AN OVERVIEW OF IRDAI IN THE INSURANCE SECTOR OF INDIA AND ITS POSSIBLE FUTURE ADVANCEMENTS

INTRODUCTION

IRDAI stands for Insurance Regulatory & Development Authority of India which is a regulatory body formed under the IRDA Act of 1999. This statutory autonomous body comes within the Government of India’s Finance Ministry.  The mission of this body is “to protect the interest of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto”[1]. It aims at regulating the insurance sector in an orderly manner and promoting the growth of insurance industries in India. This regulatory body was established in response to the Malhotra Committee’s recommendations for the development and proper regulation of India’s insurance industry. In addition to this, the committee also recommended allowing the entry of private insurance firms and foreign promoters into the market. With this recommendation, an independent body – IRDAI was formed which replaced the Insurance Controller under the Insurance Act, 1938.

AIM & INTENT OF STUDY

This paper primarily focuses on getting an outline of the IRDAI in the insurance sector, its purpose of establishment, and its composition, powers and functions discharged by the authority. In addition to that, this paper faintly mentions the challenges faced in the current insurance sector along with possible advancements in future and recommendations.

PURPOSE & OBJECTIVE OF IRDAI

Insurance is a very old concept in Indian Society dating back to 1850 – when the first Insurance Company was set up in Kolkata[2]. With the blooming insurance business and growing competition in the sector, each company had its own set of rules and rates. To secure the interests of the consumers and to prevent any malpractices in the Insurance sector, the government constituted an autonomous independent authority. The IRDAI worked to achieve the following objectives:

• To safeguard the policyholders’ interest
• To bring systematic growth in the Insurance Industry
• To guarantee immediate settlement of claims
• To discontinue and prevent fraud in the Insurance sector & discourage other fraudulent activities
• To set an effective redressal machinery system to handle promptly handle grievances and complains
• To promote fairness and transparency in the market
• To enforce a high standard of integrity and financial soundness, and to take required steps if such standards are unmet
• To monitor and regular day-to-day activities in the insurance sector

COMPOSITION OF IRDAI

As per Section 4 of the IRDAI Act of 1999, the IRDAI should consist of 10 members in total (including a chairman, 5 full-time members and 4 part-time members)[3]. These appointed members have to function collectively as a team and should not work separately (like the Controller of Insurance). The tenure of the appointed chairman and other members is mentioned under Section 5 of the IRDAI Act of 1999. Under this, the IRDA’s chairman is appointed for a tenure of 5 years and can also be reappointed up to the age of 65. While the full-time members are reappointed till the age of 62 years and for a term of 5 years[4]. Presently, the IRDAI is chaired by Shri Debasish Panda[5] and its full-time members include Ms S N Rajeswari, Mr Parmod Arora, Mr K Ganesh, and Mr Rakesh Joshi[6].

ENTITIES REGULATED BY IRDAI

The following entities are regulated by the IRDAI:

• Life Insurance Co. – Includes both Private and Public Companies
• General Insurance Co. – Includes both Private and Public Companies
• Re-Insurance Companies
• Agency Channel
• Intermediaries – Including Agents, Brokers, Surveyors, Loss Assessors, etc.

The power to frame any regulation by notification is granted to IRDAI under Section 26(1) of the IRDAI Act, 1999 and as per Section 114A of the Insurance Act, 1938[7]. The Body also holds the right under Section 25 of the IRDAI Act, 1999 to establish an Insurance Advisory Committee comprising not more than 25 members. The Advisory Committee’s main purpose is to give suggestions to the IRDAI on matters regarding the creation of the regulations[8].

FUNCTIONS, POWERS & DUTIES

The duty of the IRDAI is specified under Section 14(1) of the IRDAI Act, 1999. It is the body’s responsibility to promote, control and manage the development of the insurance & reinsurance business[9]. The functions and powers of the IRDAI are also stated in Section 14(2) of the IRDAI Act, 1999[10]. The functions of the authority are as follows:

• The power to issue the registration certificate and update, amend, cancel or suspend such registration.
• To safeguard the policyholders’ interest in various affairs.
• To define the required qualifications and code of conduct of the agents & the intermediaries.
• To boost efficiency in the insurance sector.
• The power to manage professional organizations in the insurance business.
• To impose fees & other charges in executing the purpose of the Act.
• To demand details & information, observations, inspection, or directing investigations & inquiries of the organizations and the intermediaries of the insurance sector.
• To regulate and control prices, advantages and terms & conditions that are not regulated & controlled by the Tariff Advisory Committee and to supervise the functions of the Tariff Advisory Committee.
• To determine how the books of accounts are to be prepared & preserved and the statement of account to be provided by insurers & other middlemen.
• To manage investment funds
• To maintain a margin of insolvency.
• To adjudicate any dispute arising between the insurer and other intermediaries.
• To describe the percentage of general & life insurance to be carried out by the insurer in the rural sector[11].

POSSIBLE ADVANCEMENTS IN THE INSURANCE SECTOR & RECOMMENDATIONS

Current Challenges – The insurance sector has improvised in various ways with the establishment of the IRDAI. However, there remains a certain challenge which makes it difficult for the insurers to expand their operations in the sector. These challenges include – low insurance penetration, ignorance of the rural sectors, poor & unsatisfactory customer experience, lack of awareness and understanding, unaffordable pricing, product-centric marketing approach, etc.

Scope of Advancements and Recommendations – Even if there are multiple challenges faced by insurers, there is still scope for development and growth in this sector. These challenges can be defeated by adopting the following recommendations –

1. Personalized Customer Experience: Improving the customer experience with the use of advanced tools and technology. Focusing on making it more personalized for the customers with the use of AI and automated processes.
2. Digitalization: Digitalizing claims and other procedures, thereby, making it easier for the customer to access at any time and from anywhere. Introducing mobile-friendly websites and apps making them easily accessible to all, introducing the ‘buy online option.
3. Customer Awareness and Guidance: Educating and creating awareness, on insurance benefits and available schemes, with the use of networking and social media digital platforms. Also guiding the customers on ways to select an insurance product best suited for them.
4. Capturing the rural sector: Designing certain insurance products specifically for the rural population and providing them with maximum benefits at minimum prices. Certain discounts could also be provided to capture the untouched rural sector.
5. Customer-centric approach: Innovating and developing new products according to the needs of the customers. Focusing on making a shift from a product-centric to a customer-centric approach. Making simple insurance products to avoid unnecessary confusion and providing customers with a platform for product comparisons to help them make the right choice.

CONCLUSION

The role of the IRDAI is extremely important in the Insurance Industry in India. With the increased competition in the insurance sector, there is an even more need for its orderly functioning through the regulations and guidelines issued by the IRDAI. The authority also ensures the protection of the interests of the insurer and effectively adjudicates any disputes which may arise in the insurance business. IRDAI has also proved its effectiveness and efficiency in regulating the day-to-day functioning of the insurance industry by making the process a speedy and transparent one. However, there is still scope and ways through which the insurance sector can be improvised and developed.

Author(s) Name: Akshita Sharma (Bharati Vidyapeeth Institute of Management & Research (BVIMR), New Delhi)

References:

[1] Brendan Millan, ‘India’s Insurance Regulatory and Development Authority (IRDA) Finds “Massive Problems” with practices of SKS Microfinance’ (Microcapital, 27^th May 2012)
<https://www.microcapital.org/microcapital-brief-indias-insurance-regulatory-and-development-authority-irda-finds-massive-problems-with-practices-of-sks-microfinance/> accessed 8^th August 2022

[2] History of Insurance in India (IRDAI, 31^st July 2020)

<https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo4&mid=2> accessed 8^th Aug 2022

[3] The Insurance Regulatory and Development Authority Act, 1999, s 4

[4] The Insurance Regulatory and Development Authority Act, 1999, s 5

[5] Profile of Chairman (IRDAI, 14^th March 2022)

<https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=PRFCHR&mid=1.3.3> accessed 8^th Aug 2022

[6] Profile of Members (IRDAI, 22^nd March 2022) <https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=PRFMEM&mid=1.3.2> accessed 8^th Aug 2022

[7] The Insurance Act, 1938, s 114A

[8] The Insurance Regulatory and Development Authority Act, 1999, s 25

[9] The Insurance Regulatory and Development Authority Act, 1999, s 14(1)

[10] The Insurance Regulatory and Development Authority Act, 1999, s 14(2)

[11] Dr. Rupesh Roshan Singh, ‘Financial Institutions and Services’ (Lovely Professional University)
<http://ebooks.lpude.in/management/mba/term_3/DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES.pdf> accessed 8^th August 2022