IRDA

A Detailed Review of the IRDAI Act 1999

The Insurance Regulatory & Development Authority of India (IRDAI) Act 1999 was passed by the parliament of India in December 1999, and it received the presidential assent in January 2000. The Act has been divided into various Chapters and further into multiple sections. Under the IRDA Act 1999, regulatory authority was established called IRDA, which replaced the Controller of Insurance under the Insurance Act of 1938. This article specifies some of the crucial provisions of the IRDAI Act.

Establishment and Incorporation of the Authority

The IRDAI Act 1999 provides for the establishment and incorporation of an authority called the “Insurance Regulatory and Development Authority”.

Some of the main features of this authority are as follows:

• It shall be a body corporate;
• It shall have perpetual succession & a common seal with power to hold, acquire and dispose of property (moveable and immoveable);
• It shall have power to contract and shall, by the said name, sue or be sued;
• This authority can establish offices at other places in India.

Brief history of IRDAI

In 1991 the government of India began economic reform programme and financial sector reform. After that, the committee on reforms in the insurance sector under the leadership of Shri R.N Malhotra (Former RBI Governor) was set up to recommend reforms in the insurance sector.

In 1994 Malhotra Committee recommends reforms after going through the insurance sector and getting inputs from the stakeholders. The key recommendations of this committee were that private sector companies should be permitted to promote insurance companies, and foreign promoters should also be permitted.

After that, in 1996, an interim body called the Insurance Regulatory Authority was set up, and finally, in 1999, the IRDA Act 1999 was enacted. The formation of the insurance regulatory and development authority as an autonomous regulatory body was done on 19^th April 2000.

Composition of Authority (IRDA) as per IRDAI Act 1999

As per the Act, the authority shall consist of the following members:

• One chairperson;
• Maximum 5 whole-time members;
• Maximum 4 part-time members.

It may be noted that these members shall be appointed by the Central Government. Here the Central Government, while appointing the chairperson and whole-time members, must ensure that minimum one person is a person with knowledge or experience in Life insurance, general insurance or actuarial science.

Tenure and Removal of Members

The tenure of the chairperson shall be 5 years, and he shall be eligible for reappointment until the age of 65 years. The appointment of members shall also be for 5 years however no person can hold office as a whole-time member after 62 years of age.

A member may be removed from the office by the Central Government if:

• He is declared bankrupt;
• Has become either physically challenged or mentally incapable of acting as a member;
• Has been convicted of any offence;
• Has acquired financial or other interest which affects his function as a member;
• Has abused his position in a way that his continuation in office is detrimental to public interest.

Administrative Powers of Chairperson according to IRDAI Act 1999

The Chairperson shall have the power of general superintendence and direction regarding all administrative matters of the authority as per IRDA Act 1999.

All questions that are presented before any meeting of the authority shall be decided by the majority of votes of the members, and in case the votes are equal, then the chairperson, who presides over the meeting, will have a second or a casting vote.

Transfer of Assets & Liabilities of Interim Insurance Regulatory Authority

The assets of Interim Insurance Regulatory Authority shall include all rights, powers, properties (whether moveable or immovable), including cash balances, deposits and all other interests and rights in such properties as in possession of the Interim Insurance Regulatory Authority. All books of account and other documents pertaining to it and liabilities would be deemed to include debts, liabilities and obligations of whatever kind.

Without prejudice to the above clause, all debts, obligations and liabilities incurred, contracts entered into as well as all matters and things engaged to be done by, with or for the Interim Authority immediately before that day, for or in connection with purpose of the authority, would deemed to have been incurred, entered into or engaged to be done by, with or for authority.

Moreover, all sums of money which is due to the Interim Insurance Regulatory Authority before that day would be deemed to be due to the authority. Further, all suits and other legal proceedings initiated or which could have been initiated by or against the Interim Insurance Regulatory Authority before that day may be continued or can be instituted by or against the authority.

Duties, Powers and Functions of the Authority

Chapter IV of the IRDA Act 1999 lays down the duties, powers and functions of the Authority. The primary duty of the authority is to regulate, promote and ensure the orderly growth of the insurance business and re-insurance business.

Further powers and functions of the authority are as follows:

• To issue a certificate of registration to the applicant and to renew, modify, withdraw, suspend or cancel such registration;
• To protect the interests of policyholders in certain matters and conditions of contracts of insurance;
• To specify requisite qualifications, the code of conduct and practical training for intermediary/agents;
• To specify the code of conduct of the surveyors and loss assessors;
• To promote efficiency in the insurance business conduct;
• To promote and regulate professional organizations connected with insurance and re-insurance business;
• To levy fees and other charges for the purposes of the IRDA Act 1999;
• To control and regulate the rates, advantages, T&C offered by insurers relating to general insurance business not so controlled and regulated by the tariff advisory committee under section 64U (Insurance Act 1938);
• To specify the way in which books of accounts will be maintained, and statements of accounts would be rendered by insurers/insurance intermediaries;
• To regulate the investment of funds by the insurance companies;
• To regulate the maintenance of margin of solvency;
• To settle disputes between insurers and intermediaries/insurance intermediaries;
• To supervise the functioning of the TAC;
• To specify the % of premium income of the insurer to finance schemes to promote and regulate the professional organisations;
• To specify the % of life insurance business as well as general insurance business to be undertaken by the insurer in rural/social sector.

Accounts and Audit under IRDAI Act 1999

The authority is required to maintain the proper accounts and such other records and also prepare annual accounts statements in a manner prescribed by the Central Government in consultation with the CAG of India.

Further, the accounts of the authority have to be audited by the CAG of India at intervals specified by him and expenses incurred related to such audit, has to be paid by the authority to the CAG.

The CAG of India and person appointed by him relating to audit of the accounts of the authority must have the same rights, privileges and authority in connection with such audit as the CAG generally has in connection with the audit of the government accounts and will possess the right to demand production of books of accounts and other documents and papers to inspect any of the offices of Authority.

The authority’s accounts certified by the CAG of India shall be forwarded to the central government annually, and such government must lay it before each House of the Parliament.

Establishment of Insurance Advisory Committee under IRDAI Act 1999

The authority can establish a committee known as the Insurance Advisory Committee. It shall consist of maximum 25 members, excluding ex-officio members representing the interests of commerce, industry, transport, agriculture, surveyors, agents, consumer fora, organizations engaged in safety and loss prevention etc.

The Chairperson & members of the authority would be the ex-officio chairperson and members of the IAC. The main objective of this committee shall be to advise the authority on insurance matters.

Power to make regulations

The authority can make regulations consistent with this Act in consultation with the insurance advisory committee by notification.

Such regulations may provide for all or any of the following matters:

• The time and the place of the meeting of the authority and the procedure to be followed in such meetings, including the quorum required for the transaction of business under sub-section (1) of Section 10;
• The transaction of the business at its meetings under sub-section (4) of Section 10 of the Act;
• The terms & conditions of service of officers and other employees of the Authority under sub-section (2) of section 12;
• Powers and regulations delegated to committees of the members under sub-section (2) of section 23;
• Any other matter required to be or may be specified by the regulations or in respect of provision to be or may be made by regulations.

Miscellaneous Provisions of the IRDAI Act 1999

• The Central Government may issue direction to the authority on policy matters, not on administrative and technical matters. The authority is bound to follow such a direction.
• The Central Government has the power to supersede any act of the authority.
• The chairperson, members and the employees of the authority will be deemed to be public servant while performing the roles as laid down in this Act.
• According to the regulation made under the Act, the Authority may delegate its powers to the chairperson or members and employees of the authority.
• The authority can make rules pertaining to salary and allowances and other terms and conditions applicable to its chairperson, members, employees or officers.
• The authority can make regulations that have to be followed at its meetings.
• Every rule and regulations made under this Act has to be laid before each House of the parliament while it is in session.

You can understand and go through all the Acts and Amendments in respect of Insurance by visiting this link- https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=ACT&mid=4.1

Conclusion

The main aim behind enacting the IRDA Act 1999 was to create a regulator that will regulate & develop the insurance sector in the nation. It was envisaged to control all individuals/organizations that are directly or indirectly interconnected with the insurance sector in India. This Act has sought to cover all the aspects related to insurance and has set out the rules and regulations governing the Insurance Regulatory and Development Authority. The authority has been bestowed with incredible powers, however, it doesn’t mean that the authority reigns above all, it is accountable to the Central Government. For more information on the authority, you may visit https://www.irdai.gov.in/

Read our article:What are the functions of IRDA?