irda committee ppt

8/8/2019 IRDA Committee PPT

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Regulation & Supervision of theRegulation & Supervision of the

Insurance Sector in IndiaInsurance Sector in India

byby

C. S. Rao, ChairmanC. S. Rao, Chairman

Insurance Regulatory and Development AuthorityInsurance Regulatory and Development Authority

Hyderabad, IndiaHyderabad, India

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INDIA PROFILEINDIA PROFILE

GEOGRAPHIC/ DEMOGRAPHICGEOGRAPHIC/ DEMOGRAPHIC

3.28 million sq kms.

Coastline: 7,517 kms States & Union Territories 29 & 6

respectively

Population: 1.05 billion Share of world popn: 16.9% Urban : Rural popn: 28: 72

Life expectancyMale: 64.4 yrs, Female: 62.9 yrs

22

Total Area:


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ECONOMIC REFORMSECONOMIC REFORMS

PROCESSPROCESSReform process initiated in 1991.Reform process initiated in 1991.

Abolition of Licensing, Permits and Quotas in Industrial SectorAbolition of Licensing, Permits and Quotas in Industrial SectorFinancial Sector ReformsFinancial Sector Reforms

Banking Sector ReformsBanking Sector Reforms

Freeing of interest rates by the Central BankFreeing of interest rates by the Central Bank

Rationalization of priority sector lendings & lowering of directRationalization of priority sector lendings & lowering of directed credited credit

Capital Market Sector ReformsCapital Market Sector Reforms

Abolition of Controller of Capital Issues and Establishment ofAbolition of Controller of Capital Issues and Establishment ofSecurities and Exchange Board of India in 1992Securities and Exchange Board of India in 1992

Issuance of regulations for mutual funds, portfolio managers,Issuance of regulations for mutual funds, portfolio managers,

registrars, merchant bankers, depository and participants, etcregistrars, merchant bankers, depository and participants, etc

Insurance Sector ReformsInsurance Sector Reforms

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INSURANCE SECTORINSURANCE SECTOR

REFORMSREFORMSCommittee on Reforms in Insurance sectorCommittee on Reforms in Insurance sector19941994

SettingSetting--up of Interim Insurance Regulatory Authorityup of Interim Insurance Regulatory AuthorityMayMay19961996

IRDA Act PassedIRDA Act PassedDecember 1999December 1999

Statutory Authority (IRDA) establishedStatutory Authority (IRDA) established1919thth April 2000April 2000First set of Regulations notifiedFirst set of Regulations notified1919thth July, 2000July, 2000

First set of Certificate of Registration (Licenses) grantedFirst set of Certificate of Registration (Licenses) granted

2323rdrd October 2000October 2000

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NEED FOR REGULATORYNEED FOR REGULATORY

INTERVENTIONINTERVENTION

NationalisedMarket

RegulatedMarket

FreeMarket

RegulatedMarket

Insurance Act, 1938

LIC Act, 1956GIBNA, 1972

IRDA Act, 1999

- No Regulations

- Plagued byfraud

- Urban centric-Planned Economy--Optimum utilization

of resources

-contribution todevelopment of market-untapped marketpotential high-absence of consumerchoice-poor customer service

-Level playing field-Consumer Protection

-Public PrivatePartnership

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Composition of Authority &Composition of Authority &

Regulatory FrameworkRegulatory FrameworkComposition:Composition:

Presently the Authority comprises of:Presently the Authority comprises of: ChairmanChairman

Four fullFour full--time memberstime members

Four partFour part--time memberstime membersRegulatory Framework:Regulatory Framework: Insurance Act, 1938Insurance Act, 1938

IRDA Act, 1999IRDA Act, 1999Notification of RegulationsNotification of Regulations

Issue of Circulars/ lettersIssue of Circulars/ letters

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Duties, Powers & FunctionsDuties, Powers & Functions

of IRDAof IRDA

Registration of insurers & licensing ofRegistration of insurers & licensing of

insurance intermediariesinsurance intermediaries

Financial & regulatory supervisionFinancial & regulatory supervision

Control & Regulation of premium ratesControl & Regulation of premium rates

Protection of PolicyholdersProtection of Policyholders interestsinterests

Specifying rural & social sector obligationsSpecifying rural & social sector obligations

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Registration of supervisedRegistration of supervised

entitiesentities

Insurance companiesInsurance companiesIntermediaries:Intermediaries:

Agents & Corporate AgentsAgents & Corporate AgentsBrokersBrokers

Third Party AdministratorsThird Party Administrators

Surveyors & Loss AssessorsSurveyors & Loss Assessors

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Registration RequirementsRegistration Requirements InsuranceInsurance

CompaniesCompanies

Joint Stock public limited CompanyJoint Stock public limited Company

Capital prescriptionsCapital prescriptions

Contributions only through equity routeContributions only through equity route

Rs.1000 million for life and nonRs.1000 million for life and non--life companieslife companies

Rs.2000 million for reRs.2000 million for re--insurance companiesinsurance companies

Foreign Direct Investment (FDI)Foreign Direct Investment (FDI)26%26%Foreign promoterForeign promoterclearance from home country regulatorclearance from home country regulator

Indian promoterIndian promoter -- regulatory clearances from Indian regulators likeregulatory clearances from Indian regulators likeRBI; SEBI; Income Tax clearancesRBI; SEBI; Income Tax clearances

Promoter & Senior ManagementPromoter & Senior Management

Fit and properFit and proper

statusstatus

Sources of fundingSources of funding

Long term commitmentLong term commitment

Business planBusiness plan

Projected Balance Sheet for 5 yearsProjected Balance Sheet for 5 yearsInfusion of additional capital at periodic intervalsInfusion of additional capital at periodic intervals

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Licensing of Insurance Agents/Licensing of Insurance Agents/

Corporate AgentsCorporate AgentsTied agents (one life insurer and general insurer)Tied agents (one life insurer and general insurer)

Delegated to designated persons in insuranceDelegated to designated persons in insurancecompaniescompanies

Minimum educational qualificationMinimum educational qualification

Stipulated training requirements (registration & Renewal)Stipulated training requirements (registration & Renewal)Clear examinationClear examination

Adherence to code of conductAdherence to code of conduct

Banks/ FIBanks/ FIs/ NBFCs/ NBFCs acting as Corporate Agents:s acting as Corporate Agents: Promoter Banks/ FIPromoter Banks/ FIs/ NBFCs/ NBFCs of insurance companiess of insurance companies

Other banksOther banks

Agent of one life and one nonAgent of one life and one non--life insurance companylife insurance company

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Insurance BrokersInsurance Brokers

Represent the clientRepresent the client

Not risk carriersNot risk carriersCapital & deposit requirementsCapital & deposit requirements

Professional Indemnity policyProfessional Indemnity policyMembership of BrokersMembership of Brokers AssociationAssociation

Minimum qualifications & training requirementsMinimum qualifications & training requirements

for CEO and at least two other personsfor CEO and at least two other persons


Banks/ FIBanks/ FIs/ NBFCs/ NBFCs acting as Insurance Brokers acting as Insurance Broker1111


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Third Party AdministratorsThird Party Administrators

Health InsuranceHealth Insurance

Outsourcing agency for servicing of health insuranceOutsourcing agency for servicing of health insuranceclaimsclaims

No marketing rightsNo marketing rights

Introduced to promoteIntroduced to promote cash less hospitalizationcash less hospitalizationNot risk carriersNot risk carriers

Working Capital requirementsWorking Capital requirements

Minimum qualifications & training requirements forMinimum qualifications & training requirements for

CEO/ CAOCEO/ CAO

Adherence to code of conductAdherence to code of conduct1212


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Surveyors & Loss AssessorsSurveyors & Loss Assessors

Mandatory for claims above specified limitsMandatory for claims above specified limits

Independent professionalsIndependent professionals

Minimum educational qualifications & trainingMinimum educational qualifications & training


Setting up of the independent Institute of surveyors &Setting up of the independent Institute of surveyors &loss assessorsloss assessors

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Supervision of InsuranceSupervision of Insurance

CompaniesCompaniesStructure:Structure:

Approval of changes in ownershipApproval of changes in ownership

Appointment of CEO/ Appointed ActuaryAppointment of CEO/ Appointed ActuaryOperations & Monitoring of performance:Operations & Monitoring of performance:

Approval of ProductsApproval of Products

InvestmentsInvestments

ReinsuranceReinsurance Financial & Actuarial returnsFinancial & Actuarial returns

On site inspectionOn site inspection

Protection of policyholdersProtection of policyholders interests:interests:

Issues of market conductIssues of market conduct

Advertisements & DisclosuresAdvertisements & Disclosures Grievance Redressal MechanismGrievance Redressal Mechanism

Developmental IssuesDevelopmental Issues

Rural & Social Sector obligationsRural & Social Sector obligations

Micro InsuranceMicro Insurance

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Product ApprovalProduct Approval

Insurers file proposed products for approval.Insurers file proposed products for approval.

Focus onFocus onTransparency of the productTransparency of the product

Actuarial assessmentActuarial assessmentReasonableness of premiumReasonableness of premium

Benefits flowing to policyholdersBenefits flowing to policyholders

Fairness of contract termsFairness of contract terms

If no clarification sought, deemed approvedIf no clarification sought, deemed approved

within 30 days.within 30 days.1515


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Stipulations for life/nonStipulations for life/non--life insurancelife insurance

segmentssegments

Pattern of Investments designed to control riskPattern of Investments designed to control risk

Mandated investment for Infrastructure/SocialMandated investment for Infrastructure/SocialSectorSector

Prudential normsPrudential norms

Exposure LimitsExposure Limits

Outsourcing not permitted (other thanOutsourcing not permitted (other than

computation of NAV)computation of NAV)1616


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ReinsuranceReinsurance

Guided by objectives of:Guided by objectives of:

maximizing retention within the countrymaximizing retention within the country securing the best possible protection for the reinsurancesecuring the best possible protection for the reinsurance

costs incurredcosts incurred

Obligatory cession of 15% to Indian reObligatory cession of 15% to Indian re--insurerinsurerFiling of Reinsurance Program and copies ofFiling of Reinsurance Program and copies ofTreaty slipsTreaty slips

Placement withPlacement with atleastatleast BBB rated companiesBBB rated companies

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Scrutiny OfScrutiny Of

Financial & Actuarial ReturnsFinancial & Actuarial Returns

Assess financial health of companies:Assess financial health of companies: Solvency margin requirementsSolvency margin requirements

Profitability of operationsProfitability of operations

ShareholdersShareholders responsibility to fund deficitresponsibility to fund deficitthrough capital infusionthrough capital infusion

Control on expensesControl on expenses

Healthy business growthHealthy business growth

Satisfactory investment returnSatisfactory investment return

Adequacy of internal controls and processesAdequacy of internal controls and processes Satisfactory risk management strategySatisfactory risk management strategy 1818


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OnOn--site Inspectionssite Inspections

Statutory powersStatutory powers

Limited inspections:Limited inspections:

TargetedTargeted


Market ConductMarket ConductTraining of StaffTraining of Staff

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Market ConductMarket Conduct

Dealing with the customerDealing with the customer

Disclosure of relevant informationDisclosure of relevant informationLicensed personnel authorized to sellLicensed personnel authorized to sell

Advertisement Regulations define unfair or misleadingAdvertisement Regulations define unfair or misleading

advertisementsadvertisementsRegulations on protection of interests of policyholdersRegulations on protection of interests of policyholders

Sales literature to highlight mandatory disclosures,Sales literature to highlight mandatory disclosures,

benefits, exclusionsbenefits, exclusions

Servicing Benchmarks, timeframe for settlement ofServicing Benchmarks, timeframe for settlement of

claims, payment of penal interest in case of delayclaims, payment of penal interest in case of delay

Procedure & mechanism to address grievancesProcedure & mechanism to address grievances2020


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Grievances Handling MechanismGrievances Handling Mechanism

The system & its effectivenessThe system & its effectivenessAnalysis of complaintsAnalysis of complaints

Arbitration and Conciliation optionsArbitration and Conciliation optionsInsurance OmbudsmanInsurance Ombudsman

GrievanceGrievance RedressalRedressal Cells at IRDA toCells at IRDA tofacilitate resolution of disputefacilitate resolution of dispute

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Obligations to Rural & SocialObligations to Rural & Social


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Obligations to Rural & SocialObligations to Rural & Social

SectorsSectors

Introduced post opening up of the insurance sectorRural Sector obligations: Life companies: Linked to per cent of no. of new policies issued

during financial year Non life companies: Linked to per cent of gross premium direct

underwritten during the year

Social Sector obligations: Minimum no. of lives to be covered annually

Targets linked to the year of operationsIn respect of existing public sector insurers obligations linked toperformance in 2001-02The amendment regulations 2007 being notified shortly

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Micro InsuranceMicro Insurance

ObjectiveObjectiveReach the bottom of the pyramid by makingReach the bottom of the pyramid by making

it accessible and affordableit accessible and affordableChannelChannelLeveraging on the established entitiesLeveraging on the established entitiesalready engaged in rural initiativesalready engaged in rural initiativesNGO/SHG/NGO/SHG/MFIsMFIs

InnovationInnovation Enormous scope for innovative productsEnormous scope for innovative products

Integration of Life/ General insurance productsIntegration of Life/ General insurance products

Cover life, health, livestock, dwellings, assets, cropsCover life, health, livestock, dwellings, assets, cropsApproachApproachInsurers view it as a potential businessInsurers view it as a potential businessopportunity and developing sustainable delivery channelopportunity and developing sustainable delivery channel

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Overview of Insurance MarketOverview of Insurance Market

20002000 20072007

Total number ofTotal number of

insurersinsurersPublicPublic

SectorSectorPrivate#Private#

SectorSectorPublicPublic

SectorSector

TotalTotal

no. ofno. of

InsurersInsurers

(Public and(Public and

Private)Private)

Life insurersLife insurers 11 1515 11 1616

GeneralGeneral

insurersinsurers 44 88 44 1212

SpecializedSpecialized

InstitutionsInstitutions 1*1* 11@@ 22 33

NationalNational

ReinsurerReinsurer 11 00 11 11

TotalTotal 66 2424 88 3232

# 2 Life and 1 General insurer do not have Foreign Joint Venture# 2 Life and 1 General insurer do not have Foreign Joint Venture partner.partner.

*ECGC (not registered in 2000) and Agricultural Ins Co. Ltd. est*ECGC (not registered in 2000) and Agricultural Ins Co. Ltd. established recentlyablished recently

@@

Standalone Health insurance CompanyStandalone Health insurance Company20072007--08, registration granted to one life, non08, registration granted to one life, non--life and health insurance companylife and health insurance company

each. Thus, as on date no. of entities registered increased to 3each. Thus, as on date no. of entities registered increased to 35.5. 2424


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Insurance PenetrationInsurance Penetration

YearYear Total BusinessTotal Business LifeLife Non LifeNon Life

19961996 1.841.84 1.291.29 0.550.55

20002000 2.322.32 1.771.77 0.550.55

20012001 2.712.71 2.152.15 0.560.56

20022002 3.263.26 2.592.59 0.670.67

20032003 2.882.88 2.262.26 0.620.62

20042004 3.173.17 2.532.53 0.650.6520052005 3.143.14 2.532.53 0.620.62

20062006 4.84.8 4.14.1 0.60.6

Premium as % of GDPSource: Sigma/ Swiss Re 2525


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Insurance DensityInsurance Density

YearYear Total BusinessTotal Business LifeLife Non LifeNon Life

19961996 7.007.00 5.005.00 2.002.00

20002000 9.909.90 7.607.60 2.302.30

20012001 11.5011.50 9.109.10 2.402.40

20022002 14.7014.70 11.7011.70 3.003.00

20032003 16.4016.40 12.9012.90 3.503.50

20042004 19.7019.70 15.7015.70 4.004.0020052005 22.7022.70 18.3018.30 4.404.40

20062006 38.438.4 33.233.2 5.25.2

Premium per capita in USDSource: Sigma/ Swiss Re

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AGENDA FOR ACTIONAGENDA FOR ACTION

Life and General InsuranceLife and General Insurance

Increase in Foreign Direct Investment (FDI)Increase in Foreign Direct Investment (FDI)

Health insuranceHealth insurance Need to reduce capital requirements for establishing health insNeed to reduce capital requirements for establishing health insuranceurancecompaniescompanies

Creation of centralized health database, training in ICDCreation of centralized health database, training in ICD--10 coding, new10 coding, newproduct innovation and design undertaken.product innovation and design undertaken.

DetariffingDetariffing Insurance companies to establish basic infrastructure such as iInsurance companies to establish basic infrastructure such as i) strong) strong

underwriting teams; ii) IT systems to retrieve and analyse data;underwriting teams; ii) IT systems to retrieve and analyse data; iii) waysiii) waysand means to protect the policyholders; iv) scientific and adequand means to protect the policyholders; iv) scientific and adequate pricingate pricingof covers, etc.of covers, etc.

Market conductMarket conduct Establishment of Self Regulatory Organizations (SROEstablishment of Self Regulatory Organizations (SROs) to monitor ands) to monitor andcontrol Miscontrol Mis--selling/ Rebating/ Payouts in life and general insuranceselling/ Rebating/ Payouts in life and general insurance

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