INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA (IRDAI)

What is the “Insurance Regulatory And Development Authority Of India (IRDAI)”?

The Insurance Regulatory and Development Authority of India (IRDAI) is an independent and statutory body, which serves as the primary authority in overseeing, regulating, and promoting the insurance sector in India. IRDAI was established by statutory authority provided by the Insurance Regulatory And Development Authority Of India Act, 1999.

It holds major responsibility in governing matters of regulation by ensuring that insurance companies operate in a transparent manner. It protects the interest of insurance policyholders and, at the same time, aims to develop the insurance industry, and strengthen the financial security of both individuals and businesses. Therein, IRDAI is part of a vitally important regulatory framework that promotes and maintains the fairness and integrity of the insurance market .

Official Definition:

IRDAI as defined in Legislation

While there isn’t a clear/accurate legal definition of IRDAI, its scope and establishment could be inferred through Section 2 (1) (b) and Section 3 (1) IRDAI 1999 Act.  The former defines “authority”  under this act as the IRDAI, as established under Section 3 (1),  and the latter states the formal establishment of the authority.

Additionally, sub-section (2) of Section 3, further states that IRDAI will/must be a “body corporate” with perpetual succession, a common seal with power, and is certainly bound by the provisions of the 1999 Act.

Legal provision(s) relating to IRDAI

In order to gain a sound understanding and perception of IRDAI and its functioning it becomes important to look into other relevant provisions, which are ancillary to IRDAI.

Firstly, Section 2 (16A) of the Insurance Act of 1938 defines “regulations”, which directly references the regulation framed by the IRDAI under the 1999 act. This particular provision highlights the role of IRDAI in framing, establishing, and enforcing regulations in the insurance industry.

Secondly, Section 4 of the 1999 Act, states the composition of the body, the members include, a chairperson, whole-time members not exceeding five, and part-time members not exceeding four, who have knowledge and experience in the relevant field as required. While it doesn’t define IRDAI per se it gives perspective about the authority’s functional capacity.

Most importantly, Section 14 of the 1999 Act states the “duties, powers, and functions” of IRDAI.

• IRDAI is generally duty-bound to regulate, promote, and develop the insurance, and re-insurance industry.
• Further, the provision provides detailed functions regarding registrations, protecting policyholders, code of conduct and training for intermediaries, agents, and surveyors, inspections, and adjudication in case of disputes.

This detailed provision provides a holistic understanding of IRDAI on its regulatory and operational authority over such matters.

Types/Categories of Insurance Entities Regulated by IRDAI

The IRDAI operates on vast categories in the insurance business, regulating varied sectors each having its own functional variations. Currently, about twelve entities in the insurance industries are being governed by IRDAI, as provided on its official website, in the industry category, which shows its diverse functioning and operating responsibilities.

ENTITIES	MEANING	VARIATION	OTHER NAME
Life Insurance	A contract between an individual and the insurer provides financial protection to the beneficiaries upon the policyholder’s death. [Defined in Section 2 (11) - Life Insurance Business, of the Insurance Act].	Term Life Insurance, Whole Life Insurance, Unit Linked Insurance plans (ULIPs), Pensions, and Child Plans.	“Jeevan Bima”.
Non-Life Insurance	Insurance policies that provide financial protection to property, assets, vehicles, and liability in case of any damage or loss, covering a particular event or incident. [Defined in Section 2 (6B) - General Insurance Business, of the Insurance Act].	Fire Insurance, Marine Insurance, Property Insurance, Motor Vehicle Insurance Liability Insurance etc.,	General Insurance “Samanya Bima”
Health Insurance	Policies that cover protection to a beneficiary’s health-related surgeries, sickness, and other such expenses, be it in-patient or out-patient. [Defined in Section 2 (6C) - Health Insurance Business, of the Insurance Act] .	Individual Insurance, Family Floater Insurance, Critical Illness Insurance, Senior Citizen Insurance, Group Insurance	Mediclaim Policies
Reinsurers	A company that protects insurance companies with an insurance policy to mitigate risks that are large to handle. [IRDAI (Re-insurance) Regulations, 2018]	Proportional, Non-Proportional, Facultative, Treaty	“Insurance for Insurance companies”.
Foreign Reinsurance Branches	These are branches of foreign reinsurance companies operating in India, upon the grant of registration certificate by IRDAI. [Regulation 2 (d) of  IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015]	-	FRBs
Brokers	Intermediary between insurance companies & individuals, aiding in the procurement of policies and are registered under the authority.  [Regulation 2 (k) of IRDAI (Insurance Brokers) Regulations, 2018]	Direct Broker, Reinsurance Broker, Composite Broker	The employees of insurance brokers who procure, and solicit after training are called “Broker Qualified Persons” [Regulation 2 (d)]
Corporate Agents	An entity or person who is in the solicitation, or service of the insurance business holding a valid certificate under the authority. [Regualtion 2 (f) of IRDAI (Registration Of Corporate Agents) Regulations, 2015]	Life, General, Health, Composite	-
Surveyors	Authorized professionals who on behalf of the insured/insurer investigate, assess losses, and report on them. [IRDAI (Surveyors & Loss Assessors) (Amendment) Regulations, 2020]	Fire, Engineering, Marine Cargo, Marine Hull, Loss Of Profit, Motor, Crop And Miscellaneous.	Loss Assessors
Web Aggregators	An “authorized verifier”, registered under this authority, who procures, solicits insurance via telemarketing after training, and examination. [Regulation 2 (o), (c) of IRDAI (Insurance Web Aggregators) Regulations, 2017]	Life Insurance, General Insurance, Health Insurance	-
Third-Party Administrators (TPAs)	An authorized entity registered under IRDAI that manages, processes claims and provides administrative services regarding health insurance. [Regulation 2 (1) (m) of IRDAI (Third Party Administrators - Health Services) (Amendment) Regulations, 2019]	-	-
Insurance Marketing Firms	Entity registered under IRDAI, to procure and solicit insurance products and provide insurance services. They employ individuals who market, distribute, and offer services of such products. [Regulation 2 (8) of IRDAI (Registration of Insurance Marketing Firm) Regulations, 2015]	-	IMF.
Insurance Repositories	A company, for which IRDAI has issued a certificate of registration to maintain the insurance policy data on behalf of insurers in e-form. [Guideline 2 (f) of Guidelines on Insurance Repositories and electronic issuance of insurance policies, dated 29th April 2011]	-	-

Appearance of ‘IRDAI’ in Database

IRDAI being a regulatory body, it becomes important to statistically look into whether it has fulfilled its legal mandate to regulate and oversee the insurance business across India.  

IRDAI’s Annual Report 2022-2023

An official document published by the IRDAI itself for every financial year. In that way, the recent annual report for 2022-2023 provides detailed working and functions operated by IRDAI. Part III of the report presents the data and description of “IRDAI’s statutory and development functions”. It provides for the protection of policyholders and a Code of conduct for intermediaries, agents, surveyors, etc.,

Most importantly, inspections and investigations are conducted on its regulating entities, which ensure compliance with the set regulations and guidelines of IRDAI by such entities.

Data 1, source IRDAI - Annual Report 2022 - 2023

Data 1:

Wherein, the data 1 table highlights the on-site inspections conducted by IRDAI for 48 entities, to evaluate their compliance with IRDAI’s regulations, which is crucial for maintaining the integrity and protecting policyholders in the insurance business.

• On one hand, the data field differentiates between general and focused inspection.
• Then, it separately mentions the entities and the inspection method they were subjected to.

Data 2, source IRDAI - Annual Report 2022 - 2023

Data 2:

This particular data presents both on-site and remote inspections conducted by the Enforcement and Compliance Department and the actions taken by them in case of non-compliance based on the observations made during the inspection.

• In the first table, it illustrates the entity and inspection concluded on them
• The other table illustrates the aftermath of the inspection, where regulatory actions were taken, and each of its categorized based on the seriousness of non-compliance.

IBEF’s Indian Insurance Industry Overview & Market Development Analysis

This research by the India Brand Equity Foundation (IBEF), is a trust formed by the Ministry of Commerce and Industry, Government of India, to promote Indian products and services internationally and create awareness regarding the same in the global market.

Therein, this particular research by IBEF examines and studies the impact of IRDAI on market size, and performance metrics and in the end looks into the effectiveness of IRDAI.

Data 3, source IBEF.

As per this research and the data presented,

• The data field focuses on premium share and market size within the life (LIC, SBI Life, HDFC Life, ICICI Prudential Life, and non-life/general (Health, Motor, Crop) insurance entities in India.
• These quantitative data are presented from IRDAI’s annual reports and financial statements of insurance entities under IRDAI.
• Here the premium income represents the total premium collected by life and non-life insurance sectors.
• Market share is in the percentage of first-year premiums among the insurance entities.
• Fiscal Year is abbreviated as FY.

Research that engages with IRDAI

IRDA: Regulating Insurance Sector in India

This particular research meticulously covered all the legal details of IRDAI as a regulating authority, starting from the key details of the historical background of the insurance sector in India, following the establishment of IRDAI through the R.N. Malhotra Committee. While the study presents the official legal documentation around IRDAI i.e., the 1999 Act’s important provisions covering, establishment, composition, functions, and powers.

It also further provides an analysis of, the initiatives taken by IRDAI regarding the promotion of consumer awareness and education about insurance. For instance, it specifically looked into the Grievance Redressal Mechanism, established by IRDAI to address the grievances of consumers/policyholders and to settle them effectively. In the end, the paper presents an overall analysis of IRDAI, but the only research gap in the paper is that it hasn’t looked into the effective implementation of the initiatives and regulations of IRDAI.

Role of Insurance Regulatory and Development Authority in the Indian Insurance Sector: A Study

This paper yet again comprehensively analyzes the IRDAI and its role as a regulating body, starting from the enactment of the 1999 act and the Malhotra Committee, which recommended the establishment of IRDAI. At the same time, the research extends to studying the effectiveness and impact of IRDAI on life and general insurers, including the impact on insurance penetration, density, and issuance of new policies.

This certainly is a comprehensive research, though employing methods of secondary data it still presents the required and relevant data from the annual reports of IRDAI, LIC, and RBI on IRDAI’s impact and effectiveness in the insurance sector.

Challenges

One of the major challenges when it comes to data regarding IRDAI is the complexity of data presented which cannot be easily comprehended by someone who is not part of the insurance-related field.

Though IRDAI presented its data regularly through its annual reports as well as the monthly business figures separately for the life and non-life insurance sectors, they cannot be accessed easily on the website, due to server glitches the statistical graph and data are not visible. Also, data on IRDAI is limited on the online resources with only IRDAI’s being accessible and reliable. But as already stated the data are presented by complex methodologies which are hard to interpret and comprehend.  

Also, with regard to the the implementation of IRDAI’s regulations and initiatives, it still is a complex area as policyholders still face issues with insurance fraud being reported, amid the code of conduct and regulations for intermediary entities. So, the effectiveness of the regulations is also being questioned.

Way Ahead

There are certain suggestions made by stakeholders and organizations, to tackle the challenges regarding the issues. Wherein, it must be noted that IRDAI has also made its commitment to “Insurance for all”, by the year 2047.

PwC, a consultancy, assurance, and advisory company, in its “India’s Insurance Vision: Challenges and the Way Forward” report suggested that the key to the future success of IRDAI’s initiative is acknowledging and addressing the awareness, affordability, accessibility, and trust in the insurance field through comprehensive strategies with the blend of technology.  

According to the report, digital platforms could be employed to offer insurance services through various channels and in different languages. Further, it becomes crucial to establish a standard robust system to manage instances of insurance fraud and an enhanced yet clear procedure to process the claims. Most importantly, insurers, governments, intermediaries, and regulators must come together to promote the growth and development of the insurance industry.