Regulatory Framework of

Insurance
Chapter Outline

16.l Introduction
16.2 Insurance Regulatory Development Authority (IRDA)
Act, 1999
16.2.1 Objectives of IRDA Act
, 16.3 Composition of IRDA (Section 4)
16.3.1 Features of Authority
16.3.2 Tenure of Office of Chairperson and other Members
(Section 5)
16.3.3 Removal from Office (Section (1) and (2))
16.3.4 Salary and Allowances of Chairperson and Members
(Section 7)
16.3.5 Bar on Future Employment of Members (Section 8)
16.3.6 Administrative Powers of Chairperson (Section 9)
16.3.7 Meetings of Authority (Section 10)
16.3.8 Vacancies, Etc. Not to Invalidate Proceedings of
Authority (Section 11)
16.3.9 Officers and Employees of Authority (Section 12)
16.4 Powers and Functions oflRDA (Section 14 (1) and (2))
16.5 Role ofIRDA
16.5.1 Delegation of Powers (Section 23)
16.5.2 Establishment oflnsurance Advisory Committee
(Section 25)
16.5.3 Power to Make Regulations (Section 26)
 16 \
ll1111lw1g 1111 c1 I IISllru,,c~
IC>' Hrg11/,1IMl' I ra1111.• work vf l11 s11n111 cr

l<d l~l ROl>lJC l'ION every yc,1r hy p.iying requisite Ice and 1,;omp\cting the protedure ,\s listed
,n the Act. The Authority is ,,\so provided power:, to suspend or 1..:,1n1..d
I11,ur.uh1.. Rcgulaton .rnd l)l,clopml'nl Authoril) ol lndi,, (IRDA 1 1 the rcgistr.\tion of an insurer either wholly or in so far as it relates to .i
C" I• ites a Ill I l Il'\ elo1)
,111 .wh,n1lmou, ,1J'l x statu1t1r)' bo,l) • "hil h I c11u )I '
particul,,r c\,1ss of insurance husines:-, as the case may be,
m,ur.111,c mdu!-tn m Ind1.1 It 1:- .11Mt10n,1l hodv. th .1t rl'l•t c, • l,Iles Is:, I ic I
.i-. 1..ontro I:- th,· insuroth.C indusln' mduding both I·ii,t.: ,\Ill1 Non I 1·1·I
' Wl' (1) ,f the insurer foils , at any time. to comply with the provisions of
lll GoYcrnm t.:'Ill 0 f 1nd11 . Ti e Section 64VA as to the excess of the value of h1:, assets over the
I n,u r,111t..e h u,incs,c:- under till' ,1c1>1s
0

ugl •nn OJ'lTatc, from 1b lw,1<iqu.1rll'rs ,1l H)'lkt •ib ' •vi ' , ·1·t.:•I angarn ' · Thle amount of his liabilities; or
m.un ;um of ,cttmg up th 1, .,pex b1lJr \\ ,\S lo promote market em·.: , C (ii) if the insurer is in liquidation or is adjudged as an insolvent; or
and p, ov1dr con:-umcr protc1.. tion . ucncy
(iii) if the business or a class of the business of the insurer has been
To g1~c a boost to the thriving insur.mce industry in India . transferred to any person or has been transferred to or
the relonuncndattons of the i\1alhotra Committee IRDA A. ' based on amalgamated with the business of any other insurer without the
m Indian Parli.1111ent d ~as passed
known as IRDA Act , 1999 '.as per Section
p d -1 d l Th approval of the Authority; or
re:-i c_nt ot n 1a ga, e the assent in 2000 It f · e
the Imurance Act 19~8
d
th·•
I ·r I . _· came up urther to amend
• . '' t ,1 e nsmance Corporation A
(iv) if the insurer makes default in complying with, or acts in
contravention of, any requirement of this Act or of any rule or
an the General Insurance Business (Nationalisation) Act, l 97c;~ 1956 any regulation or order made or, any direction issued there under;
Under th1:- Act, newly established authority IRDA re laced or
of Insuran1.~ Controller
e as per Insurance Act , 1938 . Th e A ct pwas ame d d .
'002 . (v) if the Authority has re.ison to believe that any claim upon the
- to mcorporate some emerging requirements. n e m insurer arising in India under any policy of insurance remains
16.2 INSURANCE REGULATORY DEVELOPMENT unpaid for three months after fmal judgment in regular court of
AUTHORITY (IRDA) ACT, 1999 law; or
(vi) if the insurer carries on any business other than insurance
As per Insurance Act, 1938 (Section 2) an, . '
any insurer bein a c . ., insurance company means business or any prescribed business; or
, d g ompany, assoc1at10n or partnership which b
\\ oun up under the Indian C
which the Indian Partnership
S .
.
::.pt;;;s(::~ ::31}) may e
(7 ofl_1913), or to
, app 1es.
(vii) 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 Insurance Regulatory and Development Authority Act, 1999;
ect1on 3 (1) of the Insurance Act, 1938 states that n
after commencement of this A t b . o person shall,
business in India and . c , eing to_ carry on any class of insurance or
no insurer carry111 g on I f . (viii) if the insurer makes a default in complying with, or acts in
business in Ind · h ll f any c ass o insurance contravention of, any requirement of the Companies Act, 2013
ia s a , a ter the expiry of th h f
commencement of th· A . ree mont s rom the or the General Insurance Business (Nationalisation) Act, 1972
is ct, continue to carr h b .
unless he has obtained f Y on any sue usiness,
for the particular clas f :om
h
t e Authority a certificate of registration
s O insurance busine T h I
or th e Foreign Exchange Management Act, 1999 or the Prevention
of Money Laundering Act, 2002; or
it mandatory for all th . ss. us, nsurance Act, makes
any type of ins e compames who want_to carry on business of (ix) if the insurer fails to pay the annual fee required under Section
then moved onto IRDA necessarily
urance must h .
b e registere d . T h ese registrations
3A; or
IRDA holds complete thw ~n IR_DA Act, 1999 was enacted. Thus, (x) if the insurer is convicted for an offence under any law for the
au onty to issu e lie
on insurance busines . I d ' enses to companies to carry
s in n ia. Further, this license must be renewed time being in force; or
 rk o I, 16 5

Th mr ,011 of IRDA t ted m the A t I folio\<;

t up und rth
lt1 St te ( 0 nt (1) To protect the mtere t of the pohq holde
e (11) To promote. regul tc nd en ure transp rent ord rl gro, th of
ion of law a may be
the insurance ndustry for matter <.onn cted there\ th or
mc1dental thereto
unle s the context oth erw1 e
(111) To ensure ethical condu t of insurance bu me nd to pre\c:nt
fraud and malpractices
the date on wh1Ch the Auth .
ction (I) of Section 3. oray is 16.3 COMPOSITION OF lRDA (SECTION 4)
m n th Insurance Regulatory and Develo m The Authority shall consist of a Cha1rper on, not more than fh e "hole
p ent
est bhshed under sub-section (I) o f Sect1on 3 time members and not more than four part time members The c are
means the Chairperson of the Auth . . to be appomted by the Central Government from amongst per ons of
d onty.
ability, integrity and standing, who have knowledge or experience m
me n the Insurance Regulato
nty of India Fund constituted u
t1 n 16
i
andb Development
n er su -section (l) of
hfe insurance, general msurance, actuanal science, finam.e, economics,
law, accountancy, administration or any other d1sciplme which would,
Interim In urancc Regulatory Autho , in the opinion of the Central Government. be useful to the Authority.
R ul tory Authority setup by the Cc:t~yl ;cans the Insurance The Central Government shall, whtle appomting the Chairperson and
R lut1 n No 17 (2)/ 94 Ins V. d a overnment through the whole-time members, ensure that at least one person eac.h 1s a
,1) Int rm d1a , ated the 23rd January, 1996. person having knowledge or expenence m hfe msurance, general
f) or rnsur,mce rntcrrnedia , I
br ker re m urance b k ry me udes msurance insurance or actuarial science, respectively
nd I ro ers, msurance consultants surv
ss ors. , eyors
16.3.1 Features of Authority
(, ii M mber meam a \\hole time or a Following are the features of the Authority:
Authont) and mdudes th • Cl part tune member of the
c 1a1rperson. as a corporate body
(1) Corporate Body: The lRDA would act
(\w) Nollf1c .. tion' means a notifi t' through a group of members working jointly headed by a
C,an:tt H:a ion published in the Offinal
Chairperson.
(1x) Seal and Perpetual Succession: It i::, a body corporate
'Pre c.nbed' means prescribed by rules m ade under this Act (2) Common
( ) Regul t10ns' m eans l h c regulations made by th e Authority. with perpetual succession and a common seal.
Property in IRD~s Name: It has the power to own, enjoy and
16.2.1 ObJed1ves o f I RDA Act (3)
dispose off the property in its name. The property may be
I h m Ill rn1 tior t h c iormation
r of IRDA . movable or immovable.
r I tor nd a controller that" ill rt' ula b to SC"t up a s upt: n ·isor, a
gr wth of the 111 uranlc t g t c and e n sure the systemat k (4) Independent Existence: The authority has the powe! to enter
t sec. or m the o into contracts in its own name. It can sue or be sued m its own
an r t of II the related stakeho ld ersL unt ry and l ,1t e1 h) w .1k h tht'
·
A\ II
re u I.ited rndustry regula ted l
name.
nomy t f.i tcr pac.c th 'Y lRDA promi ses to put th e . d Offi d Other Branches in Own Name: The
011 (5) R eg1stere ice an .
ath th mt rn tronal !.l,rnd.ud: growth traJcd o ry ,111d hrmg It at p.ir authorit has a prinop,11 place of busin_ess ~ecrded by the
Y h h official not1ficat10n. It has also
Central Government I roug
16.6 lln11ki11g a11 d Ins 11rc111ce 16 7
Regulatory Framework of Insurance
L!1e power Lo open various branches as requir~!d from l'1 (ii) has become physically or mentally incapable of acting as cl
Lune. me lo
member; or
(6) ~~>p_oin,tmc1~t of M~mbcrs by ~entral Govei-11111cnt: As ) • (iii) has been convicted of any offence which, in the opinion of the
Scclton 1, the authority consists o( a Ch·1irJ>e1·s<>r• l I er Central Government, involves moral turpitude; or
fl • J · ' • '' no more ti
ive w \Olet11ne members and not more than four art /an
(iv) has acquired such financial or other interest as is likely to affect
members. All appointments arc made by Cent al G p.. une
through an official notification. ovc1 nment prejudicially functions as a member; or

(7) Overall (v) has so abused his position as to render his continuation in office
, • C on t ro I o f Central Government: The C.
detrimental to the public interest.
C,ove!·mncnt is the appointing authority for IRD I\. fl , -~ n tral
the Chairman and members on the rr . ' . C,\ll remove No such member shall be removed under clause (iv) or clause (v) of
,111d suitability for the requisite posfti~::1~~~~hor u~rnmpctcn~y sub-section (I) unless he/she has been given a reasonable opportunity
removed from the office w >t 11 I . e person who is of being heard in the matter.
( l < >c a given a cln f b .
I1eard and explain. ' 'nee o emg
16.3.4 Salary and Allowances of Chairperson and Members
(8) ~.alaries ~swell as Allowances
of Chairperson and • (Section 7)
I he salaries, remunerations as wcll ·1s othe 1.. 11 Members:
be determined and >· . <l l , •· ,\ wanccs would The salary and allowances payable to and other terms and conditions
the provisions 1:ic.l o~1~1~ _>~ ti~\ Ccnl_ral Gov lrnmcnt as per of service of the members other than part-time members shall be such
conditions ·ll1d allo 01 l ie,· ,1 oresa1d purpose The service as may be prescribed. The part-time members shall receive such
, . • , wanccs c ctails will b. • 'b I
official notification. . c pri.scn cc by an allowances as may be prescribed. The salary, allowances and other
conditions of service of a member shall not be varied to his disadvantage
16.3.2 Tenure of Offic f Ch . after appointment.
(Section 5) I e o aarpcrson and other Members
J

16.3.5 Bar on Future Employment of Members (Section 8)

The Chairpen,on and every olhcr wl I. . ,
for a Lenn of five year•· f. I 110 c tune member ~lhall hold office The Chairperson and the whole-time members shall not, for a period
offt(l' and shall he cliiribl. r .. < . )I w I11(
·' 1 om I 1c c ·1Lc < 1 · I I
I ll' 1tcrs upon his of two years from the date on which they cease to hold office as such,
n e or rc,1ppomtmc111 No I 11 I 11
0 II l(C as a ChairJ)(.•rson ·tit, . · pc son s HI 10 c
. I · • er 1IC 11as alla1nccl the -1 • f · . cxc.;ept with the previous approval of the Central Government, accept
I·urt icr, that no J)crson sh· 111 11 ff . 1
, ge o ixty rvc years.
. . ,, 10 c o ice ·ts ·1 who) t' I ( i) any employment either under the Central Government or under
Ill' I Iii'> a11ai1H'd the ·igc f .·
· o sixty two yC'lrs A
• ' c •m e mcm >er after
.
I1011l ollicc for I lt·r ni . ' · · par 1 1rm ' member shall any State Government; or
' rw 1 cxcn·c 1Ing flvl' yc·irs I I I
I1 <' enters upon hi O II . ' · rom I Hl c ate on which (ii) any appointment in any company in the insurance sector.
s ru·. Notwrthstandi , ,111 I • ~
su I > St'cl1011 (I) 01 s11 1i sc . ( ) . ng • YI 1111,~ contained in
l . t 11011 2 ., member m 1·
'Y g1v111g in writing lo lhl' <.. •• • <. ay n• 111 1uish hi.s ollkc l6.3.6 Administrative PowersofChairpenon (Section 9)
,t11 1r,1 1 ,ovcr11mcr 1I 11 1· f
II lltT •.non11i., or h. . . I . <> rte not less than
. t It rnovt·< from hrs c ff . - The Chairperson shall have the powers of general superintendence
p1ov1s1ons of the s1.·1 lion . . , Ill 111 ac.cor a1H.e with the
and direction in respect of all admini~trative matters of the Authority.
.. 6 .. l ..~ Rcmoval from Offkc (Scction 6 (I) and (2))
l6.3.7 Meetings of Authority (Section 10)
I he ( t·111r,d <;ovt·r 11111 . I
( )
t 11 may lt'lllOVt' fto111 11 ff'itc any 1cmlwr who The Authority shall meet at such times and places and shall observe
1
is, o1 ,II .111y lime has ht'l'll, adJ.Udo. I . . such rules and procedures in regard to transaction of busane s at it
r-,(< ,IS an rnsol cnt; or
llleetings (including quorum at such meetings) as may be detennaned

_ Banking and Insurance
16 8
by the regulations. If for any reason the Chairperson is unable to attend
a meeting of the Authority, any other member chosen by the members
present from amongst themselves at the meeting shall preside at the
meeting. All questions which come up before any meeting of the
Authority shall be decided by a majority of votes by the members present
and voting. In the event of an equality of votes the Chairperson (in his
absence, the person presiding) shall have a second or casting vote. The
Authority may make regulations for the transaction of business at its
meetings.
16.3.8 Vacancies, Etc. not to Invalidate Proceedings of Authority
(Section 11)
No act or proceeding of the Authority shall be invalid merely by reason
of-
(i) any vacancy in, or any defect in the constitution of the Authority;
or
(ii) any defect in the appointment of a person acting as a member of
the Authority; or
(iii) any irregularity in the procedure of the Authority not affecting
the merits of the case.
16.3.9 Officers and Employees of Authority (Section 12)
The ~uthority may appoint officers and such other employees as it
considered necessary for the efficient discharge of its function under
this Act. The terms and other conditions of service of officers and
other employees of the Authority appointed under sub-section ( 1) shall
be governed by regulations made under this Act.
16.4 POWERS AND FUNCTIONS OF AUTHORITY
[SECTION 14( 1) AND (2)]
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 en sure orderly growth of the insurance business and re-insurance
busmess.
. ··
Without pre·JU di ce to the generality of the proVIsions contame· d
m sub-section (1), the powers and functions of the Authority shall include;
(i) Is~ue to the applicant a certificate of registration, renew, modify,
withdraw, suspend or cancel such registration;
16 9
I t ry Framework of Insurance
Regi, a o . e olic holders in m a tt ers
·1·) Protection of the interests of th ~ _Y b I"cyholders,
1
(1 . • f olicy nomination Y po
concerning assigning o p '. 1 im surrender value
. surable interest, settlement of msurance c a , . .
: policy and other terms and conditions of contracts of insurance,
(iii) Specifying requisite qualifications, code of conduct and pra~~:I
training for intermediary or insurance mtermedianes and ag ,
(iv) Specifying the code of conduct for surveyors and loss assessors;
(v) Promoting efficiency in the conduct of insurance business;
(vi) Promoting and regulating professional organisations connected
with the insurance and re-insurance ~usiness;
(vii) Levying fees and other charges for carrying out the purposes of
this Act;
(viii) Calling for information from, undertaking inspec~ion of,
conducting enquiries and investigations including audit of the
insurers, intermediaries, insurance intermediaries and other
organisations connected with the insurance business;
(ix) 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);
(x) Specifying the form and manner in which books ofaccount shall
be maintained and statement of accounts shall be rendered
by insurers and other insurance intermediaries;
(xi) Regulating investment of funds by insurance companies;
(xii) Regulating maintenance of margin of solvency;
(xiii) Adjudication of disputes between insurers and intermedianes
or insurance intermediaries;
(xiv) Supervising the functioning of the Tariff Advisory Committee
(xv) Specifying the percentage of premium income of the msur r
finance schemes for promoting and regulating profc
organisations referred to in clause (x);
 16 II
l6.10 Banking and Insurance
Regulatory Framework of In surance t the purposes of this A<.t
(xvi) Specifymg the percentage oflife insuran ce business and general
and the rules made_thereund~r t?
c~~ih:u enerality of the forego mg
insurance business to be undertaken by the insurer in the rural
or social sector; In particular an d without preJud1c~d for
power, such regulations may prov1 e
!n
or any of th e fo llowing

{xvii) Exercising such other powers as may be prescribed.

matters, namely: . f h Authority a nd the
16.5 ROLE OF IRDA ( d l s of meetings o t e
i) The time an p ace h f ngs including the quorum
d b followed at sue mee I ( 1)
proce ure to e . f
necessary for the transaction o us1b ·ness under sub-section
IRDA has an important role to play under its various other powers.
of Section 1O; .
16.5.1 Delegation of Powers (Section 23)
(ii) The transactions of business at its meetings under sub-sect10n
The Authority may, by general or special order in writing, delegate (4) of Section 10;
to the Chairperson or any other member or office of the Authority
subject to such conditions, if any, as may be specified in the order (l.u.. ) ms and other conditions of service of officers an_d oth~r
such of its powers and functions under this Act as it may deem
The oyees o fthe Authority under sub-section (2) of Section. 12,
emplter
necessary. The Authority may, by a general or special order in writing, (iv) The powers and functions which may be deleg~ted to Committees
also form committees of the members and delegate to them the of the members under sub-section (2) of Section 23;
p owers and functions of the Authority as may be specified by the
regulations. (v) Any other matter which is required to b~, _or 1:°ay be, specified
by regulations or in respect of which prov1s1on is to be or may be
16.5.2 Establishment of Insurance Advisory Committee made by regulations.
(Section 25)

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 [ CHECK YOUR PROGRESS ~
Insurance Advisory Committee. 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, 1. Explain the objectives of IRDA Act. Discuss its composition.
agriculture, consumers, surveyors, agents, intermediaries, organisations
2. Explain the powers and functions of Insurance Regulatory
engaged in safety and loss prevention, research bodies and employees' Development Authorithy (IRDA).
association in the insurance sector. The Chairperson and the members
3. Discuss the role of IRDA.
of the Authority shall be the ex-officio Chairperson and ex officio members
of the Insuran ce Advisory Committee. The objects of the Insurance 4. Write short notes on :
Advisory Comm ittee shall be to advise the Authority on matters relating (i) Features of IRDA
to the making of the regulations under Section 26. Without prejudice to
(ii) IRDAAct, 1999
the provisions of sub-section (4), the Insurance Advisory Committee
may advise the Authority on such other matters as may be prescribed. ••••
16.5.3 Power to Make Regulations (Section 26)
The Authority may, in consultation with the Insurance Advisory
Committee, by notification, make regulations consistent with this Act