Law of Insurance

Dr. Nidhi Chauhan

Madhusudan Law University, Cuttack
 Regulation of Insurance Business in India
In 1993, the Government set up a committee under the chairmanship
of RN Malhotra to propose recommendations for reforms in the
insurance sector. The objective was to complement the reforms
initiated in the financial sector.
The committee submitted its report in 1994 wherein, among other
things, it recommended that the private sector be permitted to enter
the insurance industry. They stated that foreign companies be allowed
to enter by floating Indian companies, preferably a joint venture with
Indian partners.
• 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% in the equity share capital of the Insurer.
• This limit was later raised to 49% during the year 2016. The limit of
foreign investments in intermediaries has increased from 49% to
100% in year 2019.
• The Authority has the power to frame regulations under Section
114A of the Insurance Act, 1938 and has from the year 2000 onwards
various regulations ranging from registration of companies for
carrying on insurance business to protection of policyholders’
interests were framed.
• Insurance Regulatory and Development Authority of India (‘IRDAI’) is
the Regulator for Insurance Companies operating in India.
• The mission of IRDAI is to protect the interests of Policyholders and
to promote orderly growth of the Indian insurance industry. Every
Insurance Company will have to register themselves with IRDAI and
obtain a Certificate of registration for doing insurance business in
India.
• IRDAI also regulates the Insurance Intermediaries like Corporate
Agents, Insurance Brokers and other intermediaries by requiring
them to have a Certificate of registration before they start doing any
insurance solicitation.
• IRDAI have issued many Regulations and Guidelines under the
framework provided under the Insurance Act, 1938.
• They have powers of inspection and investigation and to prevent any
insurer or intermediary to stop doing business if it is expedient to do
so in the interests of the Policyholders or in Public interest.
 Insurance Market
• An Insurance Marketing typically comprises of the following three
stakeholders:

✔ Policy Holder
✔ Insurance Agent or Insurance intermediary
✔ Insurance Company/ Insurer
 Policy Holder

• Policyholder is the Customer to whom the Policy is issued.

• The Policyholder can be an Individual Policyholder or a Corporate
Policyholder.
• Individual Policyholders are also called the Retail segment and
constitutes the biggest chunk of Customers.
• Corporate Policyholders comprise of Business entities that purchase
insurance cover for various business needs.
 Insurance Intermediary
• Insurance intermediaries serve as a bridge between consumers and
insurance companies.
• Insurance brokers are licensed by the IRDA and governed by the
Insurance Regulatory and Development Authority (Insurance Brokers)
Regulations, 2002.
• Individual insurance agents and corporate agents are also licensed by
the IRDA and governed by the Insurance Regulatory and
Development Authority (licensing of Individual Insurance Agents)
Regulations, 2000 and the Insurance Regulatory and Development
Authority (Licensing of Corporate Agents) Regulations, 2002,
respectively.
 Insurance Companies
• Insurance companies provide the service of insurance coverage to
the Policyholders.
• They accept the premiums from the Policyholders who take
Insurance Policies through the registered intermediaries and provide
the Insurance cover by issuing Insurance Policy documents, which
constitute the contract between the Insurance companies and the
Policyholders.
• Upon happening of the insured event, the Claim amount is paid to
the Policyholder.
Insurance Regulatory and Development
Authority of India Act, 1999
 IRDAI Act, 1999
• The Insurance Regulatory and Development Authority
of India (IRDAI) Act, 1999 is a significant legislation
that established the Insurance Regulatory and
Development Authority of India (IRDAI) as the
regulatory body overseeing the insurance sector in
India.
• The Act was enacted to address the need for a
specialized regulatory authority to promote and ensure
the growth of the insurance industry while safeguarding
the interests of policyholders.
 Establishment of IRDAI
• The primary purpose of the Act is to establish the IRDAI as an
autonomous and statutory regulatory body to regulate and promote
the insurance and reinsurance industries in India.
• The key objectives of the IRDAI Act, 1999 include:
• a. Protecting the interests of policyholders.
• b. Promoting and ensuring the growth of the insurance industry.
• c. Ensuring the orderly and healthy development of the insurance
market.
• d. Regulating insurance-related activities to maintain financial
stability.
• e. Facilitating fair competition among insurance providers.
• f. Advising the Central Government on policy matters related to the
insurance industry.
 Powers and Functions of IRDAI
The Act grants the IRDAI various powers and functions to fulfill
its objectives, including:

a. Issuing and renewing licenses to insurance companies.

b. Specifying the qualifications, code of conduct, and training for
insurance intermediaries.
c. Promoting efficiency in the conduct of insurance business.
d. Regulating investment of funds by insurance companies.
e. Specifying the form and manner of maintaining books of
accounts.
f. Monitoring and regulating solvency margins of insurers.
 Regulation of Insurance Business
• The IRDAI Act, 1999 empowers the IRDAI to regulate various
aspects of insurance business, including:

a. Licensing and registration of insurers.

b. Establishing norms for insurance products and ensuring their
fair treatment.
c. Regulating the conduct of insurance intermediaries.
d. Specifying the manner and form in which financial statements
are to be maintained.
 Adjudication and Appeals
• The Act provides for the establishment of an
Insurance Regulatory and Development
Authority of India (IRDAI) Appellate Tribunal
to adjudicate disputes and hear appeals
arising from decisions of the IRDAI.