In Insurance Services in India

Abstract

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 a Parliament of India act called Insurance Regulatory and Development Authority Act, 1999 and duly passed by the Government of India. The agency operates from its headquarters at Hyderabad, Telangana where it shifted from Delhi in 2001. It serves as an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith. IRDA role is to protect rights of policy holders & they provide registration certification to life insurance companies & responsible for renewal, modification, cancellation & suspension of this registered certificate. It plays a prominent role in regulating investment of funds by insurance companies. Further, regulating maintenance of margin of solvency, adjudication of disputes between insurers and intermediaries or insurance intermediaries.

Introduction

The IRDA Act, 1999 was passed as per the major recommendation of the Malhotra Committee report (7 Jan, 1994) which recommended establishment of an independent regulatory authority for insurance sector in India

As stated in the act mission of IRDA is "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.“

As per current guidelines issued by IRDA, Insurance Companies are not permitted to invest in Indian Depository Receipts (IDR), while they are permitted to invest in Equity shares/ Bonds/ Debentures.

Composition of IRDA

Section 4 of IRDA Act 1999; specify the composition of the Authority as follows;

The ten member team should consist of,

A Chairman;

Five whole time members;

Four part time members,

(All appointed by Government of India).

Main Functions Of IRDA

The duties, powers and functions of IRDA are laid down in Section 14 of IRDA Act 1999 are: 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 organizations connected with the insurance and re-insurance business

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 organizations 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

Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations 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

Regulating investment of funds by insurance companies

Insurers Under IRDA

Type of Business Public Sector Private Sector TotalLife Insurance 1 23 24

General

Insurance

6 21 27

Re-insurance 1 0 1

Total 8 44 52

Financial Facts

The total premium for the life insurance sector remained flat at Rs.2.87 lakhs crore in 2012-13. The total non-life insurance premium increased to Rs. 62,973 crore in 2012-13 as compared to 52,876 crore in 2011-12. The growth rate of premium of non-life insurance sector declined to 19.10 percent in 2012-13 as compared to 24.19percent in 2011-12.

Market Share (total life insurance collected)

Parameters to assess

Insurance Penetration

PremiumGDP

Insurance DensityPremiumPopulation

Trends IRDA should focus more

Multi-distribution i.e. increasing penetration through new modes of distribution such as the internet, direct and telemarketing and NGOs

Product innovation i.e. increased levels of customization through product innovation

Claims management i.e. timely and efficient management of claims to prevent delays which can increase claims cost

Profitable growth i.e. expanding product range, developing innovative products and expanding distribution channels

Major Reasons for downfall

Some possible major reasons for downfall in 2012: Products strategy and designCostTaxationDistributionProspects and challenges of various channelsCompensationCustomer serviceGovernance and regulatory issues

Factors impacting growth of non-life insuranceThe non-life insurance industry has been growing in excess of 20% over the last two years however the penetration was as low as 0.7% of the GDP in FY10.The key factors for the growth include: Product pricing, innovation and simplicity Distribution CompensationMicro-insurance in non-life widening reach Governance and regulatory changes Health insurance Innovative products to counter the competition Improved fraud control mechanisms Standardization to reduce claim loss Reducing inefficiencies by revisiting third party

administrator (TPA) agreements

Way Forward

The Indian insurance market is poised for strong growth in the long run.

It stands at the threshold of moving towards a stable position, delivering “stable profitable growth”.

Significant latent market

Channelizing industry focus

ConclusionThere is huge potential to tap the rural segments which are still untouched in the industry. The success and growth of the insurance sector depends on the efforts being made by the insurance companies, on cost effectiveness and strong distribution network, integrated training and development programs for staff and agents, customized solutions and most advanced technology providing quick services, and financial stability. Competitiveness and smart marketing strategies will add new dimensions to the insurance business in the coming years.

Take Away

IRDA needs to remove this disparity to open up investment opportunity by Insurance Companies and thereby also enhance the liquidity of IDRs.

Insurance Sector has power to penetrate provided innovative methods are tried keeping customer demand in mind and he is provided hassle free services