In this article, Agrima Tripathi, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the role and effect of IRDA in the Insurance Sector

Introduction

Insurance Regulatory and Development Authority of India Act was passed by the Parliament in the year December 1999. The Act received President’s approval in the year January 2000. The Act intents to protect the interest of the insurance policy holders. It also aims to encourage and ensure the systematic growth of the insurance industry. The Insurance Regulatory and Development Authority is a statutory body formed by the Insurance Regulatory and Development Authority of India Act, 1999.

What do we mean by Insurance?

Insurance is a monetary instrument, which reduces the financial burden in the events of eventualities, and provides a financial safety. A certain type of loss can be covered by paying a small premium. In case of loss, the Insurance Company will pay a certain amount of money, which will help in reducing the financial burden.

Insurance Products

There are a variety of Insurance products to cater to the different needs of different people. The customer has a lot of options to choose from depending on their needs. The customer is nowadays in place to analyze and compare the policies of various companies with one another and choose the best amongst them. The insurance industry has a large market to target. The Insurance products act more as a protection tool than as a way to save tax. As there is more demand from the customer for new, beneficial and improved insurance products, there is a healthy competition amongst the insurers. This acts as a boon to the customer. Improved products along with attractive schemes have been designed by the public sector to give tough competition to the private sector.

The market is full of different kinds of insurance products. Price, service and products are the main factors that differentiate one product from another. No Company can introduce a new product before taking a prior approval from Insurance Regulatory and Development Authority.

Insurance Regulatory and Development Authority of India

Composition of the Authority

The Authority Comprises of the following members mentioned below;-

1. The Authority comprises of chairman, whole time members and part time members and together they act as a group of members and work jointly not individually like Controller of Insurance.
2. The Authority will continue to work even in cases of death or resignation.
3. The Authority is a body corporate with perpetual succession and a common seal.
4. The Authority has the power to sue or can be sued in its own name.

Powers & Functions of the Authority

Section 14 of the Insurance Regulatory and Development Authority of India Act, 1999 states the powers and functions of the IRDA. The power and functions of the Authority are as follows:

1. The Authority aims to protect the interest of the insurance policyholders in the matters related to surrender value of the policy, settlement of insurance claims, insurable interest, nomination by policy holders etc.
2. The authority gives the Certificate of Registration to the applicant. It can also renew, modify, withdraw, suspend or even cancel the registration of the applicant
3. The Authority states the qualifications, code of conduct and practical training for the intermediaries and insurance agents.
4. The Authority promotes the efficiency in the conduct of the business of insurance.
5. The Authority states the code of conduct for surveyors and loss assessors.
6. The Authority promotes and controls the professional organizations that are connected with the insurance business. It levies fees and charges for carrying the purpose of this Act.
7. The Authority has the power to call for information, conduct investigation, audit and enquiry of the insurers, insurance intermediaries and organization connected with the business of insurance.
8. The Authority controls and regulate the rates, gains terms and conditions that are offered by the insurers with respect to the general insurance business.
9. The investment of funds by the insurance companies are regulated by the Authority.
10. The Authority regulates the margin of solvency.
11. The Authority provides dispute resolution between the insurers and insurance intermediaries.
12. The Authority controls the working of Tariff Advisory Committee.
13. The Authority lay down the percentage of premium income of the insurer to fund the schemes for promoting and controlling the professional organizations.
14. The Authority lay down the percentage of life insurance and general insurance business that can be carried out by the insurer in the rural or social sector.

Role of Insurance Regulatory and Development Authority (IRDA)

1. To protect the interest of and ensure just treatment to insurance policy holders.
2. To encourage and ensure the systematic growth of the insurance industry so as to benefit the common man and help in bringing economic growth.
3. To set, promote, monitor and apply high standards of integrity, fair dealing, financial viability and capability of those it regulates.
4. To ensure clarity, preciseness, transparency while dealing with the insurance policy holder. The Authority ensure that correct information about the products and services is passed on to the policy holders along with making them aware of their responsibilities.
5. To provide dispute resolution mechanism and ensure speedy settlement of genuine claims. The Authority must check insurance scams and other misconducts.
6. To take suitable steps against circumstances where set standards do not prevail or inappropriately enforced.
7. To bring about the optimal amount of self-regulation in day-to-day activities of the industry reliable with the requirements of the prudential regulation.

Effect of Insurance Regulatory and Development Authority (IRDA)

Effect on Regulation of Insurance Industry

Insurance Regulatory and Development Authority regulates the Insurance sector. It aims to protect the interest of the insurance policy holders. It also encourages and ensure the systematic growth of the insurance industry.

Effect over protection of policyholders

IRDA has great impact over the protection of policyholders. The Authority aims to provide fair treatment to all the policyholders.

Effect over Awareness about Insurance

IRDA is taking steps to increase awareness amongst the masses about the benefits of insurance. There is a separate Consumer education website of IRDA to educate people about insurance.

Effect over Insurance Market

There is a drastic effect of Insurance Regulatory and Development Authority over insurance market. IRDA regulates the insurance market and ensure the systematic and speedy growth of the insurance market.

Effect over Development of Insurance Product

All the insurance companies must take approval from Insurance Regulatory and Development Authority before launching any new product or before making any changes in the existing product or withdrawing a product. The insurers who wishes to launch a new product or make changes to the existing product or withdrawing a product shall submit an application to the Authority in the prescribed form along with the necessary details and reasons for the change reasons. The authority may ask for additional information if required. If no information is asked for then the insurer can start selling the product. The insurer can introduces the new product after allowing it for 60 days for non-life and 30 days for life for clearance by IRDA. This might be delayed due to lack of details about the product, which is necessary to assess the product before approval is given by the Authority.

Effect on Competition between Private and Public sector

As there is more demand from the customer for new, beneficial and improved insurance products, there is a healthy competition amongst the insurers. This acts as a boon to the customer. Improved products along with attractive schemes has been designed by the public sector to give tough competition to the private sector.

Effect over Banks and Post Offices

With the increasing awareness amongst people about the benefits of insurance, the flow of funds have shifted to the insurance industry from Banks and Post Offices. Insurance has become a medium for not only covering losses and risks but has also become a popular way to save tax.

Bhopal Gas tragedy – Importance of Insurance

A Story of Industrial Disaster vis-à-vis Insurance Protection

In 1970, Union Carbide India Ltd (UCIL) established a pesticide manufacturing plant in Bhopal. Pesticides are substances, which shield crops from being damaged by pests. Pesticides are toxic chemicals. In December 3, 1984, a fatal gas, namely, Methyl Isocyanate (MIC) started leaking from a tank at UCIL Bhopal plant. Due to leakage of this fatal gas, approximately 3,800 people lost their lives and many other suffered other health related ailments.

Human life is precious and nothing can compensate the loss of a life. The company was bound to pay compensation to the dependents of the victims to lost their lives. UCIL had to compensate for the damages caused.

Even though human life is invaluable but this situations like these Insurance acts as a big relief. Insurance helps to recover the losses to some extent as the resulting financial liabilities could be transferred to the insurer. Insurance acts as a preventive measure for the unforeseen events, which reduces the financial burden.

Ultimately, an Act was introduced to provide damages to the sufferers of the accidents, which has resulted due to the handling of hazardous chemicals. The Act is Public Liability Insurance Act, 1991, which is applicable to all the owners, related with the manufacturing or handling of the hazardous substance.

Workmen Compensation Act, 1923 also provide compensation to employees in case of injury at the workplace. The employer is liable to pay compensation to the injured employee in case of mishappening. The amount of compensation depends on various factors like nature of the injury, age of the employee, the average monthly wage of the employee.

Furthermore, if the victims who died in the Bhopal gas tragedy had their lives insured, their families would have received some amount of money as help. Money cannot compensate anyone’s life but it can surely act as some support to tide over their loss. In today’s time of uncertainty, everyone must take the benefit of insurance.

Conclusion

Indian economy is growing rapidly. There are several new players in the insurance industry, which has opened new opportunities and has contributed the employment generation. Insurance awareness is very important at different levels of the society. Individuals should know the importance and the consequent benefits of insurance. In order to achieve higher levels of penetration and spread of insurance among larger sections of the population, the insurance companies should pay more concentration on the rural communities rather than the urban and the higher segment of the society. With IRDA in place, the insurance sector is regulated and the interest of the policyholders is ensured. IRDA also has to bring necessary changes whenever required in consultation with the stakeholders.