Insurance Regulatory and Development Authority

a.Organizational Structure of IRDAI:

Structure of Irdai:

As per Section 4 of the Irdai Act, 1999, the composition of Irdai is as follows:

(a) The Chairman

(b) five whole time directors

(appointed by the government)

Irdai has its head office in Hyderabad

All activities of Irdai including monitoring the financial stability of insurers and market conduct of regulated companies are controlled from its Head Office.

IRDAI Regional Offices are at New Delhi and Mumbai

The Regional Office, Delhi focuses on promoting customer awareness and handling insurance complaints along with providing requisite support for inspection of other regulated companies and insurance companies located in the North Zone. This office is responsible for the task of providing licenses to surveyors and loss assessors. The Regional Office of Mumbai performs similar functions relating to the Western Region as the Regional Office at Delhik.

B. Insurance Regulatory Framework:

1. The Insurance Regulatory and Development Authority (Irdai) is a statutory body created under an Act of Parliament i.e. Insurance Regulatory and Development Authority Act, 1999 (Irdai Act, 1999) for overall oversight and development in the insurance sector in India.

2. The powers and functions of the Authority are laid down in the IRDAI Act, 1999 and the Insurance Act, 1938. One of the key objectives of IRDAI is to promote competition so as to enhance customer satisfaction through increased consumer choice and reasonable premiums while ensuring financial stability of the insurance market.

3. The principal act governing the insurance sector in India is the Insurance Act, 1938. It empowers Irdai to frame regulations laying down the regulatory framework for supervision of companies operating in the sector. In addition, there are some other Acts such as the Marine Insurance Act, 1963 and the Public Liability Insurance Act, 1991 that govern specific 6 lines of insurance business and functions.

4. Irdai has adopted a mission for itself which is as follows:

To protect the interests of policyholders and ensure fair treatment;
To accelerate and systematically develop the insurance industry (including annuity and superannuation payments) for the benefit of the common man and to provide long-term funds for accelerating the growth of the economy;
To determine, promote, supervise and enforce high standards of integrity, financial soundness, fair dealing and efficiency among those it controls;
Ensuring speedy settlement of genuine claims, prevention of insurance frauds and other malpractices and putting in place effective grievance redressal machinery;
Promote fairness, transparency and orderly conduct in the financial markets that do business with insurance and create a reliable management information system to enforce high standards of financial soundness among market participants (planners);
to take action where such standards are inadequate or are being implemented ineffectively;
To apply optimal self-control in the day-to-day work of the industry, consistent with the requirements of prudential regulations.

5. Companies Regulated by Irdai:

A. Life Insurance Companies – Both Public and Private Companies

b. General Insurance companies – both public and private companies. Some of them are single health insurance plans that health insurance policies offer.

C. Re-insurance companies

d. Agency channel

D. Intermediaries including:

corporate agent
broker
third party administrator
Surveyors and Loss Assessors

6. PROCEDURE FOR MAKING REGULATIONS:

Section 26(1) of the Irdai Act, 1999 and section 114A of the Insurance Act, 1938 vests the Authority with the power to make regulations by notification.
Section 25 of the IRDAI Act, 1999 provides for the establishment of an insurance advisory committee consisting of not more than twenty-five members excluding ex-officio members. The Chairman and members of the Authority shall be ex-officio members of the Insurance Advisory Committee.
The object of the Insurance Advisory Committee is to advise the Authority on matters relating to formulation of regulation under section 26.
Accordingly, the draft regulations are first presented in the meeting of the Insurance Advisory Committee and after receiving the comments/recommendations of the IAC, the draft regulations are placed before the Authority for approval.
Every regulation approved by the Authority is notified in the Gazette of India.
Each regulation so made is submitted to the Ministry for laying before the Parliament.

7. The Authority has issued regulations and circulars on various aspects of operations of insurance companies and other companies, covering the following:

protection of policyholders
procedures for the registration of insurers or the granting of licenses to intermediaries, agents, surveyors and third party administrators;
Fair and fair assessment of promoters and management
Clearance/filing of products before bringing them to market
Preparation of accounts and submission of account details to the Authority,
Form for Actuarial Valuation of Liabilities of Life Insurance Business and Filing Actuarial Report
Provision for liabilities in case of non-life insurance companies
Mode of investment of funds and periodic reports on investments
maintenance of debt
market conduct problems

C. Supervisory Role:

1. The objective of supervision as described in the role of IRDAI is to “protect the interests of policyholders, to regulate, promote both insurance and reinsurance business and ensure an orderly, orderly development of the insurance industry.” The powers and functions of the Authority to enable the Authority to achieve its objectives are laid down in the Irdai Act, 1999 and the Insurance Act, 1938.

2. Section 25 of the IRDAI Act, 1999 provides for the establishment of an Insurance Advisory Committee consisting of representatives from organizations engaged in commerce, industry, transport, agriculture, survey agents, intermediaries, security and loss prevention, research bodies and employees’ associations in the field of insurance. is represented. All the rules, regulations, guidelines applicable to the industry are hosted on the supervisor’s website and are available in public domain.

3. Section 14 of the Irdai Act, 1999 specifies the duties, powers and functions of the Authority. This includes the following:

Licensing of reinsurance companies and insurance intermediaries,
To protect the interests of the policyholders,
Controlling the investment of funds by insurance companies, professional organizations engaged in the reinsurance business; maintenance of solvency margin;
soliciting information, conducting inspections, inquiries and investigations from companies engaged in the reinsurance business;
To specify the required qualifications, code of conduct and practical training for insurance intermediaries, agents and surveyors and loss assessors.
prescribing the form and manner for maintaining the books and statements of accounts to be maintained by insurers and other insurance intermediaries;

d. Prudential Approach: Reporting, Risk Management and Intervention;

1. . reporting requirements

Insurers are required to furnish financial returns on an annual basis along with miscellaneous returns with auditors’ opinion on the statement of annual accounts; such as asset valuation reports, assessment of liabilities and solvency; Actuarial Report and Annual Appraisal Report giving information on the financial position of the life insurance business; Claims arising but unreported in connection with general insurance business; Reinsurance plans on an annual basis; and in the case of general insurance companies, the monthly return in respect of underwriting of major risks; Monthly statement of capital market exposure; Investment policy, quarterly and annual return on investment.

2. Solvency of Insurers:

In order to monitor and control insolvency requirements, the Bankruptcy Ratio Report is required to be submitted on a quarterly basis to the regulator. In case of any deviation, the supervisor takes necessary and appropriate steps to ensure that the insurer takes immediate corrective action to restore the solvency position to the minimum statutory level.

In the calculation of the insolvency margin, the hidden risk that threatens the business of the subject sector is taken into account. Insurers have higher expectations for riskier businesses than for low ones. Although insurers are required to maintain a minimum solvency ratio of 150% at all times, the actual solvency margin created by insurers is substantially higher than the expected solvency margin, resulting in a much higher than average solvency margin ratio. lives.

The supervisor is required to submit quarterly solvency ratios while maintaining a minimum solvency ratio of 150%. This provides a system of checking the insolvency position from time to time in a financial year to ensure compliance with the requirements and thus on receiving early warning signals about the financial position of the insurer. Appropriate action can be taken.

3. There is payment management

Under asset liability management reporting, the insurer must provide year wise expected cash flows in respect of both assets and liabilities. Insurers will have to keep the mismatch reserve as universal reserve in case of any difference in assets and liabilities. In addition, life insurers are required to submit a report on the scenario testing process and sensitivity in the specified format. Non-life insurers must submit a report on ‘Financial Conditions’ covering a sensitive analysis of financial soundness to meet the liability of the policyholder.

The supervisor is required to manage the investment within the insurer’s own organization. In order to ensure the minimum level of protection of investments in line with the provisions of the Insurance Act, the regulations stipulate that certain percentage of the funds be invested in Government securities and approved securities. The regulatory framework prescribes mixed and varied parameters of investment in the form of investment types, credit risk limits of group company, insurer’s promoter group company. Investment regulation lays down the framework for managing investments. Credit exposure limits are also prescribed in the regulations. Investment regulation requires the insurer to follow a proper practice for reconciliation of assets and liabilities.

4. Reinsurance

Transfer of risk through reinsurance is recognized only to the extent specified in the regulations. Appropriate safeguards are in place to ensure that the assets held are quality assured. There is no other risk transfer mechanism in the present regime. For the purpose of minimizing counterparty risk, the reinsurer with whom the business is transacted must have a minimum rating specified by an independent credit rating agency as specified in the regulations. It further stipulates that insurance companies may capitalize their operations only through ordinary shares having a single face value.

reinsurer

General Insurance Corporation of India (GIC of India) is the only national reinsurer providing reinsurance to insurance companies in India. The reinsurance program of the corporation is designed to develop adequate coverage and adequate capabilities for exposure within the domestic market. while ensuring that it fulfills the optimum objectives of retention within the country. The Indian Motors Third Party Reduced Risk Insurance Pool is a multilateral reinsurance arrangement in respect of specified commercial vehicles in which the policy issuing members pay premiums to the reduced risk pool based on the underwriting of the policy approved by the insurer Irdai.

5. Corporate Governance:

In order to safeguard the long term interests of the policyholders, IRDAI has prescribed appropriate governance practices applicable to insurance companies for estimating underwriting with respect to maintenance of solvency, sound long term investment policy and prudential norms from time to time. Irdai has issued comprehensive guidelines on the governance responsibilities of the Board in the management of insurance operations to be followed by insurance companies. These guidelines are in addition to the provisions of the Companies Act, 1956, the Insurance Act, 1938 and other applicable legislations.

The Corporate Governance Guidelines issued by IRDAI require insurers to take necessary control procedures. The control functions are supervised by the Boards of Directors of the respective insurers. It also specifies the composition, activities and responsibilities of the board of directors and senior management of companies. Insurers are expected to adopt sound, prudent principles and practices for company governance and have the ability to quickly address problems of non-compliance or weak monitoring and controls.

Mandates insurers to constitute various committees, such as Audit Committee, Investment Committee, Risk Management Committee, Policyholder Protection Committee and Asset Liability Management Committee. These committees play a key role in enhancing the control environment in the company.

6. On site and off site observation:

On site inspection:

The Authority reserves the right to call for any information as may be required from time to time from the institutions, insurance companies and intermediaries involved in the insurance business.

Normally on site inspection is done on annual basis which includes inspection of corporate offices and branch offices of companies. These inspections are done with a view to check compliance with the provisions of the Insurance Act and the rules and regulations made thereunder.

Inspection may be comprehensive to cover all areas or may target a single area or may be a combination of key areas. When a market-wide event affecting insurers occurs, the supervisor seeks relevant information from the insurers, monitors the developments and issues such directions as he deems necessary. Although there is no specific requirement, such action is taken when important events occur. The supervisor reviews “internal controls and checks” at insurance companies’ offices as part of on-site supervision.

Construction and Inspection:

The main objective of static tax monitoring is to monitor the financial health of insurance companies by detecting and monitoring the companies showing financial depreciation and is a source for the supervisory company. It acts as a trigger for timely remedial action.

The location inspection is carried out by analyzing periodic returns, statements, policies and compliance certificates mandated under the directions issued by the Authority from time to time. The periods for recording these are usually yearly, half-yearly, quarterly and monthly and are related to business achievement, investment of funds, salary, statement, management expenses, business statistics, auditor’s certificate of various compliance requirements. Huh.

Statutory and internal auditors are required to audit all areas of insurance companies’ operations. The specific area of focus is the preparation of accounts to reflect the true and fair position of the company as on the balance sheet date. The auditors check compliance and non-compliance with all statutory and regulatory requirements as well as specifically whether the insurance company has been complying with various directions issued by the supervisor. Additionally, authorization relies on certificates that form part of the management report. The Board is required to certify that the management has put in place an internal audit system commensurate with the size and nature of its business and is operating efficiently.

All insurance companies are required to publish the financial results and other information in the prescribed forms in newspapers and on their websites at periodic intervals.

7. Micro Insurance and Rural and Social Sector Responsibilities:

IRDAI has issued micro insurance regulations to protect low-income individuals from affordable insurance products by covering common risks from standardized popular insurance products with prescribed levels of cover, regulation and benefit standards. These regulations allow Non-Governmental Organizations (NGOs), Self-Help Groups (SHGs) and others to act as agents of insurance companies in the marketing of micro insurance products and are also allowed to promote composite micro insurance products. Life and non-life insurers have been allowed for Rs.

Regulations have been made by the Authority on the obligations to be fulfilled by the insurers on an annual basis towards the rural and social sector. In terms of these regulations, the insurers are required to cover the year-wise target prescribed by (i) in terms of the number of persons under social obligations; and (ii) with reference to the percentage of policies to be underwritten and with reference to the percentage of total gross premium income directly underwritten by life and non-life insurers under rural obligations.