Role of IRDA in Insurance
In India, the insurance industry plays a vital role in the country's economic well-being. It significantly enhances an individual’s investment prospects, protects his/her future, and assists the insurance industry in creating a large pool of funds. Thus, the government introduced the IRDA Act 1999 to regulate the insurance sector.
In 1972, the General Business Insurance Act was passed with effect from 1 January 1973. Many insured companies were merged, and 4 major insurance companies were formed. These are National Insurance Company Ltd, New India Assurance Company Ltd., Oriental Insurance Company Ltd., and United India. The General Insurance Corporation of India was established in 1971 and began operations on 1 January 1973.
The Insurance Regulatory and Development Agency (IRDA) was established in 1999 as an autonomous body for regulating and developing the insurance sector, following the recommendations of the Malhotra Committee report. In April 2000, the IRDA was formed as a statutory entity. IRDA's primary goals include promoting competition to improve customer loyalty through greater consumer choice and lower premiums while maintaining the industry’s financial stability.
Back then, many insurance firms used to deny coverage to their policyholders. This was based on their perception of good and bad risk. To regulate this, IRDA made certain laws and rules. The IRDA Act 1999 states the following responsibilities of IRDA, such as providing a certificate of registration with the power to cancel and suspend registration in the event of misconduct, regulating insurance companies, and protecting the interest of policyholders by monitoring claim settlements and insurable interests. It also includes incorporating and regulating premium rates and terms of insurance plans, implementing financial reporting norms of the insurance companies, and maintaining the solvency margin of insurance companies.
IRDA benefits all, the sector, the consumer, and the company.
For the Insurance Sector – IRDA aims to promote the policyholders’ interest and educate everyone about buying insurance, boosting the growth of the sector. IRDA’s official website gives information about IRDA itself, the insurance companies, and the different types of insurance under its regulation. This includes life insurance, general insurance, marine and fire insurance, burglar insurance, professional indemnity insurance, and cyber insurance.
For the policyholders – IRDA regulates, secures, and safeguards policyholder’s money in terms of claim settlement, nominee, interest, and the other terms and conditions that can be misleading and not in the policyholder’s favor. IRDA specifically monitors all the claim settlements to ensure no fair claim remains unsettled at the insurance company's wish. Also, it regulates the advantages that may be offered by insurance companies to policyholders. IRDA is also responsible for setting a minimum percentage for insurance companies for promoting life and general insurance in rural and urban areas to develop such areas.
For Insurance companies – IRDA maintains a fair code of conduct for every insurance company, reduces the competition among them by enforcing rules and regulations, including the rate of insurance or tweaking of premiums. It also undertakes company audits to ensure no company is involved in fraud or misleading its customers. It aims to impartially rule the insurance sector and ensure that the industry’s financial health remains intact. It also educates and implements a code of conduct for insurance agents, loan assessors, and surveyors.
If you have a grievance or an issue you want to bring to IRDA’s attention, the government has implemented a scheme called “Insurance Ombudsman”. Through this platform, policyholders can settle their complaints and claims in an impartial and effective manner. A policyholder may complain about delays in settlement, disputes regarding premiums, non-issuance of policy, or misuse of terms and conditions.
India is growing at a rapid pace in terms of economy and finance. The insurance sector has opened up many new opportunities. With the public becoming smart about their investments due to the pandemic and digitization, there is greater awareness about insurance as an investment. There is also more information on how to avoid financial fraud. IRDA ensures the insurance sector is regulated and the interest of the policyholders is secured.