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IRDA Act: As I Understand It

INTRODUCTION

The Insurance Regulatory and Development Authority Act, 1999 is an Act to provide for the
establishment of an authority to protect the interests of holders of insurance policies, to
regulate, promote and ensure orderly growth of an insurance industry and for matters
connected therewith or incidental thereto and further to amend the Insurance Act, 1938,
the Life Insurance Corporation Act, 1956 and the General Insurance Business
(Nationalization) Act, 1972.

The Parliament ratified the Insurance Regulatory and Development Authority Bill, 1999 on
7-12-1999, thus stigmatizing the monopoly of the Life Insurance Corporation and General
Insurance Corporation over the insurance sector. The Bill, adopted by the Lok Sabha on
December 2, was passed in the Rajya Sabha on 7-12-1999.

The Insurance Regulatory & Development Authority Act, 1999 seeks to open up the
insurance sector for private companies with a foreign equity of 26 per cent. It is also
aimed at ending the monopoly of the Life Insurance Corporation (LIC) and General
Insurance Corporation (GIC) in the insurance sector of the country.

This comprehensive write-up comprising the Insurance Regulatory and Development


Authority Act, 1999 with short comments and Regulations relating thereto would serve the
purpose of a ready reference on the subject.

ANALYSIS
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IRDA Act: As I Understand It

An Act to provide for the establishment of 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 or incidental thereto and further to amend
the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General
Insurance Business (Nationalisation) Act, 1972.
BE it enacted by Parliament in the Fiftieth Year of the Republic of India as follows:--

Short title, extent and commencement

(1) This Act may be called the Insurance Regulatory and Development Authority Act, 1999.
(2) It extends to the whole of India.
(3) It shall come into force on such date as the Central Government may, by notification in
the Official Gazette, appoint:
PROVIDED that different dates may be appointed for different provisions of this Act and
any reference in any such provision to the commencement of this Act shall be construed as
a reference to the coming into force of that provision.

Definitions

In this Act, unless the context otherwise requires,--


(a) "appointed day" means the date on which the Authority is established under sub-
section (1) of section 3;
(b) "Authority" means the Insurance Regulatory and Development Authority established
under sub-section (1) of section 3;
(c) "Chairperson" means the Chairperson of the Authority;
(d) "Fund" means the Insurance Regulatory and Development Authority Fund
constituted under sub-section (1) of section 16;
(e) "Interim Insurance Regulatory Authority" means the Insurance Regulatory Authority
set up by the Central Government through Resolution No. 17(2)/94-Ins.-V, dated
the 23rd January, 1996;
(f) "intermediary or insurance intermediary" includes insurance brokers, re-insurance
brokers, insurance consultants, surveyors and loss assessors;
(g) "member" means a whole-time or a part-time member of the Authority and includes
the Chairperson;
(h) "notification" means a notification published in the Official Gazette;
(i) "prescribed" means prescribed by rules made under this Act;
(j) "regulations" means the regulations made by the Authority.
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IRDA Act: As I Understand It

COMMENTS: Appointed day - Appointed day is the date as the Central Government may,
by notification, shall appoint an authority to be called "the Insurance Regulatory and
Development Authority".

Insurance - The act of providing against a possible loss, by entering into a contract with
one who is willing to give assurance--that is to bind himself to make good such loss should
it occur. In this contract the chances of benefit are equal to the insurer and the insured.
The first actually pays a certain sum and the latter undertakes to pay a larger if an accident
should happen. The one renders his property secure; the other receives money with the
probability that it is a clear gain. The instrument by which he contract is made is called a
policy, the stipulated consideration a premium.--Wharton's Law Lexicon

Insurer -`Insurer' means--

(a) any individual or unincorporated body of individuals or body corporate incorporated


under the law of any country other than India, carrying on insurance business (not being a
person specified in sub-cl. (c) of this clause) which--

(i) carries on that business in India, or

(ii) has his or its principal place of business or is domiciled in India, or

(iii) with the object of obtaining insurance business employs a representative or maintains
a place of business in India;

(b) any body corporate (not being a person specified in sub-cl. (c) of this clause) carrying
on the business of insurance, which is a body corporate incorporated under any law for the
time being in force in India; or stands to such body corporate in the relation of a subsidiary
company with the meaning of the Indian Companies Act, 1913, as defined by sub-s. (2) of
s. 2 of that Act; and

(c) any person who in India has a standing contract with under-writers who are members
of the Society of Lloyd's whereby such person is authorized within the terms of such
contract to issue protection notes, cover notes or other documents granting insurance
cover to others on behalf of the underwriters, but does not include a principal agent,
special agent or an insurance agent or a provident society as defined in Part III.--
Insurance Act, 1938, s. 2(9)

`Insurer' means an insurer as defined in the Insurance Act who carries on life insurance
business in India and includes the government and a provident society as defined in s. 65
of the Insurance Act.--Life Insurance Corporation Act, 1956, s. 2(6)

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IRDA Act: As I Understand It

Insurance company - A company which carries on the business of insurance either solely or
in conjunction with any other business or businesses.--Companies Act, 1956, s. 2(21)

Insurance company means any insurer being a company, association or partnership which
may be wound up under the Indian Companies Act, 1913, or to which the Indian
Partnership Act, 1932, applies.--Insurance Act 1938, s. 2(8)

Insurance policy - The word `policy' of insurance' in s. 6 of the Married Women's Property
Act, 1874, means a document or documents evidencing the contract between the parties.
If the document known as the policy stands alone and does not incorporate in it any other
document, only that document can be looked at, but if it does expressly incorporate
another document, the document must be deemed to be part of the policy.

Insurance agent - An insurance agent licensed under s. 32, who receives or agrees to
receive payment by way of commission or other remuneration in consideration of his
soliciting or procuring insurance business (including business relating to the continuance,
renewal or revival of policies of insurance).--Insurance Act, 1938, s. 2(10)

Fund - Under s. 16, there shall be constituted a fund to be called "the Insurance Regulatory
and Development Authority Fund" and there shall be credited thereto--

(a) all government grants, fees and charges received by the authority;

(b) all sums received by the authority from such other source as may be decided upon by
the Central Government;

(c) the percentage of prescribed premium income received from the insurer.

The Fund shall be applied for meeting--

(a) the salaries, allowances and other remuneration of the members, officers and other
employees of the authority;

(b) the other expenses of the authority in connection with the discharge of its functions
and for the purposes of this Act.

Composition of Authority

The Authority shall consist of the following members, namely:--


(a) a Chairperson;
(b) not more than five whole-time members;
(c) not more than four part-time members,
to be appointed by the Central Government from amongst persons of ability, integrity and
standing who have knowledge or experience in life insurance, general insurance, actuarial
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IRDA Act: As I Understand It

science, finance, economics, law, accountancy, administration or any other discipline which
would, in the opinion of the Central Government, be useful to the Authority:
PROVIDED that the Central Government shall, while appointing the Chairperson and the
whole-time members, ensure that at least one person each is a person having knowledge
or experience in life insurance, general insurance or actuarial science, respectively.

Transfer of assets, liabilities, etc., of Interim Insurance Regulatory Authority

Explanation - The assets of the Interim Insurance Regulatory Authority shall be deemed to
include all rights and powers, and all properties, whether movable or immovable, including,
in particular, cash balances, deposits and all other interests and rights in, or arising out of,
such properties as may be in the possession of the Interim Insurance Regulatory Authority
and all books of account and other documents relating to the same; and liabilities shall be
deemed to include all debts, liabilities and obligations of whatever kind.

Duties, powers and functions of Authority

Sec. 64U of the Insurance Act, 1938 providing for the establishment of Tariff Advisory
Committee with effect from the commencement of the Insurance (Amendment) Act, 1968
was to control and regulate the rates, advantages, terms and conditions that may be
offered by insurers in respect of general insurance business. The Advisory Committee is a
body corporate having perpetual succession and a common seal, with power, subject to the
provisions of that Act, to acquire, hold and dispose of property, both movable and
immovable, and to contract and may, by the said name, sue and be sued.

Sec. 64UA of the Insurance Act, 1938 provides for the composition of the Advisory
Committee. Under that section, the Advisory Committee shall consist of the following
members, namely,--

(a) a Controller of Insurance, ex officio, who shall be the Chairman;

(b) a senior officer of the office of the Controller nominated by the Controller nominated
by the Controller, who shall be the Vice-Chairman;

(c) not more than ten representatives of Indian insurers, elected (in their individual
capacities) by such insurers in such manner, from such areas and from among such
insurer or groups of insurers as may be prescribed;

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IRDA Act: As I Understand It

(d) not more than four representatives of insurers incorporated or domiciled elsewhere
than in India but registered in India, elected (in their individual capacities) by such
insurers in such manner, and from among such insurers or groups of insurers as
may be prescribed.

The Secretary to the Advisory Committee shall be an officer of the office of the Controller,
nominated by the Controller.

Power of Central Government to supersede Authority

If at any time the Central Government is of the opinion--


(a) that, on account of circumstances beyond the control of the Authority, it is
unable to discharge the functions or perform the duties imposed on it by
or under the provisions of this Act; or
(b) that the Authority has persistently defaulted in complying with any
direction given by the Central Government under this Act or in the
discharge of the functions or performance of the duties imposed on it by
or under the provisions of this Act and as a result of such default the
financial position of the Authority or the administration of the Authority
has suffered; or
(c) that circumstances exist which render it necessary in the public interest so
to do, the Central Government may, by notification and for reasons to be
specified therein, supersede the Authority for such period, not exceeding
six months, as may be specified in the notification and appoint a person to
be the Controller of Insurance under section 2B of the Insurance Act,
1938, if not already done.
COMMENTS: Sec. 2B of the Insurance Act, 1938 provides for the appointment of Controller
of Insurance. Under that section the Central Government may by notification in the Official
Gazette, appoint a person to be the Controller of Insurance under this Act.

In making any appointment under this section, the Central Government shall have due
regard to the following considerations, namely, whether the person to be appointed has
had experience in industrial, commercial or insurance matters and whether such person
has actuarial qualification.

Chairperson, members, officers and other employees of Authority to be public


servants

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IRDA Act: As I Understand It

The Chairperson, members, officers and other employees of the Authority shall be deemed,
when acting or purporting to act in pursuance of any of the provisions of this Act, to be
public servants within the meaning of section 21 of the Indian Penal Code.

COMMENTS: Sec. 21 of the Indian Penal Code, 1860 defines the term "public servant".
Under that section "public servant" denotes a person falling under any of the descriptions
hereinafter following, namely--

(1) Every Commissioned Officer in the Military, Naval or Air Forces of India;

(2) Every Judges including any person empowered by law to discharge, whether by
himself or as a member of any body of persons, any adjudicatory functions;

(3) Every officer of a Court of Justice including a liquidator, receiver or commissioner


whose duty it is, as such officer, to investigate or report on any matter of law or
fact, or to make, authenticate or keep any document, or take charge or dispose of
any property or to execute any judicial process or to administer any oath, or to
interpret, or to preserve order in the court; and every person specially authorised by
a Court of Justice to perform any of such duties;

(4) Every juryman, assessor or member of a panchayat assisting a Court of Justice or


public servant;

(5) Every arbitrator or other person to whom any cause or matter has been referred for
decision or report by any Court of Justice or by any other competent public
authority;

(6) Every person who holds any office by virtue of which he is empowered to place or
keep any person in confinement;

(7) Every officer of the government whose duty it is, as such officer, to prevent offences,
to give information of offences, to bring offenders to justice, or to protect the public
health, safety or convenience;

(8) Every officer whose duty it is, as such officer, to take, receive, keep or expend any
property on behalf of the government, or to make any survey, assessment or
contract on behalf of the government or to execute any revenue process, or to
investigate, or to report on any matter affecting the pecuniary interests of the
government, or to make, authenticate or keep any document relating to the
pecuniary interests of the government, or to prevent the infraction of any law for the
protection of the pecuniary interests of the government;

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IRDA Act: As I Understand It

(9) Every officer whose duty it is, as such officer, to take, receive, keep or, expend any
property, to make any survey or assessment or to levy any rate or tax for any
secular common purpose of any village, town or district, or to make, authenticate or
keep any document for the ascertaining of the rights of the people of any village,
town or district.

(10) Every person who holds any office by virtue of which he is empowered to prepare,
publish, maintain or revise an electoral roll or to conduct an election or part of an
election; and

(11) Every person--

(a) in the service or pay of the government or remunerated by fees or commission for
the performance of any public duty by the government;

(b) in the service or pay of a local authority, a corporation established by or under a


Central, Provincial or State Act or a Government company as defined in s. 617 of the
Companies Act, 1956 (1 of 1956).

`Public servant' includes any public servant as defined in the Indian Penal Code (45 of
1860) and any servant of any local authority and any person engaged in any employment
or class of employment which the State Government may, from time to time, declare to be
employment or class of employment essential to the life of the community.

A pubic servant is one who is to discharge some public duty. The absence of formal
appointment is immaterial where a person is in actual possession of a situation as a public
servant.

Public servants are following: Chief Minister, Minister of a State, Officer in charge of a
Police Station, Pradhan of Gram Sabha, Members of Panchayat Adalat, Chief Officer of
Panchayat, and the Public Prosecutors.

Following are not public servants: Headmaster, teachers, principals of aided schools, civil
servants working on deputation with co-operative society, President and Secretary of Co-
operative Society, an M.L.A's. and the Mukhias.

Power to make rules

The Central Government may, by notification, make rules for carrying out the provisions of
this Act.

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IRDA Act: As I Understand It

COMMENTS: Sec. 7(1) provides for the salary and allowances payable to, and other terms
and conditions of service of, the members other than part-time members, and s. 7(2) deals
with the allowances to be received by part-time members.
Under s. 17(1), the authority shall maintain proper accounts and other relevant records
and prepare an annual statement of accounts in such form as may be prescribed by the
Central Government in consultation with the Comptroller and Auditor-General of India.

Establishment of Insurance Advisory Committee

(1) The Authority may, by notification, establish with effect from such date as it may
specify in such notification, a Committee to be known as the Insurance Advisory
Committee.
(2) The Insurance Advisory Committee shall consist of not more than twenty-five members
excluding ex officio members to represent the interests of commerce, industry, transport,
agriculture, consumer fora, surveyors, agents, intermediaries, organisations engaged in
safety and loss prevention, research bodies and employees' association in the insurance
sector.
(3) The Chairperson and the members of the Authority shall be the ex officio Chairperson
and ex officio members of the Insurance Advisory Committee.
(4) The objects of the Insurance Advisory Committee shall be to advise the Authority on
matters relating to the making of the regulations under section 26.
(5) Without prejudice to the provisions of sub-section (4), the Insurance Advisory
Committee may advise the Authority on such other matters as may be prescribed.
Power to remove difficulties

(1) If any difficulty arises in giving effect to the provisions of this Act, the Central
Government may, by order published in the Official Gazette, make such provisions not
inconsistent with the provisions of this Act as may appear to be necessary for removing the
difficulty:
PROVIDED that no order shall be made under this section after the expiry of two years
from the appointed day.
(2) Every order made under this section shall be laid, as soon as may be, after it is made,
before each House of Parliament.

Regulator as Developer

1) Shouldering the responsibility of developing the insurance market

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IRDA Act: As I Understand It

2) Striking a right balance between developing and regulating the industry

3) Protection of Policy holders’ Interests – Mission of IRDA

4) Interests of policy holders prime objective while framing regulations

Regulatory role - Consumer Protection

1) Insurance Advertisement and Disclosures Regulations, 2000

2) Protection of Policyholders’ Interests Regulations, 2002

3) Maintenance of Minimum Solvency Margins

4) Introduction of cashless transactions – TPAs

5) Widening of Distribution Channels – Increased Insurance accessibility

6) Regulatory norms for intermediaries

(a) Licensing of Insurance (individual) Agents – 2000

(b) Licensing of Corporate Agents – 2002

(c) Insurance Brokers – 2002

7) Entry of Banks under ‘Bancassurance’ model

8) Mandatory Training, Pre-recruitment exam before licensing

9) Accreditation of Training Institutes – Upkeep of training standards for intermediaries

Development Oriented Regulations

Spread of Insurance to all sections: Rural and Social Sector Obligations

Rural Sector - Cultivators

- Agri labourers

- Rural assets

Social Sector - Unorganised sector

- Below Poverty Line population


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IRDA Act: As I Understand It

- Persons with disabilities

- Informal sector

Spread of Insurance through Micro Insurance

1) Micro Insurance Agency by agreement – A relaxation from pre licensing training/test

2) Local Institutions as MI agents – Helps in spread of Insurance awareness

3) Micro Insurance Products subject to File and Use procedure – Expected to be self
supportive

4) Issuance of documents in vernacular languages – to reach the targeted

5) Simplicity of forms – Avoidance of technical jargons desired

Grievances Redressal Mechanism: Ombudsman

1) Introduction of Insurance Ombudsman – 1998

2) A quasi judicial mechanism – Empowering adjudication of disputes

3) Adjudication limited to personal lines of business – A limit of Rs 2 million contract


value

4) Award binding on Insurer

Insurance Education

1) Lower level of insurance awareness

2) Insurance not part of academic curricula


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IRDA Act: As I Understand It

3) Market dynamics weigh on insurance education

4) Constitution of standalone Insurance academic institution of International standards

(a) IIRM

(b) IIRM International School of Actuarial Sciences

(c) Distance Education programmes

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