Mithibai College of Arts, Chauhan Institute of Science

and Amrutben Jivanlal College of Commerce & Economics

Bhaktivedanta Swami Marg, Vile Parle (West) Mumbai

400056

PROJECT REPORT ON

IRDA
SUBMITTED BY:
KARISHMA SHAH

BACHELOR OF COMMERCE
BANKING & INSURANCE
SEMESTER VI

MITHIBAI COLLEGE
VILE PARLE (W)

SUBMITTED TO
UNIVERSITY OF MUMBAI
ACADEMIC YEAR
2016 - 2017

PROJECT GUIDE
PROF. MANDAR THAKUR
 CERTIFICATE

This is to certify that Kumari KARISHMA SHAH of B.Com. (Banking

& Insurance) - Semester VI (2016 2017) has successfully
completed the project on IRDA under the guidance of
Prof.MANDAR THAKUR. The information submitted is true and
original.

_______________________ _____________________

Project Guide External Examiner

(Prof. MANDAR THAKUR)

_________________________

Signature of Principal

College Seal
 DECLARATION

I, KARISHMA SHAH OF MITHIBAI COLLEGE of TYBBI [Semester

VI] hereby declare that I have compiled this project on IRDA in the
academic year 2016-17. The information submitted is true and
original to the best of my knowledge.

DATE:

PLACE:

Signature of Student
(KARISHMA SHAH)
Roll No: 40
 ACKNOWLEDGEMENT

I would like to thank Mithibai College & the faculty members of

BBI for giving me an opportunity to prepare a project on "IRDA". It
has truly been an invaluable learning experience. Completing a task
is never one man's effort. It is often the result of invaluable
contribution of number of individuals in direct or indirect way in
shaping success and achieving it.

I would like to thank principal of the college Dr. RAJPAL

SHRIPATH HANDE and Co-coordinator Prof. MANDAR THAKUR
for granting permission for this project. I would like to extend my
sincere gratitude and appreciation to Prof. VINAY JHADAV who
guided me in the study of this project. It has indeed been a great
learning, experiencing and working under him during the course of
the project.

I would like to appreciate all my colleagues and family members

who gave me support and backing and always came forward
whenever a helping hand was needed. I would like to express my
gratitude to all those who gave me the possibility to complete this
project study.

TABLE OF CONTENTS
4 | Page
5 | Page
 1. INTRODUCTION OF INSURANCE
Insurance is a federal subject in India. It is a subject matter of
solicitation. The legislations that deal with insurance business in India
are Insurance Act, 1938 and Insurance Regulatory & Development
Authority Act (IRDA), 1999.
Insurance is defined as is a form of risk management primarily used
to hedge against unforeseen risks of contingent losses. Another
definition for Insurance is the equitable transfer of the risks from the
possibility of occurrence of losses, from one entity to another (or host
of others), by the method of diversification in exchange for a
premium. As a result the ramifications of a large and devastating loss
can be minimized to a great extent. An Insurer is a company
designing, promoting and selling the insurance products and services
amongst the public.
An insured or policyholder is the person or entity purchasing the
insurance products and services. Risk management, the practice of
appraising and controlling ever pervading risks, has evolved as a
discrete field of study and practice. The study of Insurance
incorporates the discipline of Risk Management which acts as a
driving force.

6 | Page
 2. INTRODUCTION OF 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
societies245 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. 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

7 | Page
Malhotra, former Governor of RBI, to propose recommendations for
reforms in the insurance sector.

3. EVOLUTION OF IRDA
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 IRDA was incorporated as a statutory body in
April, 2000. 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
countrys GDP. A well-developed and evolved insurance sector is a
boon for economic development as it provides long- term funds for

8 | Page
infrastructure development at the same time strengthening the risk
taking ability of the country.

4. 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; 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

9 | Page
 To bring about optimum amount of self-regulation in day-to-day
working of the industry consistent with the requirements of
prudential regulation.

5. DUTIES POWERS AND FUNCTIONS OF IRDA

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
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;

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 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
organisations 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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 6. ESTABLISHMENT AND INCORPORATION OF
THE AUTHORITY
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.

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.

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

FURNISHING OF RETURNS TO CENTRAL

GOVERNMENT

The Authority shall furnish to the Central Government at such time

and in such form and manner as may be prescribed, or as the Central
Government may direct to furnish such returns, statements and other
particulars in regard to any proposed or existing programme for the
promotion and development of the insurance industry as the Central
Government may, from time to time, require. Without prejudice to the
provisions of sub-section(1), the Authority shall, within nine months
after the close of each financial year, submit to
the Central Government a report giving a true and full account of its
activities including the activities for promotion and development of
the insurance business during the previous financial year.
Copies of the reports received under sub-section (2) shall be laid ,
as soon as may be after they are received, before each House of
Parliament.
7. ESTABLISHMENT OF INSURANCE ADVISORY
COMMITTEE
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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 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, agriculture, consumer fora,
surveyors, agents, intermediaries, organisations engaged in safety and
loss prevention, research bodies and employees' association in the
insurance sector.
The Chairperson and the members of the Authority shall be the ex-
officio Chairperson and ex-officio members of the Insurance Advisory
Committee. The objects of the Insurance Advisory Committee shall be
to advise the Authority on matters relating to the making of the
regulations
under section 26. Without prejudice to the provisions of sub-section
(4), the Insurance Advisory Committee may advise the Authority on
such other matters as may be prescribed.

Power of investigation and inspection by Authority

The Authority may, at any time, by order in writing, direct any

Person (hereafter in this section referred to as "Investigating
Authority") specified in the order to investigate the affairs of any
insurer and to report to the Authority on any investigation made by
such Investigating Authority:
Provided that the Investigating Authority may, wherever necessary,
Employ any auditor or actuary or both for the purpose of assisting
him in any investigation under this section.
Notwithstanding anything to the contrary contained in section 235
of the time, and shall, on being directed so to do by the Authority,
cause an inspection to be made by one or more of his officers of any
insurer and his books and account; and the Investigating Authority
shall supply to the insurer a copy of this report on such inspection.

It shall be the duty of every manager, managing director or other

officer of the insurer to produce before the Investigating Authority

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directed to make the investigation under sub-section (1), or inspection
under sub-section (2), all such books of account, registers and other
documents in his custody or power and to furnish him with any
statement and information relating to the affairs of the insurer as the
said Investigating Authority may require of him within such time as
the said Investigating Authority may specify.
Any Investigating Authority, directed to make an investigation
under sub-section (1), or inspection under sub-section (2), may
examine on oath, any manager, managing director or other officer of
the insurer in relation to his business and may administer oaths
accordingly.
The Investigating Authority shall, if he has been directed by the
Authority to cause an inspection to be made, and may, in any other
case, report to the Authority on any inspection made under this
section.
On receipt of any report under sub-section (1) or sub-section (5),
the Authority may, after giving such opportunity to the insurer to
make a representation in connection with the report as, in the opinion
of the Authority, seems reasonable, by order in writing:
(a) require the insurer, to take such action in respect of any
matter arising out of the report as the Authority may think
fit; or
(b) cancel the registration of the insurer; or
(c) direct any person to apply to the court for the winding up of
the insurer, if a company, whether the registration of the
insurer has been cancelled under clause (b) or not.
The Authority may, after giving reasonable notice to the insurer,
publish the report submitted by the Investigating Authority under sub
section (5) or such portion thereof as may appear to it to be necessary.
The Authority may by the regulations made by it specify the
minimum information to be maintained by insurers in their books, the
manner in which such information shall be maintained, the checks and
other verifications to be adopted by insurers in that connection and all
other matters incidental thereto as are, in its opinion, necessary to
enable the Investigating Authority to discharge satisfactorily his
functions under this section.

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 Offences by Companies

Where any offence under this Act has been committed by a

company, every person who, at the time the offence was committed,
was in charge of, and was responsible to, the company for the conduct
of the business of the company as well as the company shall be
deemed to be guilty of the offence and shall be liable to be proceeded
against and punished accordingly; Provided that nothing contained in
this sub-section shall render any such person liable to any
punishment, if he proves that the offence was committed without his
knowledge or that he had exercised all due diligence to prevent the
commission of such offence.
Notwithstanding anything contained in sub-section (1), where any
offence under this Act has been committed by a company and it is
proved that the offence has been committed with the consent or
connivance of, or is attributable to any neglect on the part of, any
director, manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall be deemed to be
guilty of that offence and shall be liable to be proceeded against and
punished accordingly.

Penalty for failure to comply with section 32B

If an insurer fails to comply with the provisions of section 32B, he

shall be liable to a penalty not exceeding five lakh rupees for each
such failure and shall be punishable with imprisonment which may
extend to three years or with fine for each such failure.

Penalty for failure to comply with section 32C

If an insurer fails to comply with the provisions of section 32C, he

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shall be liable to a penalty not exceeding twenty-five lakh rupees for
each such failure and in the case of subsequent and continuing failure,
the registration granted to such insurer under section 3 shall be
cancelled by the Authority.

Objectives of IRDA Act, 1999

1. To protect the interest of and secure fair treatment to policyholders;

2. 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;
3. To set, promote, monitor and enforce high standards of integrity,
financial soundness, fair dealing and competence of those it
regulates;
4. 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;
5. To ensure speedy settlement of genuine claims, to prevent
insurance frauds and other malpractices and put in place effective
grievance Redressal machinery;
6. 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;
7. To take action where such standards are inadequate or ineffectively
Enforced
8. To bring about optimum amount of self-regulation in day to day
working of the industry consistent with the requirements of
prudential regulation.

8. OMBUDSMEN

The Ombudsmen are appointed in accordance with the Redressal of

Public Grievances Rules, 1998 to resolve all complaints relating to

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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.
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

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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
recommendations to both parties in the event that the complaint is
settled by agreement between both the parties.14 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.

9. 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

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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.
Separatecompanies 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.

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

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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.

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 bona
fides 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 documents evidencing deposit,

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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 forregistration,
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
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

22 | P a g e
 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 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.
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

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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.

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

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 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 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,

10. CONSUMER PROTECTION

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There are different ways of looking at a consumers 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 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.

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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.
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

Advice and sales

The advice and sales area is rife with pain points which ultimately
results in mis-selling and loss of confidence in insurance services per
se. The starting point is misleading, improper or ignorant advice.
Therefore an insurance advisor or sales person, who may be an in-
company employee, an external tied agent, a corporate agent or a
broker, needs to be trained (not merely in mandated training), but in
rendering trust building advice which needs perceptive product
knowledge in the context of customers life cycle moment in terms

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of economic, demographic, social, life cycle, or other vulnerability
contexts; keeping in mind the level of risk aversion that the customer
has. The insurance advisor must be guided by the underwriter in
assuring the contextualization of risk for the customer and offering a
suitable product. Insurance is not to be hard sold today, but to be
discussed in the risk milieu of the customer and the financial planning
needed to meet the life situation of the customer. The context of
insurance is primarily risk transfer for the customer, not investment or
covering loan risks and so on. However, many of the sales and
advice teams do not see customer needs in terms of customer good
only, but push products in terms of the urgencies of the insurer, the
commission returns for the intermediary and the concerns of other
stakeholders such as lenders and so on. So the concept of 'treating
customers fairly', needs to become an active concept from the starting
of the relationship itself. The second aspect is the offer that the
customer needs to make to the insurer and the disclosures on risk that
needs to be elicited so that the insurer has all relevant information as
disclosed by the customer to understand the real risk exposures, so as
to fashion the right product and price point for the customer. The
intermediary needs to play the lead role in preventing attempt at fraud,
non-disclosure and misrepresentation so that genuine customers can
be served better and wrong costs are not added to the insurer pool.
Thus the intermediary service is vital in removing knowledge and
service asymmetries for both the contracting parties as under:

VALUES THAT INTERMEDIARIES OFFER

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 To the Customer To the Insurer

Consumers to be motivationally pushed as they Insurer aided to attract good risks by

may not enjoy buying insurance reducing the knowledge asymmetry
between insurer and the insured.

Makes pricing of risks far more accurate,

Advises the right products and the methods to
determine the best buy and remove the search
costs for the insured
Explains the complex language of insurance
and reduces the uncertainty costs of the insured
Intermediaries reduce the procedural hassles
involved as also the complexity costs involved.
They help insured in additional services such as
endorsements, renewals, refunds etc. to
enhance the value of the coverage.
In claims the insured needs all the hand holding
he can get to speed assessment and settlement.
They evaluate customer needs and help to sell
the full line of products based on life cycle and
occupational needs.
by distinguishing the risks as per the risk
categories made by the underwriters
Reduces the frictional costs that can arise
out of asymmetric information
The intermediary brings to the table the
behavioural aspects of the insureds risk
Intermediaries match buyer needs with
insurers products and also give feedback
on customer demands and aspirations
The intermediary helps to communicate
insurer requirements in case of claim and
to help in speedy settlement of the claim
Intermediaries provide the full
information required to help proper
underwriting and rating.

They can make transparent the product and how They help to carry out research, test and
it provides the security as needed by the develop new products, or new services.
customer.
They help insurer competitiveness by
The intermediary can offset the actuarial mind- collection of risk specific or general
set of an insurer who may treat insureds as a information.
mere risks to berated.
They assist in policy renewal and the
They help customers to trade up to better lifelong retention of the customer
products when made available
They give feedback on the quality of
They offer relevant risk management, service rendered by the insurer.
informational, and relational services to the
insured.

Underwriting

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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
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

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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 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 undergo change, such as increase in premium

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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 companys claim service attitude can damage
irreparably a companys brand equity and reputation. 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

32 | P a g e
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. 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.

33 | P a g e
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 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

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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 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.

11. NEW LAWS AND GUIDELINES

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The Insurance Regulatory and Development Authority (IRDA) have
issued disclosure norms for insurance companies, mandating them to
publish accounts on a half-yearly basis. The disclosure norms are seen
as a precursor to allowing insurance companies to hit the primary
market.
According to the new norms, insurers will have to publish their
balance sheet on half-yearly basis starting from the period ending
March 31, 2010, i.e. beginning with the October-March period. Such
disclosures will be necessary for all insurers even if they are not listed
on any stock exchange, the IRDA said.
IRDA said several insurance companies will be completing 10 years
shortly, after which they may be allowed to go for an initial public
offer (IPO).
It is also essential that investors are made fully aware of the financial
performance, company profile, financial position, the risk exposure,
elements of corporate governance in place and the management of the
insurance companies. Such data shall preferably be made available for
at least a 5-year period prior to the IPO.
The regulator has directed all firms to come up with a public
disclosure framework to ensure a fair and stable insurance market.
IRDA has also said that key analytical ratios of insurance companies
have to be published in at least one English daily circulating
substantially in the whole of India and in one regional language
newspaper.
Insurers have also been asked to host all the forms including revenue
account, profit &loss account, balance sheet, segmental reporting,
schedules to accounts and other forms, on their websites, on a
quarterly/half-yearly/ yearly basis.

36 | P a g e
According to the IRDA, the International Association of Insurance
Supervisors (IAIS) has recognized that insurers have an equal if not
greater responsibility towards policyholders than their duty towards
the investors. This is because if insurers become insolvent, loss to
policyholders is much more than that to investors.
Public disclosures, on the risks faced by the insurers, provide
information to policyholders that help them make informed decisions
before entering into an insurance contract.
At present, in India, it may not be possible for an individual
policyholder to have necessary ability and resources to undertake the
task of assessing the insurers. However, various expert stakeholders in
the market can provide necessary inputs based on the disclosures,
which will help them in assessing the risk exposure of an insurer
while entering into a contract with an insurer.
For better understanding of Unit-linked life insurance products
(ULIP) by intending investors/policyholders, the Insurance
Regulatory and Development Authority (IRDA) have put forth
detailed guidelines for companies selling these. There has to now be a
minimum lock-in period of three years and all insurance companies
selling ULIP need to provide for reasonable insurance cover, with a
linkage to the premium payment during the term of the contract, along
with availability of the greater part of the targeted sum at the longer
end.
For better understanding of the complexities of ULIP, the insurance
companies should provide separate training to all
agents/intermediaries before they are
Authorized to sell ULIP. Also, periodical in-house refresher training
to those involved in soliciting business. Insurance companies are
being asked to follow a uniform practice for rounding off the unit
prices.

37 | P a g e
Further, any advertisement by insurance companies should clearly
distinguish ULIP from traditional life insurance products and also
make clear that the premiums and funds are subject to certain charges
related to the fund or to the premium paid. IRDA has also asked all
life insurers to furnish data on switching options exercised by
policyholders.

IRDA New Guidelines for Insurance Agents

In a first of its kind measure, Insurance Regulatory & Development

Authority has decided to penalize agents if the insurance policies are
not renewed. The move, aimed at curtailing wrong selling, will entail
commissions being retracted from agents and credited to the
policyholders account. And such not renewed policy to be treated as
Single Premium Policy".
Every insurance agent shall,
i) identify himself and the insurer of whom he is an insurance agent;
ii) show the agency identity card to the prospect, and also
disclose the agency appointment letter to the prospect on
demand;
iii) disseminate the requisite information in respect of insurance
products offered for sale by his insurer and take into account the
needs of the prospect while recommending a specific insurance plan;
iv) where the Insurance agent represents more than one insurer
offering same line of products, he should dispassionately advice the
policyholder on the products of all Insurers whom he is representing
and the product best suited to the specific needs of the prospect.

38 | P a g e
v) disclose the scales of commission in respect of the insurance
product offered for sale, if asked by the prospect;
v) indicate the premium to be charged by the insurer for the
insurance product offered for sale;
vi) explain to the prospect the nature of information required in the
proposal form by the insurer, and also the importance of disclosure of
material information in the purchase of an insurance contract;
vii) bring to the notice of the insurer every fact about the prospect
relevant to insurance underwriting, including any adverse habits or
income inconsistency of the prospect, within the knowledge of the
agent, in the form of a report called Insurance Agents Confidential
Report along with every proposal submitted to the insurer wherever
applicable, and any material fact that may adversely affect the
underwriting decision of the insurer as regards acceptance of the
proposal, by making all reasonable enquiries about the prospect;
viii) obtain the requisite documents at the time of filing the proposal
form with the insurer; and other documents subsequently asked for by
the insurer for completion of the proposal;
ix) advise every prospect to effect nomination under the policy
x) inform promptly the prospect about the acceptance or rejection
of the proposal by the insurer;
xi) render necessary assistance and advice to every policyholder on
all policy servicing matters including assignment of policy, change of
address or exercise of options under the policy or any other policy
service, wherever necessary;
xii) render necessary assistance to the policyholders or claimants or
beneficiaries in complying with the requirements for settlement of
claims by the insurer;

39 | P a g e
 No insurance agent shall,----
a) solicit or procure insurance business without being appointed to
act as such by the insurer
b) induce the prospect to omit any material information in the
proposal form;
c) induce the prospect to submit wrong information in the
proposal form or documents submitted to the insurer for acceptance of
the proposal;
d) resort to multilevel marketing for soliciting and procuring
insurance policies and/or induct any prospect/policyholder to join a
multilevel level marketing scheme.
e) behave in a discourteous manner with the prospect;
f) interfere with any proposal introduced by any other insurance
agent;
g) offer different rates, advantages, terms and conditions other
than those offered by his insurer;
h) demand or receive a share of proceeds from the beneficiary
under an insurance contract;
i) force a policyholder to terminate the existing policy and to
effect a new policy from him within three years from the date of such
termination of the earlier policy;
j) apply for fresh agency appointment to act as an insurance
agent, if his agency appointment was earlier cancelled by the
designated official, and a period of five years has elapsed from the
date of such cancellation;
k) become or remain a director of any insurer.

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 12. IMPACR 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.
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

41 | P a g e
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 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

42 | P a g e
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 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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 13. IRDA AND MICROINSURANCE
Insurance Regulatory and Development Authority of India (IRDAI)
has created a special category of insurance policies called micro-
insurance policies to promote insurance coverage among
economically vulnerable sections of society. Regulations on micro-
insurance were officially gazette by the IRDA on 30 November 2005.
The regulation provides definitions of micro-insurance products
covering life and general insurance General micro insurance
product means any health insurance contract, any contract covering
the belongings, such as, hut, livestock or tools or instruments or any
personal accident contract, either on individual or group basis, as per
terms stated in Schedule-I appended to these regulations. Life micro
insurance product means any term insurance contract with or without
return of premium, and endowment insurance contract or health
insurance contract, with our without an accident benefit rider, either
on individual or group basis, as per terms stated in Schedule-II
appended to these regulations.
The micro-insurance regulations promote extensive use of
intermediaries by the insurers for selling and servicing various
micro-insurance products. The regulation also creates a new
intermediary called the micro-insurance agent. The regulation
clearly defines MI agents and has imposed minima in terms of
the number of years of experience (at least 3) of working with
low income groups. It also emphasises the need for such agents
to have appropriate aims and objectives, a good track record,
transparency and accountability stated in the bye-laws with
demonstrated involvement of committed people. This has been

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 done in order to prevent the engagement of unscrupulous
operators in the activity. However, the onus for the selection of
appropriate MI agents and their capacity building lies with the
insurance company. Intermediary: The micro insurance agent,
can be a Non-Governmental Organization (NGO), MFI or other
community organization such as Self Help Groups (SHG)
appointed by an insurer to distribute micro-insurance through

specified persons. Micro-insurance agents enter into a deed of

agreement with the insurer. They abide by the code of conduct
defined by the IRDA and attend 25 hours of training (down from
100 hours originally required for conventional insurance agents
but now reduced to 50 hours) in the local language at the
expense of the insurer. There is no qualifying examination,
unlike the case of ordinary insurance agents. According to the
regulation,

(a) Non-Government Organization (NGO) means a non-profit

organization registered as a society under any law, and has been
working at least for three years with marginalized groups, with
proven track record, clearly stated aims and objectives,
transparency and accountability as outlined in its memorandum,
rule, by-laws or regulations as the case may be, and
demonstrates involvement of committed people.

(b) Self Help Groups (SHG) means any informal group consisting of
ten to twenty or more persons and has been working at least for

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 three years with marginalized groups, with proven track record,
clearly stated aims and objectives, transparency and
accountability as outlined in its memorandum, rules, by-laws or
regulations, as the case may be, and demonstrates involvement
of committed people.

(c) Micro-Finance Institutions (MFI) means any institution or entity

or association registered under any law for the registration of
societies or co-operative societies, as the case may be, inter alia,
for sanctioning loan/finance to its members.

IRDA has recognized four categories of intermediaries: brokers,

agents, corporate agents, and Micro-insurance (MI) agents.
Categories other than MI agents may sell micro-insurance but
they do not benefit from the concessions allowed for the MI
agents. However, a micro-insurance agent shall not distribute
any product other than a micro insurance product. The
regulation provides for MI agents to perform the following
functions

(a) Collection of proposal forms

(b) Collection of self declaration from the proposer that he/she is in

good health.

(c) Collection and remittance of premium

(d) Distribution of policy documents

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(e) Maintenance of registers of all those insured and their dependants
covered under the micro insurance scheme, together with details
of name, sex, age, address, nominees and thumb
impression/signature of the policyholder.

(f) Assistance in the settlement of claims

(g) Ensuring nomination to be made by the insured

(h) Any policy administration service

A cap has been put on commission, between 10 and 20% of premiums

per year according to type and mode of insurance payment,
which is in excess of what conventional agents would normally
earn. The rates of commission applicable to MI agents are

Life insurance business General insurance business

Single Premium policies 15% of the premium
15% of the single premium
Non-single premium policies
20% of the premium for all the
years of the premium paying
term
The commission rates prescribed above are more liberal than the 60%
(of a single years premium) payable under ordinary business in
the case of life insurance and 10% in the case of general
insurance. This is based on the logic that an MI agent has to
perform a number of functions which mainstream agents do not
have to undertake. MI agents may thus receive commission at

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different rates from those applicable to other intermediaries. The
commission structure is, however, changed to remove up-front
payments in favour of payments upon the performance of
certain functions. For group insurance products, the insurer may
decide the commission subject to the overall limits specified by
IRDA. MI agents may route premiums and claims payments
through their books (such as receive individual premiums and
pay it over as one amount). This is not allowed for other
intermediaries and is considered important in managing the cost
of intermediation.

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