INSURANCE AND IRDA ACTS

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT, 1999

SALIENT FEATURES OF IRDA ACT1. ACT TO ESTABLISH THE REGULATORY

AUTHORITY-“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 there with or incidental thereto.” Its is clear from the preamble that the Act is to establish authority which will:

a) Protect the interests of holders of insurance policies

b) Regulate, promote and ensure orderly growth of insurance industry

c) Other matters which may be connected with or incidental to the above mentioned purposes

2. COMPOSITION OF AUTHORITY

The Authority shall consist of the following members:

a) A Chairpersonb) Not more than five whole-time membersc) Not more than four part-time membersTo be appointed by the Central Government from

amongst the person of ability, integrity and standing who have knowledge or experience in life insurance, General insurance, actuarial science, finance, economics, law, accountancy, administration or any other discipline which will be useful to the Authority

3. INSURANCE ADVISORY COMMITTEE

Insurance Advisory Committee shall consist of not more than 25 members will be constituted. The members will represent the interest of Commerce, Industry, Transport, Agriculture, Consumer Forum, Surveyors, Agents, Intermediaries, organisations engaged in Safety and Loss prevention etc

4. ENDING THE MONOPOLY OF LIC & GIC

The amendments in Section 30,31& 32 have ended the exclusive privilege of LIC and GIC and its subsidiaries.

Thus it has allowed the entry of private sector into life and non-life insurance

5. THE INSURANCE BUSINESS HAS BEEN OPENED TO INDIAN COMPANIES ONLY

An Indian insurance company has been defined as a company:

a) Formed and registered under the Companies Act, 1956

b) In which the aggregate holdings of equity shares by foreign company either by itself or through its subsidiary companies or nominees do not exceed 26% or paid up equity share capital of such Indian Insurance Company

c) The sole purpose is to carry on life insurance or general insurance or reinsurance business

6. REGISTRATIONThe applicant shall submit along with the

application:

i) Memorandum of association and articles of association of the applicant company

ii) Names, occupations and addresses of directors and their main business in India

iii) Scope of proposed insurance businessiv) A statement indicating the sources that will

contribute the share capital.

The application shall be accompanied by:

a) Documentary proof evidencing the making of deposit under sec 7 of Act

b) Evidence of having paid up equity capital of Rs 100 crores or more in case of life insurance or general insurance business

c) Evidence of having paid up equity capital of Rs 200 crores or more in case of reinsurance business

d) An affidavit by the principal officer and the promoters of the applicant certifying that the requirements of paid up share capital and deposits referred in sec 6 and 7 have been satisfied.

e) A statement indicating the distinctive numbers issued to each promoter and shareholder in respect of share capital of the applicant

f) An affidavit by the Principal Officer and the promoters of the applicant certifying that paid up equity capital of the foreign company does not exceed 26%

Continued……

g) A certified copy of the published prospectus, if any,h) A certified copy of the standard forms of the insurer

and statement of assured rates, advantages, terms and conditions to be offered in connection with the insurance companies policies.

i) A certified copy of the memorandum of understanding entered into between the Indian promoters and the foreign promoters

j) Original receipt showing payment of fee of Rs 20,000 for each class of business.

k) A certificate from a practicing Chartered Accountant or practicing Company Secretary certifying that all requirements relating to registration fees, share capital, deposits and other requirements of the Act have been compiled with.

7. RENEWAL OF REGISTRATION

The application shall be accompanied by evidence of payment of fee which shall be higher of the following:

a) Rs 50,000 for each class of insurance businessb) One fifth of one percent of total gross

premium written direct by an insurer in India during the financial year preceeding the year in which the application for renewal is required to be made or Rs 5 crore whichever is less( in case of general or life insurance business)

8. CAPITAL ADEQUACY REQUIREMENT

Any insurance company carrying the business of life, general or business of reinsurance shall not be registered unless it has paid up equity capital of Rs 100 crores or more in case of life insurance or general insurance business and a paid up equity capital of Rs 200 crores or more in case of reinsurance business

9. DEPOSITS SEC. 7 of the Act provides that an insurance company

shall keep deposited with the Reserve Bank of India either cash or approved securities:

a) In the case of life insurance business a sum equivalent to one percent of his total gross premium written in India and not exceeding ten crore Rupees

b) In the case of general insurance business a sum equivalent to three percent of his total gross premium written in India and not exceeding ten crore Rupees

c) In case of reinsurance business a sum of Rupees twenty crores.

10. ACCOUNTS AND BALANCE SHEET

An insurance company shall prepare:a) Balance sheet in accordance with the

regulations and form set in part-I and part II of the first schedule

b) Profit and loss account in the regulations and form set forth in second schedule

c) A Revenue Account in respect of each class of Insurance business in accordance with the regulations and form set forth in third schedule

d) receipt and payments account

11. INVESTMENT AND ASSETS

Authority shall in the interest of policy holders, by means of regulations, specify the time, manner and conditions of investments of assets in the infrastructure and social sector. Under the new norms atleast 50% of the funds will be parked in the government securities and insurers can invest upto 20% of their funds in corporate debts in addition to 15% in market investment.

12. INSURANCE BUSINESS IN RURAL OR SOCIAL SECTOR

The regulatory Authority has issued the IRDA (Obligations of Insurer to Rural or Social Sector)) Regulations, 2000. Rural sector hsas been defined as any place which as per the latest census has a:

i) A population of not more than five thousandii) A density of population is not more than 400 persons

per sq. Km.iii) Atleast seventy-five percent of the male working

population is engaged in agriculture.

Social sector includes unorganized sector, informal sector, economically vulnerable or backward classes and other categories, both in rural and urban sector

13. POWER OF INVESTIGATION AND INSPECTION

The authority may by an order direct any person to investigate the affairs of the insurer and to report to it.

It may take the services of auditor or actuary for the purpose of assisting him in any investigation.

The authority on receipt of the report may require the insurer to take such action in respect of any matter arising out f the report or cancel the registration of the insurer.

14. LIMITATIONS OF EXPENDITURE ON COMMISSION

The insurer shall not pay to an insurance agent by way of remuneration or commission in respect of any policy of life insurance, an amount exceeding :

a) Where the policy grants an immediate annuity or a deferred annuity in consideration of a single premium, 2% of that policy.

b) Where the policy grants a deferred annuity in consideration of more than one premium, 7.5% of first year’s premium and 2% of each renewal premium payable on the policy.

15. LICENSING OF INSURANCE AGENTS

IRDA provides that any person desiring to obtain a licence to act as an insurance agent or as a composite insurance agent shall make an application to the designated person in the form IRDA-Agents-VC. The term ‘person’ defined as

i) An individualii) A firmiii) A company, formed under the companies

Act 1956 and includes a banking company

Continued…

Requisite qualification Practical training Examination

16. ISSUE OF LICENCE TO INSURANCE INTERMEDIARY

The Authority shall have the power to issue licence to other intermediaries in the insurance segments and this licence will be valid for a period of three years. Insurance brokers will be regulated in the following areas:-

Registration Experience, training and qualification and

other restrictions on entry into the profession Solvency requirements Professional indemnity or a minimum level of

errors.

Continued… Categories of brokers Functions of general and life insurance

broker Criteria fir grant of licence Remuneration of brokers Segregating insurance money Solvency requirement Professional indemnity insurance

17. TARIFF ADVISORY COMMITTEE

This committee shall control and regulate the rates, advantages, terms and conditions that may be offered by that insurer in respect of general insurance business.

This committee shall consist of members of chairman of authority, a senior officer of the authority nominated to be as vice chairman of the committee and not more than 14 representatives of the insurance companies.

18. LICENSING OF SURVEYORS AND LOSS ASSESSORS

No person shall act as surveyors or loss assessors in respect of general insurance unless he holds a valid licence issued to him by the authority.

Every person who attempts to act as a surveyor or loss assessor shall have to make an application to the authority and licence will be issued to him for a period of five years.

19. SUFFICIENCY OF ASSETS

the solvency margin shall be the highest of the following:

a) Fifty crores Rupees (Rs 100 crore in case of reinsurer); or

b) A sum equivalent to 20% of net premium income; or

c) A sum equivalent to 30% of net incurred claims

20. NO RISK TO ASSUME UNLESS PREMIUM IS RECEIVED IN ADVANCE

Risk may be assumed not earlier than the date on which premium has been paid in cash by the insurer.

Where the premium is tendered by means of postal money order or cheque sent by post, risk may be assumed on the date on which money order is booked or cheque is posted.

21. REINSURANCE If the insurer find that they have

entered into a contract of insurance which is an expensive proposition for them or if they with to minimize the clearances of any possible loss, without at the same time, giving up the contract, resort is to have reinsurance.

22. POWER OF THE AUTHORITY TO MAKE REGULATIONS

Section 114A has been inserted by an amendment in the insurance Act. It provides that the authority may make regulations consistent with this Act and rules made here under to carry out the purpose of this Act. The regulations made provided for matters connected with:

Continued…..i) Registration & renewal of registration of

insurance companiesii) Powers to check security deposits of insurance

companiesiii) Power to receive periodically annual accounts,

reports and returns from insurance companiesiv) Powers to issue licenses to the underwriters,

indemnifies and insurers etcv) Powers to sanction the schemes of transfers,

acquisitions and amalgamations of the insurance business