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Role of the Insurance Regulatory and Development Authority (IRDA)

The Insurance Regulatory and Development Authority(IRDA) was constituted to regulate and develop insurance business in India. As a key part of its role, it is responsible to protect the rights of policyholders. In order to create awareness about IRDA, it's role, duties and responsibilities are stated here under:
IRDA provides a certificate of registration to a life insurance company. IRDA is responsible for the renewal, modification, withdrawal, suspension or cancellation of this certificate of registration. IRDA frames regulations on protection of policyholders' interests. It offers policyholders the right to voice their complaints against insurers or insurance companies. The IRDA has set up the grievance redressal cell to take up the complaints of the policyholder. It specifies the requisite qualifications, code of conduct and practical training for intermediaries or insurance intermediaries and agents. It specifies the code of conduct for surveyors and loss assessors; It promotes efficiency in the conduct of insurance businesses; It promotes and regulates activities of professional organisations connected with life insurance; It levies fees and other charges to carry out the purposes of the IRDA Act; It can call for information from, undertake the inspection of, conduct enquiries and investigations including the auditing of insurers, intermediaries, insurance intermediaries and other organisations connected with the business of life insurance; It specifies the form and manner in which books of account should be maintained and statements of accounts should be rendered by insurers and other insurance intermediaries; It regulates the investment of funds by insurance companies; It regulates the maintenance of margins of solvency; It adjudicates disputes between insurers and intermediaries or insurance intermediaries; It specifies the percentage of premium income of the insurer to finance schemes for the promotion and regulation of certain specified professional organisations; It specifies the percentage of life insurance business to be undertaken by an insurer in the rural or social sector; and It exercises any other powers as may be prescribed

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA: 1. 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. 2. Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, 1. issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; 2. 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; 3. specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; 4. specifying the code of conduct for surveyors and loss assessors; 5. promoting efficiency in the conduct of insurance business; 6. promoting and regulating professional organisations connected with the insurance and re-insurance business; 7. levying fees and other charges for carrying out the purposes of this Act; 8. 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; 9. 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);

10. 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; 11. regulating investment of funds by insurance companies; 12. regulating maintenance of margin of solvency; 13. adjudication of disputes between insurers and intermediaries or insurance intermediaries; 14. supervising the functioning of the Tariff Advisory Committee; 15. specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f); 16. specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and 17. exercising such other powers as may be prescribed from time to time,

The Tariff Advisory Committee ascertains and regulates the rates, advantages, terms and conditions offered by insurers in respect of General Insurance Business relating to Fire, Marine, Motor, Engineering and Workmen Compensation. There are several regulations framed under the Tariff Advisory Committee, such as Workmens Compensation Tariff, All India Fire Tariff, Engineering Tariff, India Motor Tariff, Consequential Loss (Fire) Tariff etc. Insurance Regulatory Development Authority has deputed the Tariff Advisory Committee as the data repository for the Non-Life Insurance industry.

The Insurance Regulatory and Development Authoritys (Irda) recent decision to detariff more products will enhance the powers of the tariff advisory committee (TAC). The role of TAC is now confined to regulating the rates, advantages and terms and conditions that may be offered by the insurers in respect of general insurance business. With detariffing of more products, its role will be enhanced to collecting data, monitoring underwriting health of the companies etc, said an Irda circular. According to the circular sent to all the chief executive officers of general insurance companies, Irda said that in the new tariff free regime, TAC will perform the functions like, collection of data on premiums and claims, analysis of such data and dissemination of the results to the insurers; report to Irda on the underwriting health of the market and any aberrations in market behaviours; constitution of expert groups at the request of the general insurance... council, to look into underwriting issues and recommend necessary action; organising training to underwriters at the market level; and attend to public grievances on non-availability of insurance and try to resolve the issues by discussion with insurers. • Collection, analysis and
dissemination of data on premiums, claims • Report to Irda on underwriting health of the market, aberrations ... in market behaviours • Constitution of expert groups to look into underwriting issues

The insurers are free to have their own underwriting set up within the organisation and can decide on the classes of risk to be governed by internal tariffs and the classes that will be underwritten individually.Though motor holds sizeable chunk of the business, given its complexities and a wider presence across the segment, the industry will wait till such a time, when Irda... feels comfortable.

The rural market in India, constituting 742 million people, is by far the largest potential market in the world. The annual rural household income of Rs 56,630 (as per NCAER, IMDR 2002) coupled with changing rural aspirations in consumption patterns and lifestyles unfolds tremendous opportunities for rural marketing. However, some of the issues that seem to be hindering large-scale advent in the rural markets are lack of understanding of rural customer, inadequate data on rural markets, poor infrastructure, low levels of literacy and poor reach of mass media. The insurance sector, per se, also did not make much headway in the rural sector. The insurance market in India, liberalised in 2000 with the advent of private insurance companies in November 2000 has not expanded in real terms beyond the urban domain. The penetration of insurance in India is pitifully low and if we aim for the modest target of insurance premium... becoming 5% of GDP, insurance companies need to look at newer market segments rather than fight for a share in the same pie. There exists a vast potential in the rural areas where more than 70% of our population lives. But it is common perception and belief amongst the insurance companies that it is expensive to do business in rural areas. Most companies are focusing only on meeting regulatory requirements from rural areas and dont see them as commercially viable rural business opportunities, waiting to be exploited. Some of the questions tormenting the insurance marketers particularly the ones in the private sector are:

Is the Indian rural market for insurancea great promise or a great challenge? A potential miracle or a mirage? A mere regulatory obligation or a great opportunity? How is the rural market defined? Are rural operations cost-effective? Is it commercially wise to make huge investments to create a rural distribution... and delivery system? We at the Foundation of Research, Training & Education in Insurance (FORTE) thought it would be a great help to the industry if these issues were addressed. So we decided to commission a research study to Marketing and Research Team (MART). The study, titled Rural Insur ance: Issues, Challenges & Opportunities had the following objectives:
• Understand rural customers current knowledge, attitude and practice regarding finance, specifically savings, loans, bank dep osits as well as

insurance itself.
• Determine the potential rural customers perceived need for acce ptance of and willingness to purchase insurance policies.

• Gather inputs for the development of a broad marketing approach for each potential customer segment in terms of products/pricing of insurance

policies, promotion and development of communications relevant to the rural markets.

• Gather inputs.. for the development of a broad distribution strategy for each potential customer segment and identification of delivery

systems relevant to rural markets. Interesting findings The study brought forth revealing data. The rural folks have a strong saving habitthey save about one-third of their income annually across the three income segments studied. What was stunning was that the respondents, even those residing in backward areas, were quite conversant with insurance. The Indian rural market for insurance is not entirely an uninformed market. Almost 93% of the respondents were aware of life insurance; while 61% were aware of motor and accident insurance. Around 36% of them had bought some insurance or the other and another 38% of these policyholders had intention to buy more. A little over half (51%) of all the respondents had intentions of buying insurance products. Out of the non-policy holder respondents 62% intended to buy. If these numbers are extrapolated... over the macro level, rural population being 742 million, the potential market could be of mind-boggling proportions. Vibrant market Our research clearly indicates that the rural market is a vibrant market and holds tremendous potential for growth of insurance business, particularly because of the strong saving habit. While the industry would certainly be much heartened by the promising prospects in the rural sector, the real challenge for them would still be the distribution and delivery systems. Here again research has come up with valuable data about the extensive network built by the rural development agencies, the banks, the cooperative institutions, the NGOs and some industrial houses in the rural sector. Insurance companies would therefore be well advised to work out collaborative arrangements with these institutions to mutual advantage. Building infrastructure These institutions, having spent huge amounts for creating the infrastructure, will be happy to collaborate and recover some of the costs. Insurance companies would... be saving on huge potential investments that may be required to build up dedicated distribution and delivery systems and leverage the existing network at marginal costs. This indeed is a win -win situation. Another important observation is that the ongoing IT and telecom revolution in India has not bypassed the rural sector. The rural folks are reasonably technology-literate and are not averse to its use in their day-to-day activities. The state governments have also done their bit by inducting technology in their interface with them. This would certainly help in integrating the rural-urban markets. In order to further validate these findings, FORTE commissioned another research study to develop a rural distribution strategy as a case study in district Muzaffarnagar, UP. The study, titled Developing a Rural Distribution Strategy for Insurers focused and looked thre adbare at various distribution and delivery channels available in the district to reach out to the rural markets in a... cost-effective manner. The channels finally identified for distribution of insurance products were the panchayats, district cooperative banks, agriculture & dairy cooperatives and the agents. The study detailed operationalisation of these channels along with a comprehensive cost analysis to clearly highlight the viability of going to the rural markets. Therefore, there exists an immense opportunity to explore the rural potential with all its complexities and variables and meet the challenge of developing the insurance business in this sector, in tandem with its considerable economic growth. Says Godrej Soaps Adi Godrej, The rural market is not sleeping any longer. We are.

The IRDA has prepared a road map for detariffing all categories of general insurance business from January 1, 2007. According to the IRDA, the advantages of the detariffing are encouragement to scientific rating and adoption of better risk management practices; elimination of cross-subsidisation leading to independent pricing for each line of business; development of innovative practices, and generating customer-friendly options for the policyholders. The proposed detariffing in the general insurance industry would lead to a major shift in the focus of the companies, resulting in higher penetration in the country.

Detariffing entails moving from rule-based underwriting systems and practices to risk-based decision-making of the subject matter offered for underwriting. It means that the pricing of insurance policies is left to the individual insurance company, based on an analysis and perception of risk. Competition is expected to whittle down the fat margins that insurers enjoy in fire and engineering insurance, eliminate cross-subsidies and force companies to look at small businesses.