OVERVIEW OF THE INSURANCE REGULATORY

AND DEVELOPMENT AUTHORITY ACT, 1999

A PROJET REPORT ON SUBJECT OF BANKING AND INSURANCE

SUBMITTED TO : SUBMITTED BY:

Ms. Manika MADHVI

Faculty UILS 2234

L.L.M (One Year)

BANKING AND INSURANCE

Session 2022-2023
 ACKNOWLEDGEMENT

Apart from my efforts, the success of the project depends largely on the encouragement and
guidelines of many others. I take this opportunity to express my gratitude to the people who have
been instrumental in the successful completion of this project.

I would like to express a deep sense of gratitude to the Professor for her cordial support
throughout the semester and for providing the necessary material to complete the project.
Finally, I also extend my heartiest thanks to my parents, friends, and well-wishers for being with
me and extending encouragement throughout the project.
Contents
Introduction.................................................................................................................................................1
Insurance Regulatory and Development Authority Act...............................................................................3
Objective of IRDA:...................................................................................................................................4
Composition of IRDA...............................................................................................................................6
Tenure of Members.................................................................................................................................6
Removal of Members..............................................................................................................................6
Duties, Powers, and Functions of the IRDA:................................................................................................7
Duties of Insurance Regulatory and Development Authority of India (IRDAI):........................................8
Powers of Insurance Regulatory and Development Authority of India (IRDAI):......................................8
Functions of Insurance Regulatory and Development Authority of India (IRDAI):...................................9
Establishment of Insurance Advisory Committee......................................................................................10
OTHER PROVISION.....................................................................................................................................11
Effect of the Insurance Laws (Amendment) Act, 2015 with specific reference to IRDA............................12
CASE LAWS................................................................................................................................................14
KP Desai v. United India Insurance Company, Maharashtra State Consumer Disputes Redressal
Commission...........................................................................................................................................14
New India Assurance v. Ashok Kumar, National Consumer Disputes Redressal Commission................14
Challenges of the Insurance Regulatory and Development Authority.......................................................15
BIBLIOGRAPHY...........................................................................................................................................16
Introduction

The concept of insurance has been prevalent in India since ancient times amongst Hindus. It
finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and
Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-
distributed in times of calamities such as fire, floods, epidemics and famine. 1 The law relating to
insurance has gradually developed, undergoing several phases from nationalization of the
insurance industry to the recent reforms permitting entry of private players and foreign
investment in the insurance industry

1818 saw the advent of life insurance business in India with the establishment of the Oriental
Life Insurance Company in Calcutta. In 1829, the Madras Equitable had begun transacting life
insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance
Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental
(1874) and Empire of India (1897) were started in the Bombay Residency. In 1914, the
Government of India started publishing returns of Insurance Companies 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. In 1938, with a view to protecting the
interest of the Insurance public, the earlier legislation was consolidated and amended by the
Insurance Act, 1938 with comprehensive provisions for effective control over the activities of
insurers.  In 1972 with the passing of the General Insurance Business (Nationalization) Act,
general insurance business was nationalized2
The process of re-opening of the sector had begun in the early 1990s and the last decade and
more has seen it been opened up substantially. In 1993, the Government set up a committee
1
A Brief History of Insurance in India, available at : https://www.vskills.in/certification/blog/a-brief-history-of-
insurance-in-india/ (Visited on December1,2022)

2
History of insurance in India, available at: https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?
page=PageNo4&mid=2 (Last Modified July31,2020 )

1
under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations
for reforms in the insurance sector.

In 1994, the Malhotra Committee recommended some reforms in the insurance sector, these
were:3

1. The government of India should allow the private sector to promote insurance companies.

2. The government of India should also allow foreign promoters.

3. The government should delegate its regulatory powers to an independent regulatory body
accountable to Parliament.

 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. 

Insurance Regulatory and Development Authority Act

3
Supra note 2 at 1

2
The Insurance Regulatory and Development Authority is the main organization or supervisory
body that regulates the insurance sector in the country. IRDAI was established under an Act of
Parliament, viz., the Insurance Regulatory and Development Authority Act, 1999. It was
incorporated as a statutory body in April 2000. Initially, it was set up in New Delhi in April
2000, but later, it was shifted to Hyderabad, Telangana in 2001.

 IRDAI guides the insurance industry and promotes an efficient insurance business by regulating
rates and other charges related to insurance. IRDA aims to carry forward the interests of
policyholders with the speedy settlement of claims, prevent fraud and malpractices. 

The Insurance Regulatory Development Authority Act, 1999 marked the end of government

monopoly in the insurance business. The IRDA Act received the assent of the President of India
on 29 December 1999. The IRDA Act has ramifications on The Insurance Act (1938), The Life
Insurance Corporation Act (1956) and The General Insurance Business (Nationalization) Act
(1972).

The following are salient features of the IRDA Act (1999):

 The insurance sector in India has been thrown open to the private sector. The second and
third schedules of the Act provide for removal of existing corporations (or companies) to
carry out the business of life and general (non-life) insurance in India.

 After commencement of an insurance company, the Indian promoters can hold more than
26 per cent of the total equity holding for a period of ten years, the balance shares being
held by non-promoter Indian shareholders which will not include the equity of the foreign
promoters, and the shareholding of NRIs, FIIs, and OCBs.

 On foreign promoters, the maximum of 49 per cent will always be operational. They will
thus be unable to hold any equity beyond this ceiling at any stage.

 The Act gives statutory status to the Interim Insurance Regulatory Authority (IRA) set up
by the Central Government through a Resolution passed in January 1996.

 All the powers presently exercised under the Insurance Act, 1938, by the Controller of
Insurance (COI) will be transferred to the IRDA. The IRDA Act also provides for the

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 appointment of CoI by the Central Government when the Regulatory Authority is
superseded.

 The minimum amount of paid-up equity capital is Rs.100 crore in case of life insurance
as well as general insurance, and Rs.200 crore in the case of reinsurance.

 Solvency margin is fixed at not less than Rs.50 crore for life as well as general insurance;
for reinsurance solvency margin is stipulated at not less than Rs.100 crore in each
case. Insurance companies will deposit Rs.10 crore as security deposit before starting
their business.

 Safeguards for policy holders’ funds include a specific provision prohibiting investment
of policy holders’ funds outside India and provision for the investment of funds in
accordance with policy directions of IRDA, including social and infrastructure
investments.

 Every insurer shall provide life insurance or general insurance policies (including
insurance for crops) to the persons residing in the rural sector, workers in the unorganized
or informal sector or for economically vulnerable or backward classes of the society and
other categories of persons as may be specified by regulations made by IRDA.

 Failure to fulfill the social obligations would attract a fine of Rs.25 lakh; in case the
obligations are still not fulfilled, the license would be canceled.

 New Development: Since July 2014 the FDI limit in the insurance sector has been raised
to 49% by the government.

Objective of IRDA:
The main objective of the Insurance Regulatory and Development Authority of India is to
enforce the provisions under the Insurance Act. The mission statement of the IRDA is:

 To protect the interest and fair treatment of the policyholder.

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  To regulate the insurance industry in fairness and ensure the financial soundness of the
industry.

 To regularly frame regulations to ensure the industry operates without any ambiguity.

Establishment and Incorporation of the Authority

The IRDA Act 1999 provides for the establishment and incorporation of an authority called the
“Insurance Regulatory and Development Authority”, by the Central Government.4 The central
government also decides where the head offices should be situated. 5

Some of the main characteristics6 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

4
Insurance Regulatory And Development Authority Of India Act, 1999 ,s.3(1)
5
Id., s.3(3)
6
Id., s.3(2)

5
Composition of IRDA
Section 4 of the IRDAI Act 1999 specifies the authority's composition. It is a ten-member body
consisting of a chairman, five full-time and four part-time members appointed by the government
of India.

These appointments are from amongst the persons exhibiting qualities that would be useful to the
Authority like, exceptional knowledge in the field of life insurance, financial markets,
economics, law, accountancy, general insurance. Though, the chairman and each of the five full-
time members are expected to have knowledge and experience in life insurance, general
insurance, or actuarial science respectively.

Tenure of Members
Section 5 of the IRDAI Act 1999, provides that The Chairperson and every other whole-time
member shall hold office for a term of five years from the date on which he enters upon his
office and shall be eligible for reappointment.

No person shall hold office as a Chairperson after he has attained the age of sixty-five years. No
person shall hold office as a whole-time member after he has attained the age of sixty-two years.

A part-time member shall hold office for a term not exceeding five years from the date on which
he enters upon his office. However it is silent for reappointment of such member.

As per section 9 of the act the chairperson shall have the power of general superintendence and
direction in respect of all administrative matters of the authority

Removal of Members7
The act under section 7 states the conditions for grounds of removal of the members of the
Authority.

A Member may relinquish his office by giving in writing to the Central Government notice of
not less than three months. The Central Government may remove from office any member who-

(a) is, or at any time has been, adjudged as an insolvent; or

7
The Insurance Regulatory And Development Authority Of India, available at:
https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=8237 (Last Modified November
12,2018)

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(b) has become physically or mentally incapable of acting as a member; or

(c) has been convicted of any offence which, in the opinion of the Central Government, involves
moral turpitude; or

(d) has acquired such financial or other interest as is likely to affect prejudicially his functions as
member; or

(e) has so abused his position as to render his continuation in office detrimental to the public
interest.

No such member shall be removed under clause (d) or clause (e) unless he has been given a
reasonable opportunity of being heard in the matte

Restrictions on Members

Section 8 of the act provides that 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.

Duties, Powers, and Functions of the IRDA:

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. Section 14 of the IRDAI Act, 1999 states the
functions, powers, and duties of the IRDAI.

7
Duties of Insurance Regulatory and Development Authority of India (IRDAI):

 The main duty of IRDAI is to protect against coverage of losses in insurance policies and
it also prescribes terms and conditions for insurance coverage by policyholders .

 Another duty of the IRDAI is to publish information about all insurance companies and
their policies on a public platform.

 IRDAI must check the periodic balance sheet reports submitted by the insurance
companies and verify whether the corporate set-up has been established for the
policyholders.

 IRDAI suggests different types of policies and different types of insurance schemes for
the insurance companies to grow rapidly.

 IRDAI encourages new companies and promotes more in the early stages. Although
banks are allowed to encourage insurance companies with their subsidies.

Powers of Insurance Regulatory and Development Authority of India (IRDAI):

 Issue a certificate of registration to the applicant, renew, alter, withdraw, suspend, or

terminate such registration.

 All insurance companies must carry out insurance business only and must be registered
with IRDAI.

 IRDAI has the power to levy fees, commissions, or other charges on insurance companies
for Act.

 It has the power to regulate rates, terms, and conditions under Section 64U of the
Insurance Act, 1938, and also has the power to make special offers to insurers.

 IRDAI determines the capital structure of insurance companies and they have to deposit
with RBI the amount prescribed by IRDAI.

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  It has the power to examine insurance claims, insurable interests, and the value of
policies that have an agreement between insurance companies and policyholders.

 It is empowered to conduct inspections, inquiries, investigations, and audits of insurers,

intermediaries, and other professional bodies connected with the insurance market.

 IRDAI orders insurance companies to appoint actuaries for calculating and to take over
the liabilities of that particular insurance company and they should report the same to
IRDAI.

 All statements, investment assets, and account balance sheets of insurance companies
must be submitted to IRDAI at the beginning of each financial year.

 It has the power to settle disputes between insurance companies and insurers or
intermediaries or agents or third-party organizations or customers.

 IRDAI has directed insurance companies to allocate a percentage of their business for
crop insurance under the unorganized sector to encourage economically weaker sections.

 IRDA has the power to impose penalties on insurance companies that fail to comply with
the rules and regulations outlined in the Act.

Functions of Insurance Regulatory and Development Authority of India

(IRDAI):
 It functions for protecting the interests of the policyholders in terms of grant of policies,
settlements of claims, interest rates, and surrender of policies.

 IRDAI should make over the prequalification, training on practical issues policies, for
insurance intermediaries, and agents, and issue the conduct certificate for them.

 It implements and monitors high standards of respectability, fair management, monetary

adequacy, and skill of the protection of policyholders.

 IRDAI has established a functioning grievance redressal system to prevent malpractices

and fraud.

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  IRDAI ensures insurance coverage through insurance companies to rural people and
weaker sections of society.

 It functions as a regulatory body that exercises control and regulates the investment of
funds in insurance companies.

 The main function of IRDAI is to maintain high standards of financial stability to be

followed by insurance companies and to take appropriate action where such standards are
not maintained.

 IRDAI generally observes that an optimum amount is maintained by the insurance

industry for self-regulation in day-to-day working requirements.

 IRDAI functions as the regulatory body for the below entities :

1. Life Insurance Companies – Both Private and Public Sector.

2. General Insurance Companies – Private and public sector and some mixed health
insurance companies.

3. Re-Insurance Companies.

4. Intermediaries – brokers, agents, third-party firms, surveyors, and loss assessors.

Establishment of Insurance Advisory Committee

Establishment: Section 25(1) provides that 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.
Composition: Sub-section (2) provides that 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, surveyor , agents, organizations engaged
in safety and loss prevention, research and employees' association in the insurance sector.

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Chairperson and Members: Sub-section (3) provides that the Chairperson and the members of
the Authority shall be the ex officio Chairperson and ex officio members of the Insurance
Advisory Committee.

Functions: Sub-section (4) provides that 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.
Sub-section (5) provides that the Insurance Advisory Committee may advise the Authority on
such other matters as may be prescribed.

Power to make regulations

Section 26(1) provides that the Authority may. in consultation with the Insurance Advisory
Committee, by notification, make regulations consistent with this Act and the rules made there
under to carry out the purposes of this Act.

OTHER PROVISION
Constitution of Funds.(Section16)

According to this provision, a fund will be constituted which will be known as ‘the Insurance
Regulatory and Development Authority of India Fund’. This fund will be credited to:

1. All the government grants, fees that the Authority receives.

2. The amount received by the Authority from the sources agreed by the Government.

3. The percentage of the minimum premium income that the insurers receive.

The fund constituted will be used for meeting the salaries, allowances, and remuneration of all
the members of the Authority and also, to meet the expenses incurred by the Authority to fulfill
its daily functions.

Powers of the Central Government to issue Directions. (Section 18)

The Central Government can issue directions to the Insurance Regulatory Authority on matters
related to questions of policy. Such directions will bind the Authority to act according to the

11
Government’s directions. But, all this will happen only when the Authority will also be given the
chance to present its views before the Government before the directions are issued. Whether a
question is one of the policies or not, will be decided by the Central Government.

Powers of Central Government to supersede the Authority. (Section 19)

In case of any fault on the part of the Authority, the Government has the right to intervene in the
matter. If not satisfied by the functioning of the Authority the Government will appoint a person
to act as the Controller of Insurance under section 2B of the Insurance Act, 1938 (Act 4 of 1938).
But before appointing Controller of Insurance the government will have a reasonable amount of
time to the Authority to make corrections in its functioning. 

But first, the Government will issue a notification of superseding the Authority. Though the
Government can only supersede for a period specified in the notification and this period shall not
be more than six months. 

1. If the Central Government realizes that the Authority is not able to discharge its functions
properly like it was supposed to perform. 

2. If because of the functioning of the Authority the financial condition or the

administration of the Authority has suffered. 

3. If the circumstances are such that it becomes necessary for the Government to intervene
to ensure public interest.

Effect of the Insurance Laws (Amendment) Act, 2015 with specific

reference to IRDA8

1. It has the key amendments like increasing the extent of foreign direct investment from 26% to
49%, the amendment brought about the following key changes:

8
IRDA And Its Relevance In Light Of The Recent Developments Seen In The Indian Insurance Sector, available at:
http://docs.manupatra.in/newsline/articles/Upload/C89A14D8-3653-43C0-9346-2BB3112AAEDF.pdf (Visited on
November28,2022)

12
 a) It mandated that the properties in India not to be insured with foreign insurers except with
the permission of Authority, (in place of the central government) failing which a penalty
up to 5 crore rupees may be imposed.
b) The amendment provided that the Authority may withhold the registration already made
in favor of an insurance company if it is satisfied that in the country in which such person
has been debarred by law or practice of that country to carry on insurance business.
c) The amendment provided for various instances which could enable the authority to cancel
the registration of an insurer wholly or in part, which included insolvency, non-
compliance of regulations and laws under the Insurance Act.
d) The amended Law has several provisions for levying higher penalties ranging from up to
Rs.1 Crore to Rs.25 Crore for various violations including mis-selling and
misrepresentation by agents / insurance companies.
e) The amendment further provides for any insurer or the insurance intermediary aggrieved
by any order of the IRDA to prefer an appeal to the Securities Appellate Tribunal (SAT).

Apart from these provisions, the amendment generally empowers the IRDA, as it expands the
powers of the regulator and makes its exercise very flexible, and while doing the same; it
increases the reach of the insurance industry

Other Initiatives by the IRDA and their Benefits

1. Since October, 2016 IRDA has mandated E-insurance account to purchase insurances,
the same is expected to decrease the cost by 15-20% for life insurance and 20-30% for
non-life insurance.
2. In April 2017, IRDA started a web portal isnp.irda.gov.in that allows the insurers to sell
and register policies online. This portal is open to intermediaries in insurance business
also; the same is expected to boost the economics of the industry furthermore.
3. IRDA recently allowed life insurance companies that have completed 10 years of
operations to raise capital through Initial Public Offerings (IPOs).

13
CASE LAWS
KP Desai v. United India Insurance Company, Maharashtra State Consumer
Disputes Redressal Commission
When KP Desai underwent a laser eye surgery for correcting his eyesight, it cost him Rs 50,000.
Desai had a health insurance policy with the United India Insurance Company since 1990, which
he renewed every year. After the surgery in 1997, when he filed a claim for the surgery expenses,
the company rejected it stating that the surgery was purely cosmetic and not covered by the
insurance.

Desai filed a complaint with the South Mumbai District Consumer Disputes Redressal forum in
1997 and the judgment ruled in his favor in April, 2004. The insurance company then filed an
appeal with the Maharashtra State Consumer Disputes Redressal Commission, where the
judgment was upheld.

New India Assurance v. Ashok Kumar, National Consumer Disputes Redressal

Commission9

Ashok Kumar purchased a second hand car in November, 2006, which was insured by New India
Assurance by the previous owner. Kumar did not inform the insurance company about the
registration transfer or get the insurance policy transferred to his name. When Kumar filed a
claim on the car being stolen in March, 2007, his claim was rejected on the grounds that the
claim was not in his name.

Kumar filed a lawsuit and the Delhi District Commission and the State Commission ruled in his
favor. New India Assurance filed an appeal with National Consumer Disputes Redressal
Commission, which ruled in its favor stating the IRDA regulation according to which the
insurance company must be informed about the vehicle transfer within 14 days, if not, the
insurance company is not liable to reimburse the claim.

9
New India Assurance Co. Ltd. vs Ashok Kumar on 19 March, 2013

14
Challenges of the Insurance Regulatory and Development Authority of India (IRDAI):

 Indian people have low financial literacy which is a problem for IRDAI in disseminating
the right type of insurance products to the public.

 Indian insurance faces problems of low penetration and density rate and it clearly shows
that a large portion of the population is still uninsured.

 The share of insurance business in rural areas is still low

 According to an IRDAI report, the majority of people are not aware of health insurance
as insurance companies consistently ignore the rural markets.

 Expansion of the insurance business in the Indian market remains a challenge for IRDAI
due to insufficient capital among insurance companies and additionally the situation
worsened by the COVID-19 pandemic.

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BIBLIOGRAPHY
Statute

 INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA ACT,

1999

Websites

 https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=8237
 https://www.lawinsider.in/columns/insurance-regulatory-and-development-authority-of-
india-irdai
 https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?
page=PageNo4&mid=2

 https://financialservices.gov.in/insurance-divisions/Insurance-Regulatory-&-
Development-Authority
 https://enterslice.com/learning/irda-act-999/#:~:text=The%20IRDA%20Act
%201999%20provides,Insurance%20Regulatory%20and%20Development%20Authority
%E2%80%9D.&text=It%20shall%20be%20a%20body,property%20(moveable%20and
%20immoveable)%3B
 https://www.geeksforgeeks.org/insurance-regulatory-and-development-authority-of-
india/
 https://blog.ipleaders.in/role-of-irda/
 http://docs.manupatra.in/newsline/articles/Upload/C89A14D8-3653-43C0-9346-
2BB3112AAEDF.pdf


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