University of Mumbai’s

Alkesh Dinesh Mody Institute for Financial and Management Studies

Topic : IRDA – Insurance Regulator

The students have successfully submitted the report. Their names and roll numbers are
as follows:

NAME ROLL NO SIGNATURE

Shubham Patil 38

Prathamesh Patkar 39

Prasad Revandkar 40

Prachi Sawant 41

Akshay Shah 42

Darshil Shah 43

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 CERTIFICATE

This is to certify that the project entitled “IRDA – Insurance Regulator” as a part of
curriculum of Masters of Management Studies, submitted by the students of
University of Mumbai’s Alkesh Dinesh Mody Institute for Financial and Management
Studies has been approved.

Their work and efforts are found to be good.

_______________

Prof Uday Patil

Names and Roll Numbers of the students:

Shubham Patil – 38

Prathamesh Patkar – 39

Prasad Revandkar – 40

Prachi Sawant – 41

Akshay Shah – 42

Darshil Shah – 43
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 ACKNOWLEGEMENT

We take this opportunity to accord deep sense of gratitude to our professor for the
subject Financial Regulations, Professor Uday Patil sir whose teachings, kind
supervision, keen interest and valuable suggestions went all the way in successful
completion of this work.

We thank all our group members, classmates for their help and support.

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 INDEX

SR NO TOPIC PAGE NO

1 Introduction – Insurance 5

2 Introduction - IRDA 9
3 History of IRDA 13

4 Objectives of IRDA 14

5 Organizational structure 16

6 Duties and powers 18

7 Registration of Insurance Companies 20
8 IRDA (Protection of Policy Holder Interest) 29
Regulations 2002

9 Impact of IRDA 33

10 Ombudsman 37

11 Case Study 49

12 Conclusion 51

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 1. INTRODUCTION – INSURANCE

Insurance is a means of protection from financial loss. It is a form of risk

management, primarily used to hedge against the risk of a contingent or uncertain
loss.

An entity which provides insurance is known as an insurer, insurance company,

insurance carrier or underwriter. A person or entity who buys insurance is known as
an insured or as a policyholder. The insurance transaction involves the insured
assuming a guaranteed and known relatively small loss in the form of payment to the
insurer in exchange for the insurer's promise to compensate the insured in the event of
a covered loss. The loss may or may not be financial, but it must be reducible to
financial terms, and usually involves something in which the insured has an insurable
interest established by ownership, possession, or pre-existing relationship.

The insured receives a contract, called the insurance policy, which details the
conditions and circumstances under which the insurer will compensate the insured.
The amount of money charged by the insurer to the Policyholder for the coverage set
forth in the insurance policy is called the premium. If the insured experiences a loss
which is potentially covered by the insurance policy, the insured submits a claim to
the insurer for processing by a claims adjuster. The insurer may hedge its own risk by
taking out reinsurance, whereby another insurance company agrees to carry some of
the risk, especially if the primary insurer deems the risk too large for it to carry.

The insurance industry of India consists of 57 insurance companies of which 24

are in life insurance business and 33 are non-life insurers. Among the life insurers,
Life Insurance Corporation (LIC) is the sole public sector company. Apart from that,
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among the non-life insurers there are six public sector insurers. In addition to these,
there is sole national re-insurer, namely, General Insurance Corporation of India (GIC
Re). Other stakeholders in Indian Insurance market include agents (individual and
corporate), brokers, surveyors and third party administrators servicing health
insurance claims.

Post-liberalization, the insurance industry in India has recorded significant

growth. The Indian insurance industry is expected to grow to Rs 19,56,920 crore (US$
280 billion) by FY2020, owing to the solid economic growth and higher personal
disposable incomes in the country. Overall insurance penetration in India reached 3.69
per cent in 2017 from 2.71 per cent in 2001. Gross premiums written in India reached
Rs 5,78,000 crore (US$ 82.8 billion) in FY19, with Rs 4,08,000 crore (US$ 58.5
billion) from life insurance and Rs 1,69,000 crore (US$ 24.3 billion) from non-life
insurance.

Life insurance industry in the country is expected grow 12-15 per cent annually
for the next three to five years.

Gross direct premiums of non-life insurers in India reached Rs 1,69,972.48 crore

(US$ 24.32 billion) in FY19. In FY20 (up to May 2019), gross direct premiums
reached Rs 28,095.78 crore (US$ 4.02 billion), showing a year-on-year growth rate of
14.47 per cent and Gross direct premium from health insurance reached Rs 8.48 crore
(US$ 1.21 million) in FY20 (up to June 2019), contributed 5.87 per cent to the gross
direct premiums of non-life insurance companies in India. Crop insurance segment
contributed 8.6 per cent to gross direct premiums of non-life insurance companies in
FY20 (up to June 2019).

There are 24 life insurance and 33 non-life insurance companies in the Indian
market who compete on price and services to attract customers. There are two

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reinsurance companies. The industry has been spurred by product innovation, vibrant
distribution channels, coupled with targeted publicity and promotional campaigns by
the insurers. The market share of private sector companies in the non-life insurance
market rose from 13.12 per cent in FY03 to 55.7 per cent in FY20 (up to April 2019).
In life insurance segment, private players had a market share of 25.29 per cent in new
business in FY19.

Government has approved the ordinance to increase Foreign Direct Investment

(FDI) limit in Insurance sector from 26 per cent to 49 per cent which would further
help attract investments in the sector. As per Union Budget 2019-20, 100 per cent
foreign direct investment (FDI) will be permitted for insurance intermediaries.

In 2017, insurance sector in India saw 10 merger and acquisition (M&A) deals
worth US$ 903 million. Enrolments under the Pradhan Mantri Suraksha Bimas
Yojana (PMSBY) reached 130.41 million in 2017-18. National Health Protection
Scheme was announced under Budget 2018-19 as a part of Ayushman Bharat. The
scheme will provide insurance cover of up to Rs 500,000 (US$ 7,723) to more than
100 million vulnerable families in India. Crop insurance segment contributed 8.6 per
cent to gross direct premiums of non-life insurance companies in FY20 (up to June
2019).

Going forward, increasing life expectancy, favourable savings and greater

employment in the private sector is expected to fuel demand for pension plans.
Likewise, strong growth in the automotive industry over the next decade would be a
key driver for the motor insurance market.

Insurance industry in India has seen a major growth in the last decade along with
an introduction of a huge number of advanced products. This has led to a tough
competition with a positive and healthy outcome.

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 Insurance sector in India plays a dynamic role in the wellbeing of its economy. It
substantially increases the opportunities for savings amongst the individuals,
safeguards their future and helps the insurance sector form a massive pool of funds.

With the help of these funds, the insurance sector highly contributes to the capital
markets, thereby increasing large infrastructure developments in India.

The Indian Insurance Sector is basically divided into two categories – Life
Insurance and Non-life Insurance. The Non-life Insurance sector is also termed as
General Insurance. Both the Life Insurance and the Non-life Insurance is governed by
the IRDAI (Insurance Regulatory and Development Authority of India).

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 2. INTRODUCTION – IRDA

Insurance Regulatory and Development Authority (IRDA) is an autonomous

apex statutory body which regulates and develops the insurance industry in India. It
was constituted by the Parliament of India act called Insurance Regulatory and
Development Authority Act, 1999 and duly passed by the Government of India. Head
Office: is in Hyderabad, Andhra Pradesh (India).

In India, insurance has a deep-rooted history. It finds mention in the writings of

Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). 1818
saw the advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta. 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. 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. The Insurance Amendment Act of 1950 abolished Principal
Agencies. An Ordinance was issued on 19th January, 1956 nationalizing 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. This was the stages before
IRDA existed i.e. the journey of Insurance in India before IRDA came into existence.
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They stated that foreign companies are allowed to enter by floating Indian companies,
preferably a joint venture with Indian partners. 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 role of IRDA is to thoroughly monitor the entire insurance sector in India
and also act like a custodian of all the insurance consumer rights. This is the reason all
the insurers have to abide by the rules and regulations of the IRDAI.

The Insurance sector in India consists of total 57 insurance companies. Out of

which 24 companies are the life insurance providers and the remaining 33 are non-life
insurers. Out which there are seven public sector companies.

Life insurance companies offer coverage to the life of the individuals, whereas
the non-life insurance companies offer coverage with our day-to-day living like travel,
health, our car and bikes, and home insurance. Not only this, but the non-life
insurance companies provide coverage for our industrial equipment’s as well. Crop
insurance for our farmers, gadget insurance for mobiles, pet insurance etc. are some
more insurance products being made available by the general insurance companies in
India.

The life insurance companies have gained an investment prospectus in the recent
times with an idea of providing insurance along with a growth of your savings. But,
the general insurance companies remain reluctant to offer pure risk cover to the
individuals.

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
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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.

MISSION OF IRDA

➢ To protect the interest of and secure fair treatment to policyholders

➢ To bring about speedy and orderly growth of the insurance industry (including
annuity and superannuation payments), for the benefit of the common man, and
to provide long term funds for accelerating growth of the economy.

➢ To set, promote, monitor and enforce high standards of integrity, financial

soundness, fair dealing and competence of those it regulates.

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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 day-to-day working of the

industry consistent with the requirements of prudential regulation.

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 3. HISTORY OF IRDA

The IRDA was incorporated as a statutory body in April, 2000. 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 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. 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 24 general insurance
companies including the ECGC and Agriculture Insurance Corporation of India and
23 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

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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.

4. OBJECTIVES OF IRDA

➢ To protect the interest of and secure fair treatment to policyholders

➢ To bring about speedy and orderly growth of the insurance industry (including
annuity and superannuation payments), for the benefit of the common man, and
to provide long-term funds for accelerating growth of the economy

➢ To set, promote, monitor and enforce high standards of integrity, financial

soundness, fair dealing and competence of those it regulates

➢ To ensure that insurance customers receive precise, clear and correct

information about products and services and make them aware of their
responsibilities and duties in this regard

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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 day to day working of the

industry consistent with the requirements of prudential regulation.

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 5. ORGANIZATIONAL STRUCTURE

With effect from such date as the Central Government may, by Notification, appoint,
there shall be established, for the purposes of this Act, an Authority to be called "the
Insurance Regulatory and Development Authority". The Authority shall be a body
corporate by the name aforesaid having perpetual succession and a common seal with
power, subject to the provisions of this Act, to acquire, hold and dispose of property,
both movable and immovable, and to contract and shall, by the said name, sue or be
sued.

COMPOSITION OF AUTHORITY

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

(a) A Chairperson;
(b) Not more than five whole-time members; and
(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 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.

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BAR ON FUTURE EMPLOYMENT OF MEMBERS

The Chairperson and the whole-time members shall not, for a

period of two years from the date on which they cease to hold office as such,
except with the previous approval of the Central Government, accept:
(a) Any employment either under the Central Government or
Under any State Government; or
(b) Any appointment in any company in the insurance sector.

CONSTITUTION OF FUND

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;

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

6. Duties and Powers

Section 14 of IRDAI Act, 1999 lays down the duties, powers and functions of IRDA

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, -

❖ issue to the applicant a certificate of registration, renew, modify, withdraw,

suspend or cancel such registration;
❖ protection of the interests of the policy holders in matters concerning assigning
of policy, nomination by policy holders, insurable interest, settlement of
insurance claim, surrender value of policy and other terms and conditions of
contracts of insurance;
❖ specifying requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents

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❖ specifying the code of conduct for surveyors and loss assessors;
❖ promoting efficiency in the conduct of insurance business;
❖ promoting and regulating professional organisations connected with the
insurance and re-insurance business;
❖ levying fees and other charges for carrying out the purposes of this Act;
❖ calling for information from, undertaking inspection of, conducting enquiries
and investigations including audit of the insurers, intermediaries, insurance
intermediaries and other organisations connected with the insurance business;
❖ control and regulation of the rates, advantages, terms and conditions that may
be offered by insurers in respect of general insurance business not so controlled
and regulated by the Tariff Advisory Committee under section 64U of the
Insurance Act, 1938 (4 of 1938);
❖ specifying the form and manner in which books of account shall be maintained
and statement of accounts shall be rendered by insurers and other insurance
intermediaries;
❖ regulating investment of funds by insurance companies;
❖ regulating maintenance of margin of solvency;
❖ adjudication of disputes between insurers and intermediaries or insurance
intermediaries;
❖ supervising the functioning of the Tariff Advisory Committee;
❖ specifying the percentage of premium income of the insurer to finance schemes
for promoting and regulating professional organizations referred to in clause (f)
❖ specifying the percentage of life insurance business and general insurance
business to be undertaken by the insurer in the rural or social sector; and
❖ exercising such other powers as may be prescribed

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 7. REGISTRATION OF INSURANCE COMPANIES

Every insurer seeking to carry out the business of insurance in India is required to
obtain a certificate of registration from the IRDA prior to commencement of business.
The pre-conditions for applying for such registration have been set out under the Act
of 1938, the IRD Act and the various regulations prescribed by the Authority.

• General Registration Requirements

The following are some of the important general registration requirements that an
applicant would need to fulfill:
(a) The applicant would need to be a company registered under the provisions of the
Indian Companies Act, 1956. Consequently, any person intending to carryon
insurance business in India would need to set up a separate entity in India.
(b) The aggregate equity participation of a foreign company (either by itself or
through its subsidiary companies or its nominees) in the applicant company cannot not
exceed twenty six per cent of the paid up capital of the insurance company. However,
the Insurance Act and the regulations there under provide for the manner of
computation of such twenty-six per cent.
(c) The applicant can carry on anyone of life insurance business, general insurance
business or reinsurance business. Separate companies would be needed if the intent
were to conduct more than one business.
(d) The name of the applicant needs to contain the words “insurance company” or
“assurance company”.

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 • Capital Structure Requirements

The applicant would need to meet with the following capital structure
requirements:
(a) A minimum paid up equity capital of rupees one billion in case of
an applicant which seeks to carry on the business of life insurance
or general insurance.
(b) A minimum paid-up equity capital of rupees two billion, in case of
a person carrying on exclusively the business of reinsurance.
In determining the aforesaid capital requirement, the deposits to be
made and any preliminary expenses incurred in the formation and
registration of the company would be included.
A “promoter” of the company is not permitted to hold, at any time,
more than twenty-six per cent of the paid-up capital in any Indian insurance
company. However, an interim measure has been permitted percentages
higher than twenty six percent are permitted if the promoters divest, in a
phased manner, over a period of ten years from the date of commencement
of business, the share capital held by them in excess of twenty six per cent.

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 • Procedure for obtaining a certificate of registration

An applicant desiring to carryon insurance business in India is required to

make a requisition for a registration application to the IRDA in a prescribed
format along with all the relevant documents. The applicant is required to
make a separate requisition for registration for each class of business i.e.
life insurance business consisting of linked business, non-linked business
or both, or general insurance business including health insurance business.
The IRDA may accept the requisition on being satisfied of the bonafides of
the applicant, the completeness of the application and that the applicant
will carry on all the functions in respect of the insurance business including
management of investments etc. In the event that the aforesaid
requirements are not met with, the Authority may after giving the applicant
a reasonable opportunity of being heard, reject the requisition. Thereafter,
the applicant may apply to the Authority within thirty days of such
rejection for re-consideration of its decision.
Additionally, an applicant whose requisition for registration has been
rejected may approach the Authority with a fresh request for registration
application after a period of two years from the date of rejection, with a
new set of promoters and for a class of insurance business different than the
one originally applied for. In the event that the Authority accepts the
requisition for registration application, it shall direct supply of the
application for registration to the applicant. An applicant, whose requisition
has been accepted, may make an application along with the relevant

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documents evidencing deposit, capital and other requirements in the
prescribed form for grant of a certificate of registration.
If, when considering an application, it appears to the Authority that the
assured rates, advantages,
terms and conditions offered or to be offered in connection with life
insurance business are in any respect not workable or sound, he may
require that a statement thereof to be submitted to an actuary appointed by
the insurer and the Authority shall order the insurer to make such
modifications as reported by the actuary.
After consideration of the matters inter alia capital structure, record
of performance of each promoters and directors and planned
infrastructure of the company, the Authority may grant the certificate of
registration.
The Authority would, however, give preference in grant of
certificate of registration to those applicants who propose to carry on the
business of providing health covers to individuals or groups of
individuals. An applicant granted a certificate of registration may
commence the insurance business within twelve months from the date of
registration.
In the event that the Authority rejects the application for registration, the
applicant aggrieved by the decision of the Authority may within a period of
thirty days from the date of communication of such
rejection, appeal to the Central Government for reconsideration of the

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decision and the decision of the Central Government in this regard would
be final.

• Renewal of Registration

An insurer who has been granted a certificate of registration should

renew the registration before the 31st day of December each year, and
such application should be accompanied by evidence of fees that should the
higher of:
o fifty thousand rupees for each class of insurance business, and
o one fifth of one per cent of total gross premium written direct by an
insurer in India during the financial year preceding the year in which
the application for renewal of certificate is required to be made, or
the application for renewal of certificate is required to be made, or
rupees fifty million whichever is less; (and in case of an insurer
carrying on solely re-insurance business, instead of the total gross
premium written direct in India, the total premium in respect of
facultative re-insurance accepted by him in India shall be taken into
account).
This fee may vary according to the total gross premium written
direct in India, during the year preceding the year in which the
application is required to be made by the insurer in the class of
insurance business to which the registration relates but shall not exceed

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 one-fourth of one percent of such premium income or rupees fifty
million, whichever is less, or be less, in any case than fifty thousand
rupees for each class of insurance business. However, in the case of an
insurer carrying on solely
re-insurance business, the total premiums in respect of facultative
reinsurance accepted by him in India shall be taken into account.

• Suspension of registration

The registration of an Indian insurance company or insurer may be

suspended for a class or classes of insurance business, in addition to any
penalty that may be imposed or any action that may be taken, for such
period as may be specified by the Authority, in the following cases:
o conducts its business in a manner prejudicial to the interests of the
policy-holders;
o fails to furnish any information as required by the Authority
relating to its insurance business;
o does not submit periodical returns as required under the Act or by the
Authority;
o does not co-operate in any inquiry conducted by the Authority;
o indulges in manipulating the insurance business;
o fails to make investment in the infrastructure or social sector as
specified under the Insurance Act.

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 • Cancellation of certificate of registration

The Authority, in case of repeated defaults of the grounds for

suspension of a certificate of registration, may impose a penalty in the
form of cancellation of the certificate. The Authority is compulsorily
required to cancel the registration of an insurer either wholly or in so far as
it relates to a particular class of insurance business, as the case may be
o if the insurer fails to comply with the provisions relating to
deposits; or
o if the insurer fails, at any time, to comply with the provisions
relating to the excess of the value of his assets over the amount of
his liabilities; or
o if the insurer is in liquidation or is adjudged an insolvent; or
o if the business or a class of the business of the insurer has been
transferred to any person or has been transferred to or amalgamated
with the business of any other insurer; or
o if the whole of the deposit made in respect of the insurance business
has been returned to the insurer;
o if, in the case of an insurer, the standing contract is cancelled or is
suspended and continues to be suspended for a period of six months,
or
o if the Central Government of India so directs.

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 In addition to the above, the Authority has the discretion to cancel the
registration of an insurer

o if the insurer makes default in complying with, or acts in

contravention of, any requirement of the Insurance Act or of any rule
or any regulation or order made or, any direction issued there under,
or
o if the Authority has reason to believe that may claim upon the insurer
arising in India under any policy of insurance remains unpaid for
three months after final judgment in regular course of law, or
o if the insurer carries on any business other than insurance business or
any prescribed business, or
o if the insurer makes a default in complying with any direction issued
or order made, as the case may be, by the Authority under the IRDA
Act, 1999.
o If the insurer makes a default in complying with, or acts in
contravention of, any requirement of the Companies Act, or the LIC
Act, or the GIC Act or the FEMA, 2000.

The order of cancellation shall take effect on the date on which notice of
the order of cancellation is served on the insurer. Thereafter, the insurer
would be prohibited from entering into any new contracts of insurance, but
all rights and liabilities in respect of contracts of insurance entered into by
him before the cancellation takes effect shall continue as if the cancellation
had not taken place. The Authority may, after the expiry of six months
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from the date on which the cancellation order takes effect, apply to the
Court for an order to wind up the insurance company, or to wind up the
affairs of the company in respect of a class of insurance business, unless
the registration of the insurance company has been revived or an
application for winding up has already been presented to the

Court.

• Revival of registration
The Authority has discretion, where the registration of an insurer has been
cancelled, to revive the registration, if the insurer within six months from
the date on which the cancellation took effect:

o makes the deposits, or

o complies with the provisions as to the excess of the value of his assets
over the amount of his liabilities, or
o has his standing contract restored

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 8. IRDA (Protection of Policy Holder Interest) Regulations 2002

Objectives

• To ensure that interest of insurance policy holder are protected.

• To ensure that insurer, distribution channels and other regulated entities fulfill their
obligation towards policy holders and have in place standard procedures and best
practices in sale and services of insurer’s policies.

• To ensure policy holder Centric Governance by insurers with emphasis on grievance

redressal. Policy for protection Policy for protection of interests of policyholders

a) Every insurer shall have in place a board approved policy for protection of
policyholders’ interests which shall at the minimum, include

• steps to be taken for enhancing Insurance Awareness so as to educate prospects and

policyholders about insurance products, benefits and their rights and responsibilities.

• service parameters including turnaround times for various services rendered.

• procedure for expeditious resolution of complaints

• steps to be taken to prevent miss-selling and unfair business practices at point of sale
and service.

• steps to be taken to ensure that during policy solicitation and sale stages, the
prospects are fully informed and made aware of the benefits of the product being sold
vis-a-vis the product features attached thereto and the terms and conditions of the
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product so that the benefits / returns of the product are not miss-stated / miss-
represented.

b) Every insurer shall display the service parameters and turnaround times as
approved by the Board in its website and keep the same updated as and when the
service parameters are revised by the Board.

Grievance Redressal Procedure

1. A complainant who wishes to make a complaint against insurer, intermediary,

insurance intermediary, distribution channel or other regulated entities involved in
insurance sales and services shall approach the respective grievance redressal officer
of insurer. In case either grievance redressal officer of insurer does not respond or the
resolution provided by him is not to the satisfaction of the complainant he may
register a complaint in grievance redressal management system of the Authority. The
Authority facilitates re-examination of the complaint so as to provide final resolution
by insurer.

2. Every insurer shall have in place an effective grievance redressal procedure to

address complaints of policyholders efficiently and with speed and communicate the
action taken by the insurer on the complaint to the complainant along with the
information in respect of Insurance Ombudsman as may be necessary.

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3. Grievance Redressal Officer

i. Every insurer shall have a designated Grievance Redressal Officer (GRO) of a

senior level at the corporate office. The GRO at the corporate office will be the
contact person for the Authority.

ii. Every other office of the insurer shall also have a designated Grievance Officer
who shall be head of that office. The details of the GRO/designated Grievance Officer
along with the contact details in full shall be published in the website of the insurer
and the name and contact details of designated Grievance Officer of respective office
and the other Grievance Officers in hierarchy up to GRO at corporate office shall also
be displayed in the notice board of respective offices.

iii. Every office of the insurer shall also display in prominent place, the name, address
and other contact details of the insurance ombudsman within whose jurisdiction the
office falls.

4. Grievance Redressal System/Procedure :

i. Every insurer shall have a system including IT systems and a procedure for
receiving, registering and disposing of grievances in each of its offices. Every insurer
shall publicize its grievance redressal procedure and ensure that it is specifically made
available on its website.

ii. All insurers shall necessarily form part of the Integrated Grievance Management
System (IGMS) put in place by the Authority to facilitate the registering/ tracking of
complaint on-line by the policyholders. The Insurer’s system, shall involve, mirroring
of the Grievance database, of Insurers with IGMS and shall also facilitate analysis of

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complaints, mitigation, improvement of processes and system, through constant
review.

iii. Insurers shall also have in place system to receive and deal with all kinds of calls
including voice/e-mail, relating to grievances, from prospects and policyholders. The
system shall enable and facilitate the required interfacing with the Authority’s system
of handling calls/e-mails

5. Closure of complaint/grievance:

i. A complaint shall be considered as disposed of and closed when

a. The insurer has acceded to the request of the complainant fully (or)

b. Where the complainant has indicated in writing, acceptance of the response of the
insurer. (or)

c. Where the complainant has not responded to the insurer within 8 weeks of the
insurer’s written response. ii. Where the grievance is not resolved in favour of the
policyholder or partially resolved in favour of the policyholder, the insurer shall
inform the complainant of the option to take up the matter before insurance
ombudsman giving details of the name and address of the Ombudsman of competent
jurisdiction.

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 9. IMPACT OF IRDA

❖ Impact Over Regulation of Insurance Sector

There is great impact of IRDA in the overall regulation of the India
Insurance sector. The IRDA is having close observation over the different
activities of insurance sector in India in order to ensure the proper
protection of the policyholders' interests and scope of regulation is
constantly increasing.

❖ Impact Over Policyholders Interests Protection

As far as the matter of protection of policyholders' interests is concerned, it
is the core objective of the IRDA and IRDA is also trying its level best in
this context. Thus, it is clear that the impact of IRDA over policyholders'
interests' protection is significant.

❖ Impact Over Awareness to Insurance

IRDA is not only emphasizing over the introduction of different rules and
regulations in the insurance sector in order to protect the interests of
policyholders but also it is trying to make the activities of insurance sector
transparent and taking different steps so as to increase the awareness of the
society to the insurance.
❖ Impact Over Customers Education
IRDA is attempting to make all the significant and material information
associated with insurance products public and it has also made mandatory
for the insurers to disclose all the secret information to the customers.
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❖ Impact Over Insurance Market
The impact of IRDA over the insurance market is not hidden to any one
of us. There is a great change in the insurance market whether with
respect to insurance product, marketing, competition and customers'
awareness.
❖ Impact Over Development of Insurance Product
One of the significant impacts of IRDA amongst its different impacts
over the insurance sector is its impact over the development of insurance
products. The IRDA has brought a revolution in the direction of
development of insurance products. The development of ULIPs is the
outcome of privatization of the insurance sector.
❖ Impact Over Distribution Channel (Insurance Intermediaries) of
Insurance Product
It is very natural phenomena that only good distribution (demand) can
sustain the constant production (product development). Thus, IRDA has
also given due attention towards the development of insurance
intermediaries (Distribution Channel) in order to make available
insurance to everyone.
❖ Impact Over Life Insurance Corporation of India
Life Insurance Corporation of India was a single player in the life
insurance sector prior to the introduction of the IRDA and LIC of India
had monopoly over the life insurance market. But now, there are twenty
three other private life insurers apart from the LIC of India the existing
life insurance market, therefore, the LIC of India has to make it so strong

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that it may compete with its rivals and secure its previous position in the
market.
❖ Impact Over Insurance Objective
The introduction of private players in the insurance sector has made the
insurance sector diversified, dynamic and competitive, which has also
brought an amazing change in the trends of policyholders and as a result
insurance objective for the people of the society has been thoroughly
changed.
❖ Impact Over Competition in the Insurance Sector
There was no competition term in the insurance market prior to the
introduction of private players in the life insurance sector. It is a natural
impact over insurance sector. Competition in the existing insurance
market is gradually increasing.
❖ Impact Over Expenses of Insurers
There was nothing like competition in the insurance market before the
introduction of 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 size of the
insurers.
❖ Impact Over Contents of Insurance Product (Multipurpose
Insurance Product)
At the outset, insurance was concerned with insurance not any other
issue or requirement. But in the present market, insurance products are
being designed and developed so that they may cater different other as

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much as the needs of the prospective customers apart from the core need
of the insurance.
❖ Impact Over Workforce (Employment Opportunity of Insurance
Sector)
A gradual increase in the number of insurers in the insurance sector is
creating competition amongst pre-existing insurers and this trend
directly or indirectly demands a large workforce.

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 10.OMBUDSMAN

The Ombudsmen are appointed in accordance with the Redressal of

Public Grievances Rules, 1998 to resolve all complaints relating to
settlement of claims on the part of insurance companies in a cost
effective, efficient and effective manner. Any person who has a grievance
against an insurer may make a complaint to an Ombudsman within his
jurisdiction, in the manner specified. However, prior to making a
complaint, such person should have made a representation to the insurer
and either the insurer has rejected the complaint or has not replied to it.
Further, the complaint should be made not later than a year from
the date of rejection of the complaint by the insurer and should not be any
other proceedings pending in any other court, Consumer Forum or
arbitrator pending on the same subject matter. The Ombudsmen are also
empowered to receive and consider any partial or total repudiation of
claims by an insurer, any dispute in regard to the premium paid in terms of
the policy, any dispute on the legal construction of the policies in as much
such a dispute relates to claims, delay in settlement of claims and the non-
issue of any insurance document to customers after receipt of
premium.

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The Ombudsmen act as a Counsellor and mediator and make
recommendations to both parties in the event that the complaint is settled
by agreement between both the parties. However, if the complaint is not
settled by agreement, the Ombudsman may pass an award of compensation
within three months of the complaint, which shall not be in excess of which
is necessary to cover the loss suffered by the complainant as a direct
consequence of the insured peril, or for an amount not exceeding rupees
two million (including ex gratia and other expenses), whichever is lower.
Ombudsman within his jurisdiction, in the manner specified. However,
prior to making a complaint, such person should have made a
representation to the insurer and either the insurer has rejected the
complaint or has not replied to it.
Further, the complaint should be made not later than a year from
the date of rejection of the complaint by the insurer and should not be any
other proceedings pending in any other court, Consumer Forum or
arbitrator pending on the same subject matter. The Ombudsmen are also
empowered to receive and consider any partial or total repudiation of
claims by an insurer, any dispute in regard to the premium paid in terms of
the policy, any dispute on the legal construction of the policies in as much
such a dispute relates to claims, delay in settlement of claims and the non-
issue of any insurance document to customers after receipt of premium.
The Ombudsmen act as a counsellor and mediator and make

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recommendations to both parties in the event that the complaint is settled
by agreement between both the parties. However, if the complaint is not
settled by agreement, the Ombudsman may pass an award of compensation
within three months of the complaint, which shall not be in excess of which
is necessary to cover the loss suffered by the complainant as a direct
consequence of the insured peril, or for an amount not exceeding rupees
two million (including ex gratia and other expenses), whichever is lower.

CONSUMER PROTECTION
There are different ways of looking at a consumer’s grievance – ranging
from a genuine grievance arising out of a deficiency of service, to the
manifestation of one's frustration over an avoidable non-issue.

While the grievances of the second kind can be managed by counselling,

hand holding etc., there is a dire need to take a serious look at the genuine
grievances of customers. Ideally, if both the parties to the contract are
totally at agreement with the reciprocal obligations and their fulfilment,
there is hardly any space for deficiency of service. In the domain of
financial services in general, and insurance in particular; this is one aspect
that is hard to achieve. This compels us to analyse the various types of
grievances, and take stock of the situation in ensuring that there is
discernible progress over a period of time In insurance, rendering a service
to the client commences at the stage of solicitation itself when the insurer

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offers to bring the prospect into its fold; and in this regard, the competitive
market plays a very vital role.

If one of the players holds an ill reputation for disservice, it is unlikely that
he would pose a challenge for the competitors in acquiring business.
Especially in a world where communication is very fast, such negative
trends of functioning would have a serious impact on the business interests
of the players. In order to obviate such a scenario, there must be continuous
analysis of the reasons for customer grievances and wherever necessary,
put in place methods to ensure that such grievances do not recur. Apart
from mis-selling which continues to be a very commonly reported reason
for customer grievances, some other frequently observed areas of operation
where insurers need to concentrate are: Claims Management, Premium
notices, Change of address and other administrative services etc. in the life
sector; and surveyor-related issues, amount of claims, extent of coverage
etc. in the non-life domain.

Special attention must be paid to such of those areas where press reports,
courts and other consumer bodies often comment about the poor service
rendered. The adoption of technological support wherever possible and
necessary, must be quickly accomplished as it would certainly add to the
levels of efficiency in customer service. While there is no doubt that there
has been great progress in this regard, the extent of customer dissatisfaction
still existing in the insurance domain leaves a lot to be desired. Insurers
must ensure a major turnaround in this area, sooner than later.
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Insurance is a service, where contract certainty (the promise made is
adhered to), and financial indemnification (assured payment is made to the
extent of covered loss), are essential in creating value. Given that even
normal insurance purchase tends to produce anxiety for the buyer, customer
confidence building is possible only when insurers free the customer from
the many potential pain points that can arise for the customer across the
insurance value chain. A life insurance value chain from the consumer
view point may be as seen as shown below:

Policy Renewal Claim

Advice under admin and
Grievance
and sales writing service service redressal
service

Underwriting
Underwriting is the most important service that helps insured customers in
analysing and understanding their risks; and good underwriters can help
them to minimise their risks through better risk management based on
compliance to warranties and conditions; and obtain a price based on the
merit of the risk to be insured. Here the pain points can be many arising
from numerous occasions for errors that significantly affect the validity and
utility of the cover due to inaccuracies and omissions creeping in the
underwriting assumptions made, the rating approach and the many
limitations set in the policy. The type of cover given, the width and depth
of coverage, the relevance of the exclusions, conditions and warranties
make underwriting service very value oriented. An underwriter's aim is to

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prevent, reduce and transfer risk; and therefore take stock of the frequency
and size of claims, and to tackle any unnecessary costs in the service of
insurance. By doing this, insurers help to bring down the cost of insurance,
grow markets, and improve customer experience in the mastery of risk. The
underwriting process helps the underwriter to be familiar with the
peculiarities of the risk to be accepted and how potential losses can arise;
and to what extent the onus can be put on the insured to take steps to
prevent the occurrence of a loss, so that the loss probability of the matter
insured is equal to the risk premium charged. Real service in underwriting
is the possibility of introducing scientific risk rating factors based on IT
platforms to ensure that more and more factors relevant to the risk are
introduced so that the best merit rating possible can be offered to the
insured using real time data bases. The practice of redlining or rejecting or
improper loading of rates based on arbitrary reasons becomes serious pain
points for customers and is against legal, regulatory and actuarial ruling
sand principles.

Policy Administration and Service

This is an area where the logistical services of the insurer need to be
efficient and the process flow error free. Scrutiny of the proposal,
acceptance of the premium, issuance and checking of the policy with
relevant clauses, conditions and exclusions, adding the names of nominees
or others interested in the policy such as the bank, despatching the policy to
the insured in time, sending a copy of the proposal form back to the
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insured, amendments to the policy, making available channels for the
further guidance to the insured etc. form part of the policy administration
and service. Toll free call numbers, FAQs on websites, ‘dos and don'ts’ for
the customer while the policy cover is running are some of the services that
are given to ensure that customers can manage the tenure of the policy
against any error or misunderstanding. In this regard the use of vernacular
in policy language along with the original version in English is also a
definite value addition. In the logistics of service insurers are injecting (and
need to inject even more) technology and IT services to get services
rendered hassle free and to the extent possible cost free. Anywhere,
anytime service, past history of insurance coverage and claims, and benefit
entitlements like no claim bonus or discounts, better hand holding during
times of claims etc. are issues on which customers will seek instant services
and relief. Similarly small customers will not get ignored or elbowed out if
technology aids them in self-service, co creation of relevant product
packages and in reporting their requirements on electronic platforms so as
to get instant service.

Renewal Service
Renewal service is of utmost importance and every effort must be to
contact the insured by letter, email, over phone or by sms. It was expected
that agents would personally hand over renewal notices and take the
premium cheque but it is natural for the insurer to establish direct contact to
avoid any service failure and especially so when the renewal terms may
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undergo change, such as increase in premium rates; changes in terms and
conditions; other changes may be made by the company, by the industry or
as directed by courts, the regulator and so on. Management of renewal can
remove many pain points such as gaps in insurance, updating of insured
details, changes in the risk details, revision of sum insured, upgrading the
policy coverage, taking on new add-ons and so on. Even though under
policy terms and conditions there may be no obligation to renew or invite
to renew, there are increasing moral and regulatory compulsions to ensure
that proper renewal services are offered as foundational to ensure lifelong
coverage service to the customer.

Claim service
In the context of insurance, everyone is afraid of the failures in claim
service as the focus of insurance is on protection in case of the unforeseen
eventuality of claims. Even good customers, who try to avoid losses and
not claim, if claims are within their tolerance, have nightmares about claim
service. Insurers need to check as whether the body language of the
company changes, when a claim arises. This need not be so, as good
underwriting is supposed to forecast the claim frequency and severity to a
large extent in a normal year. Insurance presupposes the fact that what may
be uncertain to an individual is more certain when there are large numbers
and this is how claims are forecasted based on past experience tempered
with current realities. A bad perception about a company’s claim service
attitude can damage irreparably a company’s brand equity and reputation.
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In claims there are two types of urgencies – time and correctness of the
settlement. Insurers are fixated about reducing the claims outgo and in the
process they let go the time urgencies felt by the insured and those others
like banks that are waiting for the loss amount to restart the economic
activity impaired. Where customers understand that the final amount to be
paid may take time, they would be highly relieved if an ‘on account’
payment can be released because it makes it clear that liability has been
admitted and the initial finance to restart operations can be had. From the
time of claim intimation to the final payment of the claim cheque, there are
many processes and requirements on the part of the insurer, intermediary
and the insured. Any slackness from any side is bad for the outcome, but
the driver of the service is the insurer; and insurer pro-activeness is
fundamental to this service and insurer commitments are to be made
transparent in this area. There are two types of claims from the perspective
of service delivery. It is more or less simple to handle random claims from
various customers at various time points. However, there are occasions of
great disasters such as floods, earthquakes, etc. where the resources of
insurers, surveyors, repairers and public authorities are stretched. Lack of
access to the sites of loss, the non-availability of insureds who may have to
leave their houses/localities, the lack of sufficient repairers, the higher costs
of parts and other logistical problems, the difficulty in obtaining insured's
documents and the inability of public authority to record losses for the
purposes of claim processing are all part of the hurdles in service.

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Managing these extraordinary situations calls for insurers/ reinsurers and
all intermediaries and public authorities to act together and show the
resolve to settle such claims quickly to demonstrate commitment to the
underlying insurance concept of social solidarity and public good.

Grievance Management
Customer complaints are common in the financial services area. Hence
Regulators, Ombudsmen, Consumer Forums and the Judiciary are hard on
insurers who fail to honour their commitments by using interpretations that
are one sided or rely on the fine print without the application of mind.
Grievances can arise in all areas of insurance service, but some of them are
routine and can be handled quickly by insurers if tight processes and
timelines are maintained in service. However, in the area of claims,
renewal service e.g. gap in renewal and in similar issues, there are areas of
dispute where insurers may have been unable to take the right decision in
the first instance. However, when the insured comes up with a grievance,
the insurer must utilise more experienced people to examine the grievance
and take a decision based on the new inputs given by the customer.
Traditionally, insurers are blamed for not distinguishing between real and
technical reasons for denying claims. This is where grievances have a real
role for a merit based relook. Technical reasons have validity when they
touch the core areas of the claim but in some cases they are invoked
ignorantly or owing poor interpretational capability. After repeated
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grievances are reported regarding the same matter, insurers need to
examine the root causes that create frequent grievances and take action to
remove such causes to prevent the flow of repeating grievances. Grievances
are also the feedback mechanism for insurers to sense the emerging pain
points and take the opportunity to become proactive to plug them, and to
move on from the corrective to the creative. In any industry, innovation and
sensitiveness to customers' changing needs are rendered necessary for
sustainability and success and is done by deepening, widening and
sharpening service offerings. In the emerging area of risk management
through insurance, there is still great scope in reaching assured risk
mitigating services, and this service offers multi-tier benefits because
losses impact individuals and families, the community and local society
and the larger political economy. The flow of grievances and customer
queries through the many channels of communication to the company
should be sieved through for collecting the points for setting new directions
for product offering and service standards. Therefore grievance
management can emerge as a point for strategic approaches in customer
engagement and better customer experiences.

In conclusion, business success is the result of actual customer experience

and the resulting customer advocacy based on a day to day excellence in
service, proving that the insurer/intermediary delivers on promises
enshrined in the vision and mission of the organisation. So there is a need
for holistic investment in achieving positive customer experiences, using

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the right technology, knowledge power, systems and processes, the right
attitude and service culture to power the organisation's service-speak. This
must be even more so in case of service failures. The Indian insurance
sector is set to grow by leaps and bounds in the years to come, but its real
mettle will be tested in the maturity of organisations to deliver real value
and error free service.

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 11.CASE STUDY

A complaint lodged by Ms Kunti Devi, was received by IRDA on 14th

April, 2009 regarding non receipt of death claims. The complaint
was forwarded to the Life Insurer on 28/07/2009.The Life Insurer
vide its letter dated February 05, 2010 informed the repudiation of
the death claim due to non disclosure of ‘material facts’ which was
material to disclose. From the submissions of the life insurer it is
noticed that the claim was repudiated after a gap of around 12
months from the date of receipt of claim intimation.

An investigation carried out by IRDA on 18th June, 2010 revealed

that the time line adhered by the life insurer to decide on the death
claim is on a higher side. It was also noticed during the course of
investigation that more than 6 months was elapsed in respect of a
few more individual death claim cases without deciding the
admissibility of the death claims and in respect of a group insurance
policy one claim is outstanding for more than one year.

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Decision
Wherever delays have taken place in taking decisions on the
settlement of death claims, it is considered that the Insurer has
failed to adhere to the within referred regulations. The violation of
the referred regulations invites a penalty under Section 102(B) of
the Insurance Act 1938 and the Authority is empowered to impose a
penalty not exceeding Rs.5 lakh for each such violation and
punishable with fine. Considering the nature of the violation, the
Authority has come to the conclusion that it is just and proper to
impose a penalty of Rs.5 lakh. Accordingly, a penalty of Rs 5 lakhs
is imposed on the HDFC Standard Life Insurance Co Ltd.

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 12.CONCLUSION

IRDA is important to keep a check on private insurance companies and growth of

insurance sector.

It has been successful in monitoring, nurturing and grooming insurance sector in

India.

If we want the company to work in a proper manner without any problem then we
have to obey the rules of IRDA.

Without IRDA all companies are like a car without a driver who can make to run their
Companies without any guidance. So a driver is there to control a car to show car the
right direction and run without harming others. Like driver IRDA also shows all
directions and rules to companies by which they have to run.

A. IRDA is successful in opening the insurance market for private and foreign
companies after liberalization, insuring the orderly growth of insurance sector and
protecting the interest of policyholders.

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B. The effectiveness of IRDA depends substantially on the ability of its human
resources.

C. Till now IRDA is successful in keeping a check on fraud companies entering

into the insurance market.

D. IRDA in these years is successful in earning the respect of a regulator in the

hearts of managers of insurance companies.

E. After the formation of ombudsmen committee by IRDA is successful in

reducing the grievances of the policyholders.

F. Indian insurance sector in spite being opened at the same time as of china is
behind but it has big opportunity in future and IRDA is working positively towards
that opportunity.

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