With this growing awareness, India has seen a spike in investment in the insurance industry. Health and life insurance is not just a matter of benefit but a necessity in times of emergency. It is predicted that the majority of individuals will be inclined to get a risk cover.
COVID-19 shook the world within a couple of months. It brought to light the importance of precaution amidst the global panic created. People from all backgrounds and age groups have now become sensitive about their health and are adopting the path of health and life insurance
Many of you may be acquainted with the word "IRDA," which stands for Insurance Regulatory and Development Authority. The IRDA was established in 2000 before which indian government had full control over the insurance industry.
Following the recommendation of the Malhotra Committee report in 1999 this apex organisation was formed. In August 2000, the IRDA began accepting registration applications by invites, enabling foreign businesses to participate up to 26% in the market. The concept of insurance dates back 6,000 years where individuals back then also sought some kind of safety net. This need was realised and gave birth to the concept of insurance.
The dictionary meaning of insurance states “an arrangement by which an organisation undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium”.
The notion of a joint family prevails in India, with the head, most frequently the grandparents, acting as the guardian of each member. The family's requirements are met by the head, who maintains a balance of fair practises to keep the family together.
He treats everyone fairly and assists families in need by advising them on how to get out of their problem. Now, much like a family's head of household, IRDA governs the Indian insurance sector according to its own set of laws and regulations.
(Related blog: Types of insurance)
Insurance Regulatory and Development Authority (IRDA)
Insurance when introduced in India was under the government regulation. However, to institute a standalone body to oversee the functioning of the growing insurance industry, a separate regulatory body was set up known as the Insurance Regulatory and Development Authority of India or IRDA.
This organisation is responsible for both life and general insurance firms. It is the body that lays forth rules and regulations governing the appropriate functioning, life, and insurance of the Indian insurance sector. The IRDA is also in charge of regulating and developing these areas.
When a swarm of new insurance firms arose, each with its own set of business laws and prices, the insurance industry's image was jeopardised. As a result, the Indian government established an independent organisation to oversee the regulations and protect the interests of customers.
The IRDA was created in this manner. This body is now the managing authority of the development of the Insurance Industry in India.
(Related blog: Role of Big Data in Insurance Industry)
Composition of Authority
As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority of India (IRDAI, which was constituted by an act of parliament) specified the composition of Authority. The Authority is a ten member team consisting of
Five whole-time members;
Four part-time members,
The Government of India would appoint these members from among those who possess attributes that would be beneficial to the Authority, such as outstanding expertise in the fields of life insurance, financial markets, economics, law, accounting, and general insurance. (As discussing financial market and insurance, read about the impact of COVID-19 on financial market)
They should also have relevant experience in these domains. The chairman and each of the five full-time members, on the other hand, are supposed to have knowledge and expertise in life insurance, general insurance, or actuarial science. Subhash Chandra Khuntia is the Authority's current chairman, appointed in 2018.
Functions of IRDA
Some of the IRDA's main responsibilities are as follows:
To ensure that the policyholders are treated equally and their interests are also safeguarded.
Promoting quick development and smooth expansion of the insurance sector (including annuity and surplus payments) in the public interest, as well as long-term finance to accelerate economic growth;
Few of the main responsibilities are to encourage, monitor, and maintain standards of honesty, liquidity position, fair dealing, and expertise among those it governs.
Ensure that legitimate claims are swiftly resolved, eliminate insurance fraud and other wrongdoing, and provide an efficient remedy system for complaints;
To promote justice, visibility and order in financial insurance markets and build a reliable management information system that ensures that market players implement high financial soundness requirements and to act immediately where criterias are inadequate or faulty.
The achievement of maximal self-regulation in the daily operations of the industry while being ethical and to register the businesses that operate.
The insurance ombudsman was established by the Government of India in 1998 with the goal of quickly resolving insured customers' concerns and reducing the difficulties they face in doing so.
An insurance Ombudsman is appointed for three years or until the incumbent reaches the age of 65, whichever comes first.
After receiving the complaint, the ombudsman must make a decision within three months. The insurance companies are bound by the awards.
If the consumer is dissatisfied with the Ombudsman's decision, he can seek remedy from other sources such as Consumer Forums and Courts of law.
In the insurance industry, there are now 17 insurance ombudsmen around the country.
(Similar blog: Types and Functions of an Ombudsman)
Working of IRDA
Consider how vital it is to preserve decorum when running any professional set-up or otherwise. As a result, anyone who breaches the regulation and causes a disturbance must be arrested right away. In cases when this is the case, IRDA operates and behaves as described below.
IRDA is a self-governing organisation whose sole purpose is to regulate fair practises in the insurance industry in order to prevent consumer loss. By 2020, the sector is estimated to be worth US$280 billion in terms of overall market size. It asserts that there is still a long way to go, necessitating immediate IRDA action.
Here's how IRDA operates to keep the growth going:
The ultimate purpose is to safeguard policyholders' interests during claim processing, insurance issuance, and policy termination. As a result, it ensures that no insurance company may refuse a claim on their own initiative unless it is outside the limits of the policy.
There is a need to tame the market to a single parameter that draws the participants together and then allows them to compete only on the basis of discounts. As a result, the Insurance Regulation and Development Authority (IRDA) has established a code of conduct for all insurance firms, surveyors, and loss assessors.
It mandates yearly or need-based audits, conducts investigations, and requests information from insurance firms or intermediaries to avoid any wrongdoing.
Regulate the rates and terms given by insurance firms to ensure that consumers are treated equally.
If a disagreement occurs between the insurer and the policyholder, the IRDA will intervene to help resolve it.
They bound the biggest risks to the Tariff Advisory Committee to prohibit various insurers from quoting prices according to their convenience. Following that, the insurers calculate the percentage of premium money that will be required to pay professional organisations.
With the development of both the urban and rural sectors in mind, IRDA requires insurers to carry a minimum percentage of both life and non-life business.
The scope of work is wide and IRDA as a body works abiding its limit without favoring any single insurance companies.
(Must read: Types of financial risks)
Types of insurance policies regulated by IRDA
The broad classification of the insurance sector is in two parts - life and non-life which is also known as general insurance.
For life insurance, as the name suggests, it governs the policies that ensure the safety of your life. But what is general insurance?
General insurance covers everything other than life which includes health insurance, car insurance, two wheeler insurance, home insurance, commercial insurance, travel insurance and more.
These are some of the critical roles that IRDA oversees. While they are not limited to the above-mentioned roles, they also include granting registration to insurance companies to conduct their business in the country. It also settles the disputes that arise between the insurer and the policyholders and many such other functions.
(Recommended blog: What is SEBI? Structure and Functions)
Insurance is an essential component of the economy that requires adjustments from time to time to meet people's requirements. Individuals should be informed of the options accessible to them in the form of health and life insurance.
The Insurance Regulatory and Development Authority of India is responsible for ensuring that policyholders' interests are protected. Despite the fact that competition has grown as a result of required reforms, the insurers' and policyholders' objectives can be met.