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Insurance Regulatory Development Authority of India

(IRDAI)
What is IRDAI?
Insurance Regulatory Development Authority of India (IRDAI) is a regulatory body created
with the aim of protecting your interests. It also regulates and sees to the development of the
insurance industry, while monitoring insurance-related activities.

Establishment:
In the year 1999 Insurance Regulatory and Development Authority (IRDA) Act was passed
and on April 19th 2000, Insurance Regulatory and Development Authority (IRDA) of India
received autonomous status.
ORGANISATIONAL SETUP OF IRDA:
IRDA is a ten member body consists of :

o One Chairman (For 5 Years & Maximum Age - 60 years )

o Five whole-time Members (For 5 Years and Maximum Age- 62 years)
o Four part-time Members (Not more than 5 years)
The chairman and members of IRDAI are appointed by Government of India.
The present Chairman of IRDAI is Subhash Chandra Khuntia.

FUNCTIONS and DUTIES OF IRDA:

Section 14 of IRDA Act,1999 lays down the duties and functions of IRDA:

o It issues the registration certificates to insurance companies and regulates them.

o It protects the interest of policy holders.
o It provides license to insurance intermediaries such as agents and brokers after
specifying the required qualifications and set norms/code of conduct for them.
o It promotes and regulates the professional organisations related with insurance
business to promote efficiency in insurance sector.
o It regulates and supervise the premium rates and terms of insurance covers.
o It specifies the conditions and manners, according to which the insurance
companies and other intermediaries have to make their financial reports.
o It regulates the investment of policyholder's funds by insurance companies.
o It also ensures the maintenance of solvency margin (company's ability to pay out
claims) by insurance companies.

OBJECTIVES OF IRDA:
o To promote the interest and rights of policy holders.
o To promote and ensure the growth of Insurance Industry.
o To ensure speedy settlement of genuine claims and to prevent frauds
and malpractices
 o To bring transparency and orderly conduct of in financial markets
dealing with insurance.

Procedure for Registration of Insurance Company:

The registration for an Insurance company is divided into three parts i.e. R1, R2, R3.

 Application for issuance of a requisition for registration:

An applicant who desires to carry insurance business has to file an application to

the IRDAI in form IRDAI/R1 for an issuance of a requisition for the registration application.
The application shall be accompanied by following documents:

1. Applicant is Company incorporated under Companies Act 2013: Certified copy of

MOA and AOA;
2. Name, Address or occupation of the directors;
3. Certified copy of the annual report of Indian promoters and foreign investor for the
preceding last five years.
4. Certified copy of shareholding agreement between Indian Promoters and foreign
investor of the applicant;
5. A five-year business plan approved by Board of Directors.

 An applicant can file an application for life Insurance or General Insurance company
or Health Insurance Business exclusively or Reinsurance Business.

 After receiving an application, the Authority may ask further information or

clarification related to the consideration of an application.

 After satisfaction, the Authority may grant approval and applicant then file a further
application in Form IRDAI/R2 for grant of a certificate of registration.

 The Authority may reject the application for issuance of a requisition for a registration
form by recording the reason in writing.

 An applicant who is aggrieved by the decision shall file an appeal to Securities

Appellate Tribunal within 30 days of rejection communication received.

Who is Insurance Agent

An insurance agent is a person who works for an insurance company and sells the insurance
products of this company. An important aspect of working with an agent is that he / she sells
insurance products of one company only, and thus is typically not able and not interested to
compare prices and features of other products on the market.
Types of Insurance Agents:
Insurance is sold by two types of agents. Independent agents are self-employed. They
represent several insurance companies and are paid on commission only.
 And, on the other hand, are Captive or Exclusive Agents. They represent only one insurance
company. They earn by salary or commission or both. Insurance companies that use such
Captive Agents are called Direct Writers.
1.Individual Insurance Agent
A person can become an individual agent, after taking the requisite training. Clear a
certification examination. Then he/she gets licensed by IRDAI to sell insurance policies to
the public. And provide services related to insurance. Including assisting at the time of a
claim.
the Individual Insurance Agent maybe selling:
1. Direct Life Insurance,
2. Direct Non-Life insurance or General Insurance,
3. Composite Insurance (Both Life & Non-Life).
2.Captive Insurance Agent
Captive agents can sell insurance for one specific company, only. This particular insurance
company is, typically, a “name brand” company.
Captive Insurance means a subsidiary corporation incorporated to provide insurance to the
parent company and its affiliates. A Captive Insurance company represents an alternative for
many corporations and groups who want to take financial control and manage risks. By
underwriting their insurance rather than paying premiums to third-party insurers.
Captive Insurance Companies are responsible for:
1. Collecting Premiums,
2. Issuing insurance or reinsuring a fronting company,
3. Setting aside reserves sufficient to pay potential claims,
4. Issue dividends to insureds (mutual) and owners,
5. Manage the investment policy of the captive.
3.Micro Finance Insurance Agents
According to IRDAI, those Agents or Entities, already licensed for soliciting the insurance
business or appointed as referral company are not eligible to be appointed as micro-insurance
agents.
So who, exactly, are Micro Finance Agents?
There is no proper definition for this available. So let us try to understand the term with the
help of its coverage, etc.
According to IRDAI, A micro-insurance policy is like a Life or General Insurance policy.
The maximum permissible limit for the Sum Assured is Rs 50,000.

A Life Micro-Insurance is:

 A Term Insurance contract with or without return of premium,
 Any Endowment Insurance contract, or,
 A Health Insurance contract,
 They can include an accident benefit rider, and,
 It may be on an individual or group basis.
There is flexibility in the regulations. So the Insurance Agent can offer composite covers or
package products that include life and general insurance covers together.
A General micro-insurance product may be:
 Health Insurance Contract,
 Any Contract that covers belongings such as,
 Hut,
 Livestock,
 Tools or instruments, or,
 Any personal accident contract,
 These, too, can be on an individual or group basis.

RECRUITMENT AND SELECTION OF AGENT:

 The agent must be at least 18 years of old.
 In order to become an agent, an applicant shall possess the minimum qualification of
12th standard or its equivalent, when the applicant resides in a place where the
population is 5000 or more and in other cases, he should have passed 10th standard or
its equivalent.
 The applicant is also required to complete 100hours of practical training in life or
general insurance business from an approved institution (Insurance Institute of India)
if he is seeking license to act as an agent for the 1st time.
 In case, he wants to act as a composing agent (life and general). He needs to complete
at least 150hrs of practical training.
 The training may be spread over a period of 6-8 weeks.
ISSUANCE OF LICENSE BY THE AUTHORITY:
 Possess the required qualifications.
 He has under gone the required training
 Has passed the required examination.
 Has furnished the complete application.
 Has the knowledge to solicit and procure insurance business.
 Has the knowledge and capacity to provide the services to the policy holders.
LICENSING OF INSURANCE SURVEYORS:
Surveyors or Loss Assessors are professionals hired by insurance companies to assess the
actual loss arising on the occurrence of fortuitous events such as fire, burglary and so on for
settlement of claims. They act as intermediaries between the insurer and the insured in
settling the claims.

Steps of becoming a Surveyor

The steps of becoming a licensed surveyor are shown in a pictorial diagram. The
steps are explained below the diagram.
1. Registering on BAP Portal - To acquire a surveyor license, the first step is to register
yourself on the BAP portal. After successful registration, you can apply for a training
request.
2. Selecting the Trainer - After registration, to undergo the training process you need
to select the trainer and the department in which you want to undergo training.
3. Trainer Acceptance Certificate - If the trainer selected by you accepts the training
request, then, you will receive an email notification from IRDA informing you of the
same. If the trainer rejects your training request, you need to select another trainer for
your training.
4. Form 13 - Trainee Surveyor Enrollment - Once your training request is accepted,
you need to fill this form for training course enrollment. Trainee needs to complete the
training in order to apply for the license.
5. Appearing for the exam conducted by Insurance Institute of India (III) - After the
trainer submits your third quarterly report, Insurance Institute of India (III) schedules
an examination slot for you and you then need to appear for the exam.
6. Training Completion Certificate - After you successfully complete your training,
you will receive the Training Completion Certificate from the trainer.
 7. Applying for a New License - After successfully clearing the exam conducted by the
Insurance Institute of India (III), you can apply for a new surveyor license. Once you
receive the license, you can start operating as a licensed Surveyor.
DIFFERENCE BETWEEN INSURANCE AGENT AND BROKER:

The Basic comparison Insurance Agent Insurance Brokers

between Insurance

Agent vs Insurance

Broker

Representation Represents only one Insurance Represents Multiple Insurance

Company Companies for the Prospective

Insurance buyer

Appointment Appointed by the Insurance Selected by buyers, after careful

Companies and informed scrutiny from a

pool of brokers

Types 2 types – Independent and Captive 2 types – Retail or Wholesale

Number of companies It represents only 1 company. Represent by extracting plans

Sometimes it might fetch data from and policy documents from

multiple companies, as needed. multiple, but relevant, insurance

companies to the buyer.

Recommendation Recommendations are biased towards Recommendations are in favor

the company it represents. of the buyer.

Expertise Agents may or may not have the Brokers develop the

experience and expertise to advise you qualifications that are needed to

the best policy in your given situation. recommend the best suitable
 They are known to represent the policy out of the many. They

insurer and not the businesses they are would be very good in terms of

in. the experience offered.

Motive Profit – making: they try to sell those The broker does not get

products of the company which help anything additional for a

them earn the highest individual specific range of products.

profits.

Disclosure No disclosure of the rate of Required to provide full

commission or any additional fees disclosure on the commission

charged to the customers. rates to be earned from the sale

to any customer. The percentage

of the premium asked that will

go in earning in commission is

necessarily important to be

disclosed.

Obligation The customer needs to get the The obligation of the accuracy

groundwork of researching the data of the facts and other details lies

and facts of the company and the with the broker. They can be

policy being offered. sued in case any information

provided to the customer does

not match.

Support Quality Back office support is better as they Highly personalized service is

have an entity to back upon. offered which gives better

quality support.
 Weakness Agents cannot provide you with the Brokers do not upgrade

best policy as they do not navigate themselves with any change or

through the multiple options in the updates in a given poli

market.

PROFFESIONAL STANDARDS AND Code Of Conduct:

(1) Every person holding a licence, shall adhere to the code of conduct specified below:-
(i) Every insurance agent shall,---
(a) identify himself and the insurance company of whom he is an insurance agent;
(b) disclose his licence to the prospect on demand;
(c) 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;
(d) disclose the scales of commission in respect of the insurance product offered for sale, if asked by
the prospect;
(e) indicate the premium to be charged by the insurer for the insurance product offered for sale;
(f) 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;
(g) bring to the notice of the insurer any adverse habits or income inconsistency of the prospect, in the
form of a report (called “Insurance Agent’s Confidential Report”) along with every proposal
submitted to the insurer, 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;
(h) inform promptly the prospect about the acceptance or rejection of the proposal by the insurer; (i)
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; (j) render necessary
assistance to the policyholders or claimants or beneficiaries in complying with the requirements for
settlement of claims by the insurer;
(k) advise every individual policyholder to effect nomination or assignment or change of address or
exercise of options, as the case may be, and offer necessary assistance in this behalf, wherever
necessary;
(ii) No insurance agent shall,----
a) solicit or procure insurance business without holding a valid licence;
(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;
2 (d) behave in a discourteous manner with the prospect;
(e) interfere with any proposal introduced by any other insurance agent;
(f) offer different rates, advantages, terms and conditions other than those offered by his insurer;
(g) demand or receive a share of proceeds from the beneficiary under an insurance contract
(h) force a policyholder to terminate the existing policy and to effect a new proposal from him within
three years from the date of such termination;
(i) have, in case of a corporate agent, a portfolio of insurance business under which the premium is in
excess of fifty percent of total premium procured, in any year, from one person (who is not an
individual) or one organisation or one group of organisations;
(j) apply for fresh licence to act as an insurance agent, if his licence was earlier cancelled by the
designated person, and a period of five years has not elapsed from the date of such cancellation;
(k) become or remain a director of any insurance company;
(iii) Every insurance agent shall, with a view to conserve the insurance business already procured
through him, make every attempt to ensure remittance of the premiums by the policyholders within
the stipulated time, by giving notice to the policyholder orally and in writing.

PROTECTION OF THE INTEREST OF POLICYHOLDERS:

Life is full of uncertainties. Insurance means protection against uncertainties. Insurance is available
for unpredictable events such as death, accident, sickness, loss or damage to motor vehicle, property
etc. These are some of the risks against which you should protect yourself from and accordingly buy
personal accident insurance, health insurance, motor insurance, property insurance etc. The insurance
policy that you buy must meet your requirements. This means you must first identify what your needs
are. Be aware of the credentials of the person offering insurance, and always ensure right buying to
get value out of insurance. Insurance frauds are not uncommon. Do not fall prey to insurance frauds.
REGULATORY REQUIREMENT:
IRDAI has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy
proposal documents in easily understandable language; claims procedure in both life and non-life;
setting up of grievance redressal machinery; speedy settlement of claims; and policyholders’
servicing. The Regulation also provides for payment of interest by insurers for the delay in settlement
of claim.
DUTY OF INSURERS:
It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms and
conditions under the policy. The advertisements issued by the insurers should not mislead the insuring
public. IRDAI’s regulations stipulate the Turnaround Times (TAT) for various services that an
insurance company has to render to you.
STATUTORY OBLIGATION:
The insurers are required to maintain solvency margins so that they are in a position to meet their
obligations towards policyholders with regard to payment of claims.
SOURCING OF BUSINESS:
Every insurance agent has to explain 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. An insurer or its agent or other intermediary has to provide all material information to enable
you to decide on the best cover in your best interest. Where you are dependent on the advice of an
agent or an insurance intermediary, such a person must advise you dispassionately.
GRIEVANCE REDRESSAL:
The Authority takes up with the insurers your any complaint in connection with services provided by
them under the insurance contract. All insurers had proper grievance redress machinery in their head
office and at their other offices.
POLICYHOLDER’S SERVICING:
An insurer carrying on life or general business, has to respond within 10 days of the receipt of any
communication in all matters, such as:
(a) recording change of address;
(b) noting a new nomination or change of nomination under a policy;
(c) noting an assignment on the policy;
(d) providing information on the status of a policy indicating all matters
(e) processing papers and disbursal of a loan on security of policy;
(f) issuance of duplicate policy;
(g) issuance of an endorsement under the policy; noting a change of interest or sum assured or perils
insured, financial interest of a bank and other interests; and
(h) guidance on the procedure for registering a claim and early settlement thereof.
There are increasing complaints, especially those alleging mis-sale of policies, in the insurance sector.
The delay in settlement of claims in the non-life insurance sector is a cause of concern. Insurance
Regulator has the responsibility of protecting the interest of each insurance policyholder. The goals of
the IRDAI are to safeguard the interests of insurance policyholders, as well as to initiate different
policy measures to help sustain growth in the Indian insurance sector.

INDIAN INSURANCE MARKET

Life Insurance Corporation of India (LIC)

The LIC of India was set up under the LIC Act, 1956 under which the life insurance was
nationalised. As a result, business of 243 insurance companies was taken over by LIC on 1-9-
1956.

It is basically an investment institution, in as much as the funds of policy holders are invested
and dispersed over different classes of securities, industries and regions, to safeguard their
maximum interest on long term basis.

Objectives of LIC of India:

The LIC was established with the following objectives:
 Spread life insurance widely and in particular to the rural areas, to the socially and
economically backward claries with a view to reaching all insurable persons in the country
and providing them adequate financial cover against death at a reasonable cost
 Maximisation of mobilisation of people’s savings for nation building activities.
 Provide complete security and promote efficient service to the policy-holders at economic
premium rates.
 Conduct business with utmost economy and with the full realisation that the money belong to
the policy holders.
 Act as trustees of the insured public in their individual and collective capacities.
 Meet the various life insurance needs of the community that would arise in the changing
social and economic environment
 Involve all people working in the corporation to the best of their capability in furthering the
interest of the insured public by providing efficient service with courtesy.
Role and Functions of LIC
 It collects the savings of the people through life policies and invests the fund in a variety of
investments.
 It invests the funds in profitable investments so as to get good return. Hence the policy
holders get benefits in the form of lower rates of premium and increased bonus. In short, LIC
is answerable to the policy holders.
 It subscribes to the shares of companies and corporations. It is a major shareholder in a large
number of blue chip companies.
 It provides direct loans to industries at a lower rate of interest. It is giving loans to industrial
enterprises to the extent of 12% of its total commitment.
 It provides refinancing activities through SFCs in different states and other industrial
loangiving institutions.
 It has provided indirect support to industry through subscriptions to shares and bonds of
financial institutions such as IDBI, IFCI, ICICI, SFCs etc. at the time when they required
initial capital. It also directly subscribed to the shares of Agricultural Refinance Corporation
and SBI.
 It gives loans to those projects which are important for national economic welfare. The
socially oriented projects such as electrification, sewage and water channelising are given
priority by the LIC.
 It nominates directors on the boards of companies in which it makes its investments.
 It gives housing loans at reasonable rates of interest.
 It acts as a link between the saving and the investing process. It generates the savings of the
small savers, middle income group and the rich through several schemes.

General Insurance Corporation of India (GIC):

General insurance industry in India was nationalised and a government company known as
General Insurance Corporation of India was formed by the central government in November,
1972. General insurance companies have willingly catered to these increasing demands and
have offered a plethora of insurance covers that almost cover anything under the sun.
Objective of the GIC:
 To carry on the general insurance business other than life, such as accident, fire etc.
 To aid and achieve the subsidiaries to conduct the insurance business and
 To help the conduct of investment strategies of the subsidiaries in an efficient and
productive manner.
Role and Functions of GIC
 Carrying on of any part of the general insurance, if it thinks it is desirable to do so.
 Aiding, assisting and advising the acquiring companies in the matter of setting up of
standards of conduct and sound practice in general insurance business.
 Rendering efficient services to policy holders of general insurance.
 Advising the acquiring companies in the matter of controlling their expenses
including the payment of commission and other expenses.
 Advising the acquiring companies in the matter of investing their fund.
 Issuing directives to the acquiring companies in relation to the conduct of general
insurance business.
 Issuing directions and encouraging competition among the acquiring companies in
order to render their services more efficiently.
Differences Between Life Insurance and General Insurance
1. Benefits of maturity: Life insurance can be seen as an investment apart from
insurance as it offers maturity benefits after specific tenures. General insurance,
mostly, doesn’t give any maturity benefits but just promises a payout amount in case
of any loss due to unavoidable circumstances.
2. Premium payments: In case of life insurance, generally a fixed amount is to be paid
annually, for a specific tenure like 10 or 20 years. For general insurance, mostly the
entire premium is paid in one go when you are buying the policy.
3. Policy Duration: The duration of life insurance policy is generally long-term, whereas
that of general insurance is short term.
4. Role in planning finances: Life insurance can be an investment avenue for different
financial goals such as money for a child’s education, retirement corpus, etc. General
insurance just protects your valuables against any crisis.
5. Claim of Insurance Amount: In case of life insurance, the assured sum is paid either
on the death of the insured person or maturity of the policy. For general insurance, the
loss is compensated in case of unfortunate events, as per the policy terms and
conditions.