI office and heard out the representatives of the various associations. The three
major ones (apart from others including representatives of passenger buses) were All
India Motor Transport Congress (AIMTC), All India Confederation of Goods Owners
Association (ACOGOA) and South Zone Motor Transport Welfare Association
(SIMTA).Joint Secretary of Ministry of Roads and Transport, Govt of India was also
present at the meeting and he actively tried to facilitate the interaction.
8. Accordingly, a meeting was fixed for 7th April, 2017. Here again, Mirth took the
initiative and was involved actively in the interaction through the Commissioner of
Transport, Government of Andhra Pradesh. Apart from the Commissioner, five
representatives of two of the associations (AIMTC and SIMTA) met the concerned
officials of IRDAI. There were discussions on the data and the methodology used.
While all this was discussed at length and time and again, the representatives
mentioned that they are not really questioning what IRDAI has done, the main agenda
of the representatives seemed to be one of seeking a reduction in the loading from
40%.
9. On the face of it, there really was no case to reduce the loading because the exercise
in the first place was based on the presumption that insurers would make no profit or
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loss and the loading so arrived at had already been moderated twice by IRDAI, the
issue under discussion clearly was a point of negotiating for a better deal and really
had nothing to do with whether the premium determined was correct or not.
10. The representatives spoke of reduction in loading for a social cause and how
important a stakeholder they are in the scheme of the nation’s economy. We conveyed
that while we fully appreciated the role of the transporters and their contribution to the
economy, the moot point was that, IRDAI has a certain Mission—that of protecting
the interests of policyholders. Policyholders stand protected only if insurance
companies are in a position to pay their liabilities.
11. Be as this may, IRDAI again heard out the representatives on 7th April, 2017 patiently
and given various extraneous factors cited by the transporters, was willing to cap the
loading at 30% instead of at 40%. This reduction itself will hit the balance-sheet of
insurers badly as claims ratios will further escalate. IRDAI has the responsibility to
ensure the viability of insurers and cannot consider any loading lower than this. In
spite of this offer, the transporters were not willing to change their stand and were
seeking a lower loading factor (25%).
12. On 8th April, 2017 the discussions continued over telephone with the Commissioner of
Transport, Govt of AP playing the role of a facilitator and what finally transpired
through the teleconference was that the transporters’ representatives came up with a
loading factor of 27% instead of the 25% they were earlier bargaining for.
13. However, finally, the loading factor was sealed at 28%. Ultimately, IRDAI agreed to
this level of loading keeping in view the fact that the Motor Vehicles Act, 1988 is
likely to undergo certain amendments, which if implemented as proposed now may
see some impact on the claims experience because of faster claims settlement, greater
grounds of defences for the insurers and so on.
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INSURANCE PENETRATION AND DENSITY
IN INDIA
IRDA is playing a significant role while insurance penetration and density of insurance which
reflects the level of development of insurance sector in a country. The insurance penetration
is measured as the percentage of insurance premium to GDP. Similarly, insurance density is
calculated as the ratio of premium to population (per capita premium) India has achieved a
commendable performance in insurance density since insurance sector opened for private
players. Similarly insurance penetration, which surged consistently till 2009, slipped for the
first time in 2010 due to slower rate of growth in the life insurance premium as compared to
the rate of growth of the Indian economy.
Insurance density had gone up from US D 11.5 in 2001 to US D 64.4 in 2010.similarly
insurance penetrations had gone up from 2.71 per cent in 2oo1 to 5.10 per cent in 2010.
Within the insurance sector, the density of life insurance sector shows a predominant and
which was US D 9.1 against non-life insurance density US D 2.4 in 2001. The density of life
insurance was rose by US D 55.7 against the non-life density US D 4.40 in 2010.which
impetrates that the density of life Insurance is more than that of the non-life insurance. It is
concluded that growing population with mass poverty cannot afford the insurance.
On the other hand, within the insurance penetration, life insurance penetration was
significant than that of the non-life insurance, it is evident from the table 4 that the life
insurance penetration was consistently increased from 2.15 percent to 4.40 percent against to
the 0.56 percent to the o.71 percent during 2001 to 2010. However, this much of growth
happened in insurance sector due to the establishment of IRDA.
However, the cross country comparison of both life and non-life insurance penetration in
India is more progressive [4.4 per cent life and 0.7 per cent non-life] than in Bangladesh (0.7
per cent life 0.2 per cent non-life) Malaysia (3.2 per cent life 1.6 per cent non- life) Pakistan
(0.3 per cent life and non-life respectively) under Asian countries
. In contrast to this, non-life insurance in some developed countries is progressive one
compared to India and some other Asian underdeveloped/developing countries viz life and
non-life in Australia 3.1 per cent and 2.8 per cent ,in France 7.4 per cent and 3.1 per cent in
Germany 3.4 per cent and 3.7 per cent in Switzerland 5.5 per cent and 4.4 per cent in UK 9.5
per cent and 2.9 per cent in USA 3.5 per cent and 4.5 per cent in 2010.
Therefore,it is concluded that from the Swiss Re sigma volumes in respect of insurance
penetration that in most of the developed countries both life and non-life insurance
penetration is well developed, where as in most of the Asian countries the development of
non-life insurance penetration is not significantly developed. However, some progressive
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signs are visible in few Asian countries including India. The details are given in the table 5
below
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As far as international comparison of insurance density is concerned, India has strong plus
points over Asian countries. The life and non-life insurance density in India is US D 55.7 and
US D 8.7 respectively in 2010.Whereas the Bangladesh collected US D 4.4 and 1.4, Pakistan
US D 3.2 and 2.9, Srilanka US D 13.7 and 20.6.The developed countries like Australia, USA,
UK, Germany and other countries ware made hericulas task in collecting the premium from
both life and non-life business.
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GROWTH OF NEW POLICIES
The IRDA in insurance industry in India has taken impressive measures in recent years and
has recorded phenomenal growth complemented by country’s improving economic growth.
The Indian insurance industry is gaining in size and is in par with the Asian markets.
The business of insurance is related to the protection of the economic values of assets of the
policy holders. The no. of new policies issued by the life insurer in accordance with IRDA is
an index of growth of life insurer. The IRDA is looking at making insurance policies more
investor friendly by introducing tax exemptions on insurance policies.
While IRDA is still considering a proposal by LIC to link tax relief to the term of the life
insurance policy, reports suggest IRDA has backed a move to introduce separate tax
exemption limit on life insurance policies.
It is evident from the table that no. of policies issued by the Insurer in India has been
increased over the years from 253.71 lakhs to 481.52 lakhs. The performance of private
sector insurance in terms of policies issued is more significant than that of the LIC.
The effort made by the LIC in this regard has been a dismal when compared with the private
insurer. The invisible hand behind this growth is the IRDA. The share of life insurance
business was 58 per cent in total premium collection. While life insurance business collected
USD 2520 billion as premium, the same for non-life business was USD 1818 billion.
During 2010, the premium in world life insurance business increased by 3.2 per cent on the
back of double digit growth (i.e. 13 per cent) in life insurance premium collection in
emerging markets.
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D. Prudential approach: Reporting, Risk
monitoring and intervention
1. Reporting Requirements:
Insurers are required to submit various returns like financial statements on an annual basis
duly accompanied by the Auditors’ opinion statement on the annual accounts; reports of
valuation of assets, valuation of liabilities and solvency margin; actuarial report and abstract
and annual valuation returns giving information about the financial condition for life
Insurance business; Incurred But Not Reported claims in case of general Insurance business;
Reinsurance plans on an annual basis; and monthly statement on underwriting of large risks
in case of general Insurance companies; details of capital market exposure on a monthly
basis; Investment policy, Quarterly and annual returns on investments.
2. Solvency of Insurers:
In order to monitor and control solvency requirements, it has been made mandatory to the
insurers to submit solvency report on quarterly basis. In case of any deviation, the Supervisor
initiates necessary and suitable steps so as to ensure that the Insurer takes immediate
corrective action to restore the solvency position at the minimum statutory level.
Computation of solvency margin takes into account the inherent risk that respective line of
business poses to the insurer. Higher requirements are placed for risky lines of business
compared to others posing less risk to the insurers. Even though the insurers are required to
maintain a minimum solvency ratio of 150% at all times, the actual solvency margin
maintained by insurers are well above the required solvency margin leading to the solvency
margin ratio significantly higher than 150% on average.
Quarterly solvency ratio reports have to be submitted to the Supervisor, maintaining
minimum solvency ratio of 150%. This provides the regular a mechanism to monitor the
solvency position periodically over the financial year in order to ensure compliance with the
requirements and hence to initiate suitable action in the event of any early warning signal on
the Insurer’s financial condition.
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3. Asset-Liability Management:
Under Asset-Liability Management reporting, Insurer must provide the year wise projected
cash flows, in respect of both assets and liabilities. Insurers must maintain mismatching
reserves in case of any mismatch between assets and liabilities as a part of the global
reserves. Further, Life insurers are required to submit a report on sensitivity and scenario
testing exercise in the prescribed format. Non-life insurers must submit a report on ‘Financial
Condition’ covering the sensitivity analysis of the financial soundness in meeting the
policyholders’ liabilities.
The supervisor requires management of investments to be within the insurer’s own
organization. In order to ensure a minimum level of security of investments in line with
Insurance Act Provisions, the regulations prescribe certain percentages of the funds to be
invested in government securities and in approved securities. The regulatory framework lays
down the norms for the mix and diversification of investments in terms of Types of
Investment, Limits on exposure to Group Company, Insurer’s Promoter Group Company.
Investment Regulations lay down the framework for the management of investments. The
exposure limits are also prescribed in the Regulations. The Investment Regulations require a
proper methodology to be adopted by the insurer for matching of assets and liabilities.
4. Reinsurance:
Transfer of risk through Reinsurance is recognized only to the extent specified in the
regulations. Due safeguards are built in to ensure that adjustments are made to provide for
quality of assets held. No other risk transfer mechanism exists in the current system. In order
to minimize the counterparty risk, the re-insurers with whom business is placed must have the
minimum prescribed rating by an independent credit rating agency as specified in the
regulations.
Legislation has specified the minimum capital requirements for an Insurance company. It
further, prescribes that Insurance companies can capitalize their operations only through
ordinary shares which have a single face value.
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REINSURER
General Insurance Corporation of India (GIC of India) is the sole National Reinsurer,
providing Reinsurance to the Insurance companies in India. The Corporation’s Reinsurance
programme has been designed to meet the objectives of optimising the retention within the
country, ensuring adequate coverage for exposure and developing adequate capacities within
the domestic market.
It is also administering the Indian Motor Third Party Declined Risk Insurance Pool – a
multilateral Reinsurance arrangement in respect of specified commercial vehicles where the
policy issuing member insurers cede Insurance premium to the Declined Risk pool based on
the underwriting policy approved by IRDAI.
5. Corporate Governance:
In order to protect long- terms interests of policyholders, the IRDAI has outlined appropriate
governance practices applicable to Insurance companies for maintenance of solvency, sound
long-term investment policy and assumption of underwriting risks on a prudential basis from
time to time.
The IRDAI has issued comprehensive guidelines for adoption by Insurance companies on the
governance responsibilities of the Board in the management of the Insurance functions. These
guidelines are in addition to provisions of the Companies Act, 1956, Insurance Act, 1938 and
other applicable laws.
Corporate Governance Guidelines issued by IRDAI, requires insurers to have in place
requisite control functions. The oversight of the control functions is vested with the Boards of
the respective insurer. It lays down the structure, responsibilities and functions of Board of
Directors and the senior management of the companies.
Insurers are required to adopt sound prudent principles and practices for the governance of
the company and should have the ability to quickly address issues of non-compliance or weak
oversight and controls.
The Guidelines mandated the insurers to constitute various committees viz., Audit
Committee, Investment Committee, Risk Management Committee, Policyholder Protection
Committee and Asset-Liability Management Committee. These committees play a critical
role in strengthening the control environment in the company.
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6. Onsite Inspections:
The Authority has the power to call for any information from entities related to insurance
business – Insurance companies and the intermediaries, as may be required from time to time.
On site inspection is normally carried out on an annual basis which includes inspection of
corporate offices and branch offices of the companies. These inspections are conducted with
view to check compliance with the provisions of Insurance Act, Rules and regulations framed
thereunder.
The inspection may be comprehensive to cover all areas, or may be targeted on one, or a
combination of, key areas. When a market-wide event having an impact on the insurers
occurs, the Supervisor obtains relevant information from the insurers, monitors developments
and issues directions as it may consider necessary. Though there is no specific requirement,
events of importance trigger such action. The supervisor reviews the “internal controls and
checks” at the offices of Insurance companies, as part of on-site inspection.
Off-site Inspection:
The primary objective of off-site surveillance is to monitor the financial health of Insurance
companies, identifying companies which show financial deterioration and would be a source
for supervisory concerns. This acts as a trigger for timely remedial action.
The off-site inspection conducted by analysing periodic statements, returns, reports, policies
and compliance certificates mandated under the directions issued by the Authority from time
to time.
The periodicity of these filings is generally annual, half-yearly, quarterly and monthly and
are related to business performance, investment of funds, remuneration details, expenses of
management, business statistics, auditor certificates related to various compliance
requirements.
The statutory and the internal auditors are required to audit all the areas of functioning of the
Insurance companies. The particular area of focus is the preparation of accounts of the
company to reflect the true and fair position of the company as at the Balance Sheet date. The
auditors also examine compliance or otherwise with all statutory and regulatory requirements,
and in particular whether the Insurance company has been compliant with the various
directions issued by the supervisor.
In addition, the Authority relies upon the certifications which form part of the Management
Report. The Board is required to certify that the management has put in place an internal
audit system commensurate with the size and nature of its business and that it is operating
effectively.
All Insurance companies are required to publish financial results and other information in the
prescribed formats in newspapers and on their websites at periodic intervals.
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CHAPTER-6
(CONCLUSION)
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CONCLUSION
After going through all the research, reports and data available as by sources we
there by conclude that:
➢ The no. of policies issued by the Insurer in India has been increased over
the years from 253.71 lakhs to 481.52 lakhs. The performance of private
sector insurance in terms of policies issued is more significant than that of
the LIC. The invisible hand behind this growth is the IRDA .
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➢ Individual death policies and group policies have been claimed over the
years. Study data reveals that over 95 per cent of the total individual
death claims intimated have been paid by life insurers in each of the last
five years.
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BIBLOGRAPHY
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