irda project

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INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA


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DETAILS OF THE PROJECT PRESENTER

NAME - MASTER. ROHAN W. MOHITE

CLASS/ DIV. - S.Y.B.M.S. / B

YEAR - 2012 - 13

ROLL NO. - 87

SEMESTER - III

TOPIC - INSURANCE REGULATORY &

DEVELOPMENT AUTHORITY OF

INDIA

PROJECT GUIDE - PROF.MRUNMAYI THATTE.

SUBJECT - BUSINESS ASPECTS IN

BANKING & INSURANCE

COLLEGE - K.G. JOSHI COLLEGE OF

ARTS &

N.G. BEDEKAR COLLEGE OF

COMMERCE.

ACKNOWLEDGEMENT

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This project “INSURANCE REGULATORY & DEVELOPMENT AUTHORITY OF INDIA”

is a result of co-operation, hard work and good wishes of many people. I would like to thank our project guide Prof. MRUNMAYI THATTE for her involvement in the project work and timely assessment that provided me inspiration and valued guidance throughout my study.

I am highly indebted to Dr. Mrs. Shakuntala A. Singh, Principal K.G. Joshi College of Arts & N.G. Bedekar College of Commerce, for giving us an opportunity to do a project. I would like to thank Prof. Mr.D.M. Murdeshwar , course co-ordinator, for his friendly guidance and constant encouragement.

I would like to express gratitude towards my parents, teachers of K.G. Joshi College of Arts & N.G. Bedekar College of Commerce, the library staff and college friends whose co-operation, encouragement and efforts have helped me in giving the final shape and structure to the project.

My thanks and appreciations also go to my college mates and to all those people who have willingly helped me out with their abilities.

INDEX

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SR. NO

TOPIC PAGENO.

REMARKS

1. INTRODUCTION OF IRDA 5

2. ESTABLISHMENT 6

3. MISSION STATEMENT 7

4. DUTIES, POWERS & FUNCTIONS 7 - 8

5. STRUCTURE 9 - 10

6. PRESIDENT’S SPEECH 11 - 13

7. COMPARISON 14 - 15

8. FINDINGS 16

9. QUESTIONNAIRE TO COMPANIES 17

10. CHINA FORWARD IN INSURANCE SECTOR COMPARED TO INDIA

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11. CONCLUSION 19

12. WEBLIOGRAPHY 20

INTRODUCTION

Insurance Regulatory and Development Authority (IRDA) is an autonomous apex statutory body which regulates and develops

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the insuranceindustry 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.

Head Office :

Insurance Regulatory and Development Authority,3rd Floor, Parisrama Bhavan, Basheer Bagh, HYDERABAD 500 004, Andhra Pradesh (INDIA ).

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ). 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. The Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business 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. The Insurance Amendment Act of 1950 abolished Principal Agencies. An Ordinance was issued on 19th January, 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. This were the stages before IRDA existed i.e. the journey of Insurance in India before IRDA came into existence. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.

ESTABLISHMENT OF IRDA

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

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was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests. In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

Today there are 24 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 23 life insurance companies operating in the country. The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the country’s GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country.

MISSION STATEMENT OF IRDA

To protect the interest of and secure fair treatment to policyholders; To bring about speedy and orderly growth of the insurance industry

(including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of

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the economy; To set, promote, monitor and enforce high standards of integrity,

financial soundness, fair dealing and competence of those it regulates;To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery;

To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players;

To take action where such standards are inadequate or ineffectively enforced;

To bring about optimum amount of self-regulation in day-to-day working of the industry consistent with the requirements of prudential regulation.

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

Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.

Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include, -

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;

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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;

Regulating investment of funds by insurance companies; Regulating maintenance of margin of solvency; Adjudication of disputes between insurers and intermediaries or

insurance intermediaries; Supervising the functioning of the Tariff Advisory Committee; 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; and

Exercising such other powers as may be prescribed

STRUCTURE OF IRDA

As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority (IRDA, which was constituted by an act of parliament) specify the composition of Authority The Authority is a ten member team consisting of

(a) Chairman;

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(b) five whole-time members; (c) four part-time members, all appointed by the Government of India.

The present structure is same as above with the following

This been structure of the committee, IRDA has been excelling in its management of the whole Insurance market. IRDA has been modifying its rules, regulations and policies for better development of Insurance in the Indian market. It publishes its changes reports in official gazettes and its own websites. Its websites are-

www.irdaindia.org, http://www.policyholder.gov.in, www.irda.gov.in, www. irda online.org .

http://www.irdaonline.org/

http://www.irda.gov.in/

http://www.policyholder.gov.in/

http://www.irdaindia.org/

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Through this websites they combine all their activities in a readable version. The IRDA performs various functions; legislates or imposes rules, regulations(laws); penalties; changes policies; this is showcased in above sites with A – Z details. Not only this but it also showcases reports of all Insurance companies in a statistical data form, warnings to insurance companies, public disclosures and the meetings/arrangements on various Insurance topics.

The main part comes with its Journal which showcases Insurance issue topics, thinkings by various personalities on the topics, key areas where the Insurance companies should develop, research work, statistical data of the companies, points on the events organized by IRDA every month.

Through this Journal, IRDA has been trying to develop Insurance in India. A good example will be – It tried to aware companies to insure persons suffering from AIDS, other topics include grievance management, policy serving as a Fine Art, Policyholder Service Strategy, Need for Innovation(G V Rao argues that while there is a great deal of enthusiasm for filing products, it may not be backed by a sufficient market research), consumer orientation, need of simplicity (Joydeep Roy emphasizes that the biggest innovation waiting to happen will be to render insurance policies more comprehensible to the lay person. He further says that the industry is in need of innovation in insurance products which will offer consumers simple and easy-to-understand choices.), the concept IBNR, undoing uncertainty, vital points for success, concept of Nuclear Insurance.

The President’s speech on IRDA as during Finance Minister – Mr. PRANAB MUKHERJEE

It gives me great pleasure to be here today for the board meeting of Insurance Regulatory Development Authority (IRDA). It is a matter of pride that the financial regulatory framework in India is evolving in a manner which is

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conducive to development of a robust financial sector, ensures the independence of the regulators and enables the sector to grow in a healthy manner in line with the requirements of a growing economy.

We have travelled a long distance since the time Insurance was nationalized in 1956. As we look back from the time the IRDA Act, 1999 was enacted by the Parliament, it is heartening to note that the objectives for which the IRDA was created, have been largely achieved; and that the industry has been making steady progress. The growth in premium underwriting has witnessed strong CAGR of 22.3% during the decade 2001-2011. Insurance penetration and density at 5.1% in 2010 is a marked improvement from 2.71% in 2001.The public confidence in the industry has improved and is positive. The future looks bright for the insurance sector.

Asia excluding Japan will contribute nearly a quarter of global growth in next 5 years and within Asia, India will be the fastest growing general insurance market, with an average expected growth of 15%. A welcome feature is that the share of life insurance premium in the gross domestic savings with the household is about 18% and is increasing over the years. There are strong underwriting growth drivers. The demand for insurance products is likely to increase due to growth of household savings and purchasing power.

The insurance sector has been an important contributor to the infrastructure development of the country. The total investments of the insurance industry in infrastructure (as on 31st March, 2011) were to the tune of Rs 198,369 crore, of which 78% has come from public sector insurance companies.

I am happy to note that the Planning Commission and IRDA are working together to develop necessary framework for infrastructure financing. I am sure that IRDA will ensure all what’s required to ensure that the growth potential of the insurance sector is fully realized.

There are a few concerns that need to be addressed. Notwithstanding India’s rapid growth in recent decades, it has largely remained an underinsured market with financial vulnerability across most of the income segments. The protection level, as measured by level of sum insured to Gross Domestic Product, at 55% is still low, pointing to the need for promoting long term savings and protection. Further, the insurance market is structurally challenged in terms of profitability. The industry profitability is driven by the investment income, with continued deterioration in the core business economies. No Company in India has yet achieved a sustainable

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balance between growth and profitability.

The IRDA, through its regulations, has been ensuring policy holders’ protection. Initiatives such as dematerialized accounts, declining risk pool for third party motor pool, promotion of rural and social sector obligations, micro insurance policies, Institution of ombudsman and Integrated Grievance Redressal Mechanism, to name a few have strengthened the insurance sector tremendously. These efforts have to continue in the near future. IRDA, I feel has a crucial role at this moment to see that the sector develops in a healthy manner and the reach of insurance is maximized.

There are two potential scenarios for the market profitability (i) more holistic competition with new business models (ii) aggressive price based competition. It is the first option rather than aggressive competition in premium underwriting, that has been the case so far. While de-tariffing has resulted in significant lowering of premiums for the consumers, the adverse impact is being felt on the insurance company’s balance sheet. Underwriting performance is the biggest driver of superior returns and is the key differentiator between the top performers and the rest. To ensure prudent underwriting and curbing unhealthy and suicidal competition among the companies through undercutting premiums is something that the Regulator will need to address suitably.

The focus area for an insurance company should be to strive towards a proper business mix, distribution mix along with underwriting excellence, operation excellence and claims excellence. It is imperative that (i) companies adopt the granular growth approach and realign resources differentially by channel, product and geography, (ii) strengthen core distribution capabilities (iii) deeper retention through Customers lifecycle management, (iv) invest in technical excellence and (v) driving comprehensive expenses management. It is time for the IRDA to examine promotion of Digital channels and incentivize E-Governance and E-Policy so as to extend insurance coverage especially among the youth.

IRDA has made progress in ensuring policyholder’s protection. In continuing this work, IRDA should be expressively punitive to companies who resort to mis-selling or violate the initially agreed terms and conditions. I feel there is a case for moving to a ‘use and file’ system for approving products or mix it with the existing ‘file and use’ policy, in order to speed up the product approval process which has been the concern in the sector for some time. The regulatory environment should be conducive to changes with regulator seeking broad guidelines as opposed to micro management.

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Indian market, despite newer models of distribution is still largely dependent on the agents and agency model of insurance. Can we think of a system where in the mass market/OTC vanilla products with low ticket size are incentivized by having a second level of agents with lesser entry restrictions? This will ensure widening the reach of Insurance especially in semi-urban and rural areas. The low penetration in general insurance is primarily because of low penetration in retail insurance product segment.

The efforts of IRDA in promoting rural and social sector insurance are steps in the right direction. In this regard I have instructed the LIC as well as four Public Sector Insurance Companies to have their presence in all district headquarters and upto the Tier IV cities as classified by Census. In addition, IRDA may think of setting up a pool which should be specifically meant to take up insurance literacy and awareness. This is one area I am concerned and concerted efforts are needed to make people realize the importance of insurance especially as old-age security.

IRDA should have a clear vision in insurance sector in India in this changing social economic scenario and have a consistent long term policy framework so that the industry can flourish.

To conclude, I would emphasize that though the journey has begun well, it is only half-complete. It is now up-to both the Department of Financial Services and IRDA to work in a manner that insurance becomes an effective tool for transforming the lives of individuals and the society at large.

IRDA AS A COMPARISON WITH CHINA’S INSURANCE REGULATORY DEVELOPMENT AUTHORITY

INDIA’S

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IRDA is an autonomous body formed under Indian parliament act

All the documents and financial statements are kept in IRDA

I R D A i s a n a u t o n o m o u s b o d y

T h e r e i s n o s u c h h e l p g i v e n b y I R D A

There is no compulsory insurance operation in India Main aim of IRDA is to protect the Interest of

policyholder.

CHINA’S C h i n a I n s u r a n c e R e g u l a t o r y

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C o m m i s s i o n exercises vertically management of all the agent offices stationed in various localities.

I ts main aim is to manage the insurance market and maintains the legal and stable operation of insurance operations in the country.

I t a l s o u n d e r t a k e s o t h e r j o b s d e l e g a t e d b y the State Council

I t e x a m i n e s a n d a p p r o v e s t h e s e t u p o f representative offices of overseas insurance institutions in China.

It supervises policy-oriented insurance and compulsory insurance operations.

The financial statements and documents that are collected by the regulator are deposited in people’s bank of china. China Insurance Regulatory Commission is a ministerial institution directly under the State Council.

FINDING’S ON THE BASES OF COMPARISON’S

1. Despite opening up at roughly the same time in the late nineties, the insurancesector in China has raced ahead of India.

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2. Standard & Poor's latest Asia Insurance review puts the Chinese market ahead of India due to more positive regulatory environment, higher asset quality and better performing companies. There are 79 insurance companies in China, compared to the 30 odd firms in India.

3. Connie Wong, senior analyst, S&P, said, "Compared to China, although regulations have been proactive, they have been less effective in India, especially on issues like solvencyrequirements. As a result, insurance companies in China have better underwriting and capitalization than India.”

4. Low levels of market sophistication in the life industry and the impending de-tariffing in general insurance are the reasons for placing India in the high-risk category. Compared to this, though China is placed as high in terms of economic risk, it is placed at moderately high in terms of industry risk.

5. Wong said apart from favorable norms on foreign investment, other positive factor for China was that it had progressed towards risk-based solvency requirement.

6. While all the life insurance companies made losses in fiscal 2005, two companies inChina have reported profits. Indian sector reported much better investment yields ataround 6%.

QUESTIONNAIRE

ASKED TO COMPANIES1. Does IRDA interfere in the adjudication of disputes in your company?

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Yes

2. If yes are you satisfied with the solution/suggestions provided by IRDA?

Yes

3. Are you satisfied with the working of IRDA as a regulator of insurance sector in India? Yes

4. Are you satisfied with the working of tariff advisory committee? Yes

5. is IRDA providing proper training for intermediaries and agents? Yes

6. Is IRDA successful in insuring orderly growth of insurance sector India? Yes

The answers found were satisfactory, then what led to backing of Insurance in India was answered by some experts. They suggested the following –

1.IRDA should intervene in the commission system of insurance companies and agents should be given salaries with commission.2. IRDA official should also visit local branches of companies.3. IRDA should make strong regulations for the documentation of the policy.

It was found that –

1. In china there is policy oriented insurance and compulsory insurance operations. So that there is more insurance awareness in china than in India. In India IRDA can make such operation for insurance awareness.

2. China Insurance Regulatory Commission exercises vertically management of all the agent offices stationed in various localities.

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3. C h i n a I n s u r a n c e R e g u l a t o r y C o m m i s s i o n a p p r o v e s t h e s e t u p o f r e p r e s e n t a t i v e offices of overseas insurance institutions in China. It can also apply to India.

4. IRDA staff needs training and skills upgrading. Because the insurance industry has been Government monopoly in the past, most of the staff, despite their background in the insurance industry or Government agencies, lacks sufficient supervision and regulatory experience and skills.

CONCLUSIONIRDA is important to keep a check on private insurance companies and growth of insurance sector.It has been successful in monitoring, nurturing and grooming insurance sector in India.

If we want the company to work in a proper manner without any problem then we have to obey the rules of IRDA.

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Without IRDA all companies are like a car without a driver who can make to run their Companies without any guidance. So a driver is there to control a car to show car the r i g h t d i r e c t i o n a n d r u n w i t h o u t h a r m i n g o t h e r s . L i k e d r i v e r I R D A a l s o s h o w s a l l directions and rules to companies by which they have to run.

A. I R D A i s s u c c e s s f u l i n o p e n i n g t h e i n s u r a n c e m a r k e t f o r p r i v a t e a n d f o r e i g n companies after liberalization, insuring the orderly growth of insurance sector and protecting the interest of policyholders.

B. T h e e f f e c t i v e n e s s o f I R D A d e p e n d s s u b s t a n t i a l l y o n t h e a b i l i t y o f i t s h u m a n resources.

C. Till now IRDA is successful in keeping a check on fraud companies entering into the insurance market.

D. IRDA in these years is successful in earning the respect of a regulator in the hearts of managers of insurance companies.

E. After the formation of ombudsmen committee by IRDA is successful in reducing the grievances of the policyholders.

F. Indian insurance sector in spite being opened at the same time as of china is behind b u t i t h a s b i g o p p o r t u n i t y i n f u t u r e a n d I R D A i s w o r k i n g p o s i t i v e l y t o w a r d s t h a t opportunity.

WEBLIOGRAPHY

1. 1011.http://www.sebi.gov.in2. www.nasscom.in

http://www.nasscom.in/

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3. www.ibai.org4. www.thehindu.com5. www.irdaindia.org6. . http://www.policyholder.gov.in7. www.irda.gov.in 8. www. irda online.org

http://www.irdaonline.org/

http://www.irda.gov.in/

http://www.policyholder.gov.in/

http://www.irdaindia.org/

http://www.thehindu.com/

http://www.ibai.org/

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