The Insurance Regulatory and Development Authority (IRDAI), is a statutory body set up for:
· Protecting the interest of the Policyholder and
· Regulating, promoting and ensuring orderly growth of the insurance industry in India.
EVOLUTION OF IRDAI:
In the last decade of the 21st century, there was a wave of liberalization in all economic sectors of the country including the insurance sector. By that time, insurance was in the public sector and there was a recommendation for certain changes in the insurance sector.
Timeline for development of the IRDAI:
1991: Government of India began the economic reforms programme and financial sector reforms. It introduced the theory of ‘economic liberalization’, and put a closure to the theory of ‘license raj’, whereby the private companies were allowed to invest in India and hence India was turning its economy into privatization.
1993: In 1993 Committee on Reforms in the insurance sector, under the Chairmanship of Sri RN Malhotra, ex-governor of the Reserve Bank of India was set up to recommend reforms in the insurance sector.
1994: on 7th January 1994 the Malhotra Committee submitted its report to then the Union Finance Minister recommending changes including privatization. The Committee also recommended reforms after studying the insurance sector and taking inputs from all the stakeholders. The key recommendations made by the Malhotra Committee were:
· Private sector companies should be allowed to promote insurance companies.
· Foreign Promoters should also be allowed to invest in the Indian market.
· Government to vest its regulatory powers on an independent regulatory body which would be answerable to the Parliament.
1996: In 1996 there was the setting up of an interim body called the Insurance Regulatory Authority.
1999: In 1999 there was an enactment of the Insurance Regulatory and Development Authority (IRDAI) Act, 1999.
2000: Formation of the IRDAI as an autonomous Regulatory Authority which started functioning on and from 19th April 2000.
Since the year 2000, IRDAI has been serving as an independent regulatory authority for the insurance industry and to instil confidence among the policyholders in the financial viability of the insurance companies. IRDAI has been playing a pivotal role in the insurance sector with a fundamental commitment to discharge its mandate for orderly growth of the insurance sector.
IRDAI has played a very important role in the growth and development of the sector by protecting policyholder’s interests, registering and regulating insurance companies, licensing and establishing norms for insurance intermediaries, regulating and overseeing premium rates and terms of non-life insurance covers, specifying financial reporting norms, regulating investment of policyholder’s funds and ensuring the maintenance of solvency margin by insurance companies, ensuring insurance coverage in rural areas and of vulnerable section of society, promoting professional organizations connected with insurance and all other allied and development functions.
The research questions framed for this research are:
· What are the Composition, Tenure and procedure for Removal of the members of IRDAI and their duties, powers and functions as prescribed under the Act?
· What is the impact of IRDAI in different sectors of the insurance business in India?
· What are the comparisons and distinctions that can be drawn among IRDAI and other market regulators?
· Whether a Unified Financial Regulatory Agency is sufficient to control and regulate the entire Financial Sector?
The Insurance Regulatory and Development Authority (IRDAI) which has been serving as an independent regulatory authority for ensuring orderly growth of the insurance industry in India must sometimes act pro-actively like other market regulators such as SEBI to instil confidence among the policyholders in the financial viability of the insurance companies.
For this work, the researcher has adopted doctrinal research which is analytical. The researcher has referred to both primary sources and secondary sources like Statutes, Textbooks, Articles etc, for his research.
THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY:
Establishment of the Authority:
Section 3 of the Insurance Regulatory and Development Authority Act, 1999 states the Central Government may by notification appoint and establish an Authority to be called as the “Insurance Regulatory and Development Authority”. The Authority shall be body corporate having perpetual succession and a common seal with a power to acquire, hold and dispose of the property. It shall have the power to enter into a contract and can sue or be sued by the said name.
Composition of IRDAI:
The Authority shall consist of the following members:
· A chairperson,
· Not more than five whole-time members,
· Not more than four part-time members,
Appointed by the Central Government from amongst the person of ability, integrity and standing who has knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, or any other discipline which is considered to be useful for the membership of the Authority.
Tenure of Office:
The Chairperson and every other whole-time member shall hold office for a Tenure of five years from the date on which he enters the office, provided that no person shall hold office as a chairperson after he has attained the age of Sixty-five years. A part-time member shall hold office for a term not exceeding five years from the date on which he enters upon his office. However, the chairperson and the whole time members are eligible for re-appointment after their tenure has expired.
Removal from Office:
The Central Government may remove any member from office who:
· Has been adjudged as an insolvent;
· Has become physically or mentally incapable of acting as a member,
· Has become convicted of an offence which in the opinion of the Central Government involves moral turpitude;
· Has acquired any financial or other interest which is prejudicially likely to affect his function as a member;
· Has abused his position to render his continuation in office detrimental to the public interest.
Duties, Power and Function of the Authority:
Duties of the Authority:
Section 14(1) of the Insurance Development and Regulatory Authority Act, 1999 states the duties of the Regulatory Authority:
The Authority shall have the duty to regulate, promote and ensure orderly growth of insurance and re-insurance business within the territory of India.
Powers and Functions of the Authority:
Section 14(2) of the IRDAI Act, 1999 deals with the powers and functions of the Regulatory Authority
The powers and functions of the Regulatory Authority are as follows:-
· To issue a certificate of registration to the applicants, the authority also possesses the power to certify, modify renew and cancel such certificate of registration.
· To protect the interest of the policy-holders in matters concerning assignment of the policy, the nomination of the policy-holder, settlement of the insurance claim, surrender value of the policy and other terms and conditions of the insurance contract.
· To specify the code of conduct, requisite qualification and practical training required by an insurance intermediary and an agent.
· To specify the code of conduct for surveyors and loss-assessors.
· To promote efficiency in the conduct of the insurance business.
· To promote and regulate professional organizations connected with the insurance and reinsurance business.
· To levy fees and other charges for carrying out the purpose of this business.
· To call for information from respective undertakings and to conduct enquiries and investigation including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with this business.
· To specify the manner in which the books of account shall be maintained and the statement of account shall be rendered by insurers and other insurance intermediaries.
· To regulate investments of funds by the insurance companies.
· To regulate maintenance of margin of insolvency.
· To supervise the functioning of the Tariff Advisory Committee.
· To specify the percentage of premium income of the insurer to finance scheme for promoting and regulating professional organizations.
· To specify the percentage of life insurance and general insurance business to be undertaken by the insurer in the rural and the social sectors.
· To exercise other functions as may be prescribed.
IMPACT OF IRDAI ON DIFFERENT SECTORS
A statutory authority as an autonomous body was established under the provision of IRDAI by the Government of India to regulate, direct and control the insurance sector for ensuring the smooth functioning of the insurance sector in India. The authority is called ‘Insurance Regulatory and Development Authority which came into existence with effect from 1st April 2000. The IRDAI being a National agency of the Government of India, there are numerous arrangements for taking corrective steps to incorporate the emerging requirements of the Insurance sector in India.
The impact of IRDAI has been tremendous in the entire insurance arena. It has been cast with the duty to protect the interest of the policyholder so that they can get their due claim after the policy matures. The impact of IRDAI has been in several areas and manifold activities:
Impact over Policy Holders Interest:
The core objective of IRDAI is to protect the interest of the policy-holders. It tries to protect the interest of the policy-holders in several ways:
· IRDAI is not only emphasizing the introduction of different rules and regulations in the insurance sector but it is also trying to make activities of the insurance sectors transparent and taking steps to increase awareness of the society to the insurance scheme.
· IRDAI is attempting to make all the significant materials information associated with the insurance product available to the public and it has also made it mandatory for the insurers to disclose all secret information to the customers.
· One significant impact of IRDAI is impacted over the development of the insurance product. IRDAI has brought a revolution in direction of the development of the insurance product. The development of ULIPS is the outcome of the privatization of the insurance sector.
· The Insurance Regulatory and Development Authority (IRDAI) are responsible for addressing complaints filed by policy-holders, complaints against Life and Non-life insurers are handled separately. This cell plays a facilitative role by taking up complaints with the respective insurers. Policyholders who have complaints against insurers are required to first approach the Grievance Redressal cell of the concerned insurer. If a Policyholder after a certain period does not receive any response or is dissatisfied with the response of the company, the policyholder in such a case can address the Grievance cell of the IRDAI. Only cases of delay/non-response regarding matters relating to policies and claims are taken up by the cell with the insurer for speedy disposal. If the Grievance is not redressed, the insured are advised to approach the insurance Ombudsmen. Only the complaints from the policyholders or the claimants shall be entertained. The cell shall not entertain complaints written on behalf of the policyholders by advocates or agents or any third parties. In cases where the claimant is not satisfied with the decision of the ombudsmen, he can appeal can be filed in the appropriate judicial forum like Civil Courts or even in the Consumer Forum.
Impact over the Small and Marginal farmers and vulnerable sectors of the society:-
IRDAI has created a special category of insurance policies called the micro-insurance policy to promote insurance coverage of economically vulnerable sector of the society. A micro-insurance policy is either a general or life insurance policy with a sum assured of Rs 50,000 or less.
A general micro-insurance product is any:
· Health insurance contract
· Any contract covering belonging such as
· Hut, livestock, tools or instruments or any personal accident contract, can be on an individual or group basis.
A life micro-insurance product is:
· A term insurance contract with or without return of premium
· Any endowment insurance contract
· A health insurance contract
· They can be with or without an accident benefit rider and
· Either on an individual or group basis
There is flexibility in the regulations for insurers to offer composite covers or package products that includes life and general insurance covers together.
The IRDAI has also come up with certain regulations whereby the insurance companies must invest a certain percentage of their business in rural and among vulnerable sectors of the society. There are also two regulations under IRDAI that guide the insurers as to how to engage themselves in rural areas, Insurance Regulatory and Development Authority (Obligation of Insurers to Rural Social Sectors) Regulations, 2002 and the IRDAI (Micro-Insurance) Regulations, 2005.
Impact Over Competition in the insurance sector:
There was no competition in the insurance sector before the introduction of private players in the Life Insurance and General Insurance sectors. But, since the introduction of private players in the insurance sector the insurance business has become diversified, dynamic and competitive.
Impact over Expenses of the Insurers:
There was nothing like competition in the insurance market before the introduction of the private companies in the life insurance sector and as a result, there was no need to expend huge money over different activities related to the insurance except over some fixed activities. Thus, competition has brought a great change in the expenditure side of the insurers.
Impact Over the Applied Technology in the Insurance Sector:
The present age is the age of technology, and hence normal usage of technology in different activities of the insurance sector has become a very natural introduction.
Impact over several Insurers:
As a result of the introduction of the IRDAI in the insurance sector, private players got an opportunity to deal with insurance products in the Insurance markets. India is one of the largest markets in the world and the number of insured persons is very nominal. Thus, there are numerous opportunities for development for private insurers in the Indian market and hence the numbers of insurance companies are increasing day by day.
Impact over Organization Structure of Insurers:
After the enactment of IRDAI, there has been the growth of private players in the insurance sector and secondly, it has imposed certain restrictions and obligations over the insurers to make changes in their organizational structure to carry out their obligation.
In India, the number of people who have insurance cover is meagre in number and there is a huge potential for the growth of the insurance sector we can see how constantly the population of our country is growing and hence assuming that at least every citizen of the country needs a policy the future of insurance business is already bright. Hence keeping in mind all these activities IRDAI has created a new set of guidelines that are required for the growth of the insurance business.
COMPARISON OF IRDAI WITH OTHER MARKET REGULATORS
Financial Regulatory Bodies in India:
The financial system in India is regulated by independent regulators in the field of banking, insurance, capital market, commodities market and pension funds. However, the Government of our country has played a significant role in controlling the financial system in India and influences the roles of such regulators to some extent.
The following are the five major financial regulatory authorities in India:
A) Statutory Bodies via Parliamentary enactments:
· Reserve Bank of India: The RBI was established on April 1, 1935, following the provision of the Reserve Bank of India Act, 1934. It acts as an apex monetary authority of the country.
· Securities and Exchange Board of India: SEBI was first established in the year 1988 as a non-statutory body regulating the securities market. It became an autonomous body in 1992 and more powers were given to it through an Ordinance. Since then it regulates the market through its independent powers.
· Insurance Regulatory and Development Authority: IRDAI was established by the IRDAI Act, 1999 it started its function as an autonomous body on 19th April 2000. It is an autonomous body in the field of insurance and its fundamental objective is to protect the interest of the policy-holder and ensure orderly growth of the insurance business in the insurance industry.
B) Part of the Ministries of the Government of India:
Forward Market Commission India: FMC is a statutory body set up in the year 1953 under the Forward Contracts (Regulation) Act, 1952. The main purpose of this authority is that it deals with commodity training.
Pension Fund Regulatory and Development Authority: PFRDA was established by the Government of India on 23rd August 2003, the mandate of PFRDA is the development and regulation of the pension sector in India.
Before the 1990s the Indian economy was guided by a sole financial regulator Reserve Bank of India (RBI), but after the Harshad Shantilal Mehta Scam in 1992 where Mr Mehta was engaged in massive stock manipulation and he was convicted by the Bombay High Court and the Supreme Court of India for his part in a financial scandal valued at Rs.49.99 billion (the US $ 780 million). The scandal exposed the loopholes in the Bombay Stock Exchange (BSE) transaction system and a market regulator like SEBI was needed to cover up those loopholes by introducing certain Rules and Regulations.
Comparison of IRDAI with SEBI as a Regulator:
SEBI is considered to be more vibrant than IRDAI because it has a strong mandate to punish those companies and individuals behind those companies who do not follow the basic principle and norms of corporate governance.
IRDAI on the other hand in some instances have failed to live up to the expectations as was desired of it. Even after the establishment of IRDAI, there are instances of
· Manipulation of the policyholder
· Instances of fraud and cheating in respect of the policy-holder
· Insured are sometimes deprived of money after the policy matures.
· Insurance Company sometimes refuses to provide for the surrender value to the insured.
· The policy-holders are most of the time misguided by certain advertisements put up by the insurance company.
Impact of Market Regulators:
Impact of SEBI (case- study)
Sahara India Pariwar investors fraud case- on 26th February 2014, the Supreme Court of India ordered the arrest of Subrata Roy, Chairman & Founder of Sahara India Pariwar, for failing to appear with the Rs 24,000- crore deposits his Company has not refunded to its investors. He was eventually arrested on 28th February 2014 by Uttar Pradesh police on a Supreme Court’s warrant, in a dispute with market regulator SEBI. However, he was granted interim bail by the Supreme Court of India on the condition of depositing Rs 10,000 crore with market regulator SEBI. As of now Mr Roy is still in jail and is trying to raise money by selling some of his hotel properties.
Impact of IRDAI (case- study)
The Insurance Regulatory and Development Authority (IRDAI) has also slapped a fine of Rs 3.10 crore on Bajaj Allianz life for violating various norms including those of early death claims and group insurance.
Powers of Market Regulators:
Powers of SEBI:
The major role of SEBI as a market regulator is to protect the interest of the investors in securities and promote the development and regulations of the securities market. SEBI as an autonomous body that regulates the capital market has been awarded crucial powers like conducting an investigation and also the power to search and seize documents.
Under sec 11 C of the SEBI Act, 1992 where the Board has reasonable ground to believe that the transaction in securities are being held in a manner that is detrimental to the investors or the securities market and if any intermediary or any person associated with the securities market has violated any provision of the Act or regulations directed by the Board, the Board may at that time appoint any person as an investigating authority and direct investigation of such person.
The Act also provides a right to search and seize documents of any public listed and also a public company not being the intermediaries as specified under section 12. The investigating authority in such a case can search and seize with the prior approval of the Magistrate.
Powers of IRDAI:
IRDAI is an autonomous body established for the regulation of the insurance business in India. The Act has given IRDAI with autonomous powers to issue a certificate of registration to the insurance company, it has also prescribed powers to protect the interest of the policy-holders regarding matters like nomination and assignment of the policy, it has also provided certain code of conduct for insurance agents and intermediaries, it has also being given the power to ascertain the certain percentage of life insurance and general insurance business in the rural and social sectors. But if seen closely it does not have the power to conduct search and seizure-like SEBI, hence certain powers must be provided to IRDAI so that it has the actual force to prevent misuse and manipulation of the policyholder.
IS A UNIFIED FINANCIAL REGULATOR A GOOD IDEA
The Financial Sector Legislative Reforms Commission (FSLRC) was appointed under the Chairmanship of Sri B.N. Shri Krishna published its report in the year 2013 opting for a single or super-regulator to replace those in equity, commodities, pensions and insurance sectors. The idea is to move from Sectoral regulations to a broader framework of rules and principles. There is a proposal that all the sectoral regulators like SEBI, FMC, IRDAI and PFRDA would be clubbed and there shall be a creation of super financial market regulators.
A multiplicity of regulatory agencies has created scope for regulatory arbitrage, apart from making it difficult to protect the consumer’s interest. It has been observed that certain market players try to take advantage of multiple regulators by operating in grey areas that are not covered by regulations.
Hence, the Committee has proposed a Unified Financial Regulatory Authority (UFRA) which will subsume SEBI, IRDAI, PFRDA and FMC. With the banks being unique and specialized financial entities, RBI has been kept out of the purview of UFRA. While the Reserve Bank of India has evolved as a matured regulator the same cannot be said about the other regulatory agencies. 
The FSLRC has pointed out several benefits of the proposed UFRA, the benefits are as follows:-
Firstly, by dealing with all financial transactions other than banking and payments it would help in realizing regulatory economies of scale and scope. 
Secondly, it would promote efficiency, by providing a common platform, as proposed, for organized financial trading in instruments, spanning equities, bonds, currencies and commodity futures.
Thirdly, where there is the existence of multiple regulators there is a scope for regulatory arbitrage and apart from that there is also the difficulty in protecting the interest of the consumers.
Fourthly, unification of regulation and supervision of financial firms such as mutual funds and insurance companies would yield consistency in consumer protection and micro-prudential regulations.
Finally, the need for a UFRA has been felt in the context of confusion over the jurisdiction of different regulatory agencies over different financial products. The spat between IRDAI and SEBI on the jurisdiction over ULIP is a case at that point.
The dispute between SEBI and IRDAI had raised a hue and cry not only in the Government but to all investors. The episode on Unit-linked Insurance Plans (ULIPS) started on 9th April 2010 when SEBI issued a notice under section 11 of the Act to 14 insurance companies like ING Vysya, Kotak Mahindra, Max New Life, Met Life India, Tata AIG Life banning them from selling ULIPS. ULIPS is a combination of investment in securities with the benefit of life insurance. It constitutes 90% of the portfolios of the 14 insurance companies. Monthly, the premium collected from the ULIPS scheme is around Rs 5000 crores to 7000 crores, the IRDAI chairman reacted to the ban that was imposed by the SEBI, stating that such a ban would disturb the financial stability of those insurance companies. IRDAI has also refused to buy the argument given by SEBI that ULIPS have an element of investment which is the domain of SEBI and hence SEBI has no right to interfere with the policies which are purely insurance-based. The regulators must understand that the policies are finally related to the public and hence because of their differences the interests of the consumers cannot be overlooked. It is therefore important for the Government to work out a method for a win-win situation for the regulators and the policyholders. Unless the interest of the policy-holders is protected there is bound to be turmoil in the financial market. Hence it is significant that the Government should ensure clarity in the Acts governing the activities of the two regulators.
The UFRA is not proposed as a standalone creation, but as a part of an entirely new edifice where consumer protection has received due emphasis. The provision to create a Financial Redressal Agency (FRA) with a presence in every district, where consumers of all financial products would be able to submit complaints, is a required intervention. Consumer’s interest deserves special attention as problems of moral hazards are acute in the financial industry. The desirability of the proposed UFRA should be seen along with the role of other financial regulatory agencies which address the resolution of financial disputes and appeals against regulators, apart from protecting the consumer’s interest.
CONCLUSION AND SUGGESTIONS
The Insurance Regulatory and Development Authority which is a sole regulator in the insurance sector in India had been given the powers and duties to look after the insurance business in the country. Its main aim is to protect the interest of the policy-holders and provided them with adequate justice if they are denied so.
However, the researcher can conclude that even though the IRDAI Act, 1999 has given the authority some key powers like registration, modification and even cancellation of the certificate of registration, but still there are areas where IRDAI is lagging much behind in comparison to other market regulators like SEBI.
The SEBI Act, 1992 provides that the Board has the power to appoint any investigating authority for search and seizure and can directly take steps if there is any violation of key regulations, such kind of powers are missing under the IRDAI Act, whereby there are no expressive provisions regarding investigation, search and seizure are mentioned.
If we carefully look at the composition of IRDAI we can see that the chairman and other whole time-members are appointed by the Central Government if such person has any knowledge and ability regarding subjects like Life insurance, General insurance and actuarial science, whereas if we look at the composition of SEBI, we can that the Board comprise of a chairperson and two members who are amongst officials of Ministry of the Central Government dealing with the administration of the Companies Act and Finance and one member who is a member of the Reserve Bank. So in this case we can conclude that in the composition of IRDAI there must also be members who are connected with the Ministry of Central Government.
The Financial Sector Legislative Reforms Commission (FSLRC) has stated that there should be the creation of a supermarket regulator, which shall subsume the functions of all other financial regulators like SEBI, FMC, IRDAI, PFRDA, which would help to protect the interest of the consumers on a wider basis. But having such a Supreme market regulator can also be a bit troublesome. Problems like Regulatory monopoly, lack of required skillsets for a particular organization, lack of internal consistency and many other problems can arise, hence decisions would have to be taken very carefully.
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Dr. Bhawana Rewadikar & Sumit Soni, “The Impact of Insurance Regulatory and Development Authority [IRDAI]