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Understanding The Role of IRDA in Indian Insurance Sector

Team AckoFeb 27, 2024

Many of you might have heard the term “IRDA”. It is nothing but the abbreviation of the Insurance Regulatory and Development Authority. The Authority acts as the regulator of the insurance industry in India and oversees the functioning of the Life Insurance and General Insurance companies operating in the country. The main objective of the IRDA is to protect the interests of the policyholder and regulate the insurance industry. To know the various functions and the role of IRDA in the Indian insurance sector, read on to learn about the apex body of insurance providers in India.




What is the Insurance Regulatory and Development Authority (IRDA)?

The Insurance Regulatory and Development Authority is the main organization or supervisory body that regulates the insurance sector in the country. It sets rules and regulations for the functioning of the insurance industry. Its sole purpose is to protect the interest of policyholders and to develop the industry on the whole. 

The IRDA or IRDAI regularly issues advisories to insurance companies in case of changes to the rules and regulations. The regulator guides the insurance industry in promoting the efficiency in the conduct of insurance business all the while controlling the rates and other charges related to insurance. This article dwells on the functioning of the IRDA, features and benefits as well as answers to frequently asked questions at the end of this reading.

Establishment of IRDA:

The Government of India was the regulator for the insurance industry until 2000. However, to institute a stand-alone apex body, the IRDA was established in 2000 following the recommendation of the Malhotra Committee report in 1999. In August 2000, the IRDA began accepting applications for registrations through invites and allowed companies from other countries to invest up to 26% in the market. 

The IRDA has outlined several rules and regulations under Section 114A of the Insurance Act, 1938. Regulations range from registration of insurance companies for operating in the country to protecting policyholder’s interests. As of September 2020, there are 31 General Insurance companies and 24 Life Insurance companies who are registered with the IRDA.

Objective of IRDA:

The main objective of the Insurance Regulatory and Development Authority of India is to enforce the provisions under the Insurance Act. The mission statement of the IRDA is:

  • To protect the interest and fair treatment of the policyholder.

  • To regulate the insurance industry in fairness and ensure the financial soundness of the industry.

  • To regularly frame regulations to ensure the industry operates without any ambiguity.

Important Role of IRDA in the Insurance Sector in India:

The insurance industry in India dates back to the early 1800s and has grown over the years with better transparency and focus on protecting the interest of the policyholder. The IRDA plays an integral role in emphasizing the importance of policyholders and their interest while framing rules and regulations. Here are the important roles of the IRDA:

  • To protect the policyholder’s interests.

  • To help speed up the growth of the insurance industry in an orderly fashion, for the benefit of the common man.

  • To provide long-term funds to speed up the nation’s economy.

  • To promote, set, enforce and monitor high standards of integrity, fair dealing, financial soundness and competence of the insurance providers.

  • To ensure genuine claims are settled faster and efficiently.

  • To prevent malpractices and fraud, the IRDA has set up a grievance redress forum to ensure the policyholder is protected.

  • To promote transparency, fairness and systematic conduct of insurance in the financial markets.

  • To build a dependable management system to make sure high standards of financial stability are followed by insurers.

  • To take adequate action where such high standards are not maintained.

  • To ensure the optimum amount of self-regulation of the industry.

Functions of IRDA:

Below are the important functions of the IRDAI in the insurance industry in India:

  • Grant, renew, modify, suspend, cancel or withdraw registration certificates of the insurance company.

  • Protecting the interests of the policyholder in matters concerning the grant of policies, settlement of claims, nomination by policyholders, insurable interest, surrender value of the policy and other terms and conditions of the policy.

  • Specify code of conduct, qualifications and training for intermediary or insurance agents.

  • Specify code of conduct for loss assessors and surveyors.

  • Levying fees and charges for carrying out the provisions of the Act.

  • Undertaking inspection, calling for information, and investigations including an audit of insurance companies, intermediaries, and other organizations associated with the insurance business.

  • Regulate and control insurance rates, terms and conditions, advantages that may be offered by the insurance providers.

Apart from the above-mentioned core functions of the IRDA, there are several functions that the regulator performs keeping the policyholder’s interest as its priority.

How Does IRDA Work?

The apex body of the insurance industry, the IRDA, ensures it frames rules and regulations without any ambiguity towards any particular insurance company. To ensure fairness and the financial soundness of the industry, the main work of IRDA revolves around the policyholder’s interests. Refer to the following roles that the IRDA is mainly involved in:

  • Issues certificate of registration to new insurance companies.

  • Sets rules and regulations to ensure the interests of the policyholder are taken care of.

  • Monitors all claims are settled in all fairness and that no insurer will deny any claim on their own free will.

  • Regulates the code of conduct of the insurance companies, insurance intermediaries, and others associated with the insurance industry.

  • Provides solutions in case of disputes through the IRDA ombudsman.

  • Controls and regulates the rates of insurance to prevent unwanted price hikes in the insurance premium.

  • The apex body is responsible for setting the minimum percentage limit of insurance companies for General and Life Insurance, thereby developing both urban and rural sectors.

Features & Benefits of IRDA:

Following are the salient features of the apex body, the Insurance Regulatory and Development Authority of India:

  • Acts as a regulator for the insurance industry.

  • Protects the policyholder’s interests.

  • Rules and regulations are framed by the apex body under Section 114A of the Insurance Act, 1938.

  • It is entrusted under the Insurance Act to grant the certificate of registration to new insurance companies to operate in India.

  • Oversees the insurance industry’s activities to ensure sustained development of insurers and policyholders.

Types of Insurances Regulated by the IRDAI:

Insurance is mainly divided into Life and Non-Life/General Insurance. These are further classified into other types of insurance. Below are the types of insurance regulated by the IRDAI:

Also, read: IRDAI Rules for Car Insurance Policies

Difference Between IRDA and SEBI on Their Functions:

Different industries or sectors are regulated by an apex body. They frame rules and regulations, monitor the functions of companies and ensure that they protect the stakeholders. Hence, the apex body for the insurance sector is the IRDA or Insurance Regulatory and Development Authority. As for SEBI or Securities Exchange Board of India, it regulates securities and commodity sectors in the country. Below is the comparison between IRDA and SEBI:

Regulates the insurance industry Regulates the securities and commodity industry
Established in 1999 Established in 1992
Protects the interests of insurance policyholders Protects the interests of investors in securities
Grant certificate of registration to insurance companies to issue insurance policies. Grant certificate of registration to stockbrokers, bankers, sub-brokers to issue deeds.
Frames rules and regulations under the Insurance Regulatory and Development Authority Act Frames rules and regulations under the Securities and Exchange Board of India Act

Also, read: Difference Between Life Insurance and Health Insurance

New Rules and Guidelines for Health and Mediclaim Insurance by IRDA:

The IRDA is the apex body which is responsible for framing new rules and guidelines for health insurance in the country. The regulator has issued new IRDA rules for health and mediclaim insurance in 2020, and they are:

  • Rejection of Claims: The insurer cannot reject a claim if the policyholder has renewed the policy for eight years without any break or lapse. This period will be known as the moratorium period. The insurer cannot appeal to the IRDA for the rejection of the claim except in case of fraud or in case the claim is raised against the exclusion of the policy.

  • Inclusion of Telemedicine: With the advent of digitalization, the medical service has changed and one can consult a doctor through online consultations. IRDA has asked insurers to include telemedicine consultations in the insurance policy.

  • Settlement of Claims: If the insurer delays settling the claim, then the insurance company is liable to pay interest on the claim amount. It should ensure the claim is settled within 30 to 45 days from the submission of the last document by the policyholder.

Also, read: Difference Between Insurance and Assurance

Frequently Asked Questions:

Here are a few frequently asked questions about the functions of the IRDA:

Can I convert my existing physical paper policy documents into electronic or digital format?


Yes, you can convert it to electronic policies. You have to raise a request with the insurance company or the Insurance Repository to make the required changes.

Which types of insurance policies can be held in electronic format?


All types of Life Insurance, General Insurance, Health Insurance and Annuity Policies that are issued by insurance companies registered by the IRDA can be held in electronic format.

What is an insurance ombudsman?


It is a scheme introduced by the Central Government for efficient, cost-effective and impartial settlement of policyholder’s grievances.

Under what circumstances do I approach the insurance ombudsman?


You can approach the ombudsman in case of:

  • Delay in claim settlement.

  • Disputes over the insurance premium.

  • For any total or partial repudiation of claims by the insurance company.

  • Disputes in the policy terms and conditions.

  • Disputes on the legal aspects of the policy.

  • Disputes related to servicing of the policy.

  • Any violations of rules and regulations of the Insurance Act, 1938.

How do I lodge a complaint with the insurance ombudsman?


You need to lodge the complaint in writing duly signed by the complainant or via their legal heirs, assignees or nominees. You can either lodge the complaint in person or through post/email/fax followed by a hard copy.

What is an insurance repository?


An insurance company formed and registered by the IRDA for maintaining the data of insurance policies in electronic format on behalf of insurance companies is known as Insurance Repository. The main aim of the insurance repository is to provide policyholders a facility to keep policies in electronic format.

What is the IRDA Act?


The Act provides comprehensive regulation of the insurance sector in the country. To examine the structure of the insurance sector and to recommend revisions to the rules and regulations to make it more efficient and effective, a committee was set up by the Government of India to submit a report on the same. In 1999, the Insurance Regulatory and Development Authority was tabled in the parliament. The bill was debated and discussed before the Bill became the Insurance Regulatory and Development Authority (IRDA) Act, 1999.

How many insurance companies are under the IRDA in India?


There are Life and Non-Life/General Insurance Companies in India. Under the Life Insurance category, there are a total of 24 Life Insurance companies and 34 Non-Life or General Insurance companies registered under the IRDA. For detailed information about the insurance companies, visit the IRDA website.

How to approach the IRDA for grievances?


You should approach your insurance company for all queries or to address your grievances; however, if you feel that your issue has not been resolved, you can approach the Insurance Ombudsman, which acts as the grievance redressal forum for policyholders.

Does the IRDA grant licenses for insurance agents?


Yes, the IRDA is responsible for granting licenses for insurance agents. It grants licenses to those who clear the required exam. This was incorporated in the IRDA Regulations and consists of the rules for applying and availing an insurance agent license.

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