This article is written by Suchit Kohli, a 2nd-year student from NMIMS School of Law and an intern at Legal Upanishad.
A Critique on Insurance Regulatory and Development Authority (IRDA) Act, 1999
Introduction
A Critique on Insurance Regulatory and Development Authority (IRDA) Act, 1999 was passed by the Indian Parliament in December 1999. Under the IRDA Act of 1999, a regulatory agency called IRDA (Insurance Regulatory and Development Authority) was established to replace controllers of the Insurance business under the Insurance Act of 1938. This article specifies some of the key provisions of the IRDA Act. The IRDA Act 1999 provides for the establishment institution called the Insurance Regulatory Development Authority.
In 1994, the Malhotra Commission recommended reforms after going through the insurance sector and receiving various inputs from the stakeholders. The Commission’s main recommendation was that private companies should be allowed to promote insurance companies as well as foreign promoters (Shaji, 2021). In 1999, the IRDA Law 1999 was finally enacted. The Insurance Supervision and Development Agency was established on April 19, 2000, as an independent supervisory body.
Role and Objectives of IRDA Act, 1999
The main purpose of the Insurance Regulatory and Development Authority (IRDA) Act is to enforce the provisions of insurance law. The principles that guide IRDA are:
- To protect the interests and fair treatment of policyholders.
- To fairly regulate the insurance industry and ensure the financial health of the industry.
- Develop regulations on a regular basis to ensure that the industry works unambiguously.
The Indian insurance industry dates back to the early 19th century and has grown over the years with a focus on increasing transparency and protecting the interests of policyholders. IRDA plays an important role in emphasizing the importance of policyholders and their interests in the formation of rules and regulations (Acko, 2021). The important roles of IRDA are:
- To protect the interests of policyholders.
- To orderly accelerate the growth of the insurance industry for the benefit of the common people.
- Providing long-term resources to accelerate the national economy.
- A high level of promotion, definition, enforcement, and oversight of insurers’ integrity, fair transactions, financial soundness, and capacity.
- Allows you to process your actual bills faster and more efficiently.
- To prevent fraud, IRDA has set up a complaints forum to ensure that policyholders are protected.
- Promotion of transparency, fairness, and systematic insurance behavior in financial markets.
- Establish a reliable management system to enable insurers to maintain a high level of financial stability.
- If these high standards are not met, take appropriate action.
- To ensure the optimum level of self-regulation in the industry.
Amendment of 2015
The final amendment to the Insurance Act of 2015 was aimed at amending the Insurance Act of 1938. The 1972 General Insurance Business (Nationalization) Act and Insurance Regulatory and Development Authority act of 1999. This was the first major change to Indian insurance law since the IRDA Act came into force in 1999.
In 2012, the former UPA Cabinet approved the bill, and in 2014, the successor government led by BJP introduced the same to the committee led by Chandan Mitra. Based on the Commission’s recommendation in 2015, the Parliament was not in session but still, the Union Cabinet approved the proposed amendment and issued the corresponding rules. In late 2015, the old bill was withdrawn by Rajya Sabha and the new bill was passed.
Effect of Amendment on IRDA Act, 1999
The Amended Law contains 165 separate references to the word “authority” that reflect the assertions made by researchers creating a detailed discussion of the IRDA’s relevance in the insurance industry. Apart from major changes such as increasing the amount of FDI from 26%-49%, the fix brought the following major changes:
1. It was mandated that Indian real estate should not be insured by insurance companies in the case of foreign insurance companies which would be done only by Authorized approval (on behalf of the central government), otherwise up to 5 penalties would be imposed on the defaulter.
2. The change stipulates that the authorities may withhold registration of the insurer if it is convinced that the insurer is debarred by law or practice the same business in another country.
3. Amendments include various cases that may allow agents to remove all or part of an insurance company’s registration, such as bankruptcy, and failure to comply with regulations that are related to the insurance law.
4. The amended law contains several provisions that impose higher penalties of up to 1 crore to 25 crore rupees for various violations, including false sales and false information by agents/insurance companies.
5. This amendment also provides that insurers or insurance intermediaries affected by orders from the IRDA wish to appeal to the Securities Appellate Tribunal (SAT) (Prasad). Apart from these provisions, this amendment generally empowers the IRDA while expanding the power of regulators and making their functioning very flexible. It expands the reach of the insurance industry, which is reflected in the increasing penetration of insurance. Since the 2014 amendment, insurance penetration (percentage of GDP) has increased from 3.3 to 3.44 in 2015, 3.49 in 2016, and 3.69 in 2017.
Suggestion
- Insurance Regulatory and Development Authority has certainly contributed to the upliftment of the insurance sector of India. Initiatives of E-Insurance and Insurance ombudsmen have been greatly drafted and have widely benefited the insurers.
- Moreover, despite the various subsidies and sanctions imposed by the union government on the insurance sector, the insurance watchdogs have casually left the implementation to different governments without much caution.
- The positions of insurance supervisors and ombudsman offices should be filled up on a regular basis. The change in law has imposed severe penalties on the authority to violate obligations.
- The law must establish procedures to facilitate dispute resolution initiated by the company. Authorities need to create a portal for celebrities and other scholars to upload recommendations.
- IRDA needs to organize awareness campaigns to empower policyholders and potential policyholders through rights discourse.
Bibliography
- Acko, T. (2021, September 1). Understanding The Role of IRDA in Indian Insurance Sector. Retrieved from Acko: https://www.acko.com/insurance/what-is-irda/
- Prasad, A. S. (n.d.). IRDA AND ITS RELEVANCE IN LIGHT OF THE RECENT DEVELOPMENTS.
- Shaji, A. M. (2021, July 27). A Detailed Review of the IRDA Act 1999. Retrieved from Enter Slice : https://enterslice.com/learning/irda-act-1999/