Report No. 190

1.4 Regulatory Legal Regime

Insurance Regulatory and Development Authority Act, 1999 (IRDA Act)

1.4.1 On the recommendations of the Malhotra Committee, the Government of India constituted an interim Insurance Regulatory Authority and later enacted the Insurance Regulatory and Development Authority Act, 1999 to establish a statutory body to regulate, promote and ensure orderly growth of insurance and reinsurance business as also to protect the interest of policy holders. The constitution of the Insurance Regulatory and Development Authority (hereinafter referred to as the Authority/ IRDA) is considered as one of the redeeming features of insurance reforms in India.

1.4.2 The IRDA Act provides for the composition of the Authority, terms and conditions of the Chairperson and members including their tenure and removal; duties, powers and functions of the Authority including regulation making power and delegation of powers; establishment of Insurance Advisory Committee; Insurance Regulatory and Development Authority Fund and powers of the Central Government to make rules, to issue directions to the Authority and to supersede the same, if it is necessary; and other miscellaneous provisions.

The First Schedule appended to the IRDA Act listed out several amendments to the Insurance Act, 1938. The Second Schedule to the IRDA Act inserted section 30A in the 11Life Insurance Corporation Act, 1956 whereby the exclusive privilege of LIC to carry on life insurance business in India was to cease. The Third Schedule to the IRDA Act inserted a similar provision, section 24A, in the General Insurance Business (Nationalization) Act, 1972 whereby the exclusive privilege of the GIC and its subsidiaries in relation to general insurance business ceased.

1.4.3 The amendments made by the IRDA Act, 1999 to the Insurance Act, 1938 prohibited insurers other than companies registered under the Companies Act, 1956 to carry on insurance business in India and investment of funds of the policyholders outside India. Foreign participation has been restricted to 26% of the paid up equity capital of an insurance company. The amendments provided for-

(a) requirements as to paid-up equity capital for both insurers and reinsurers;

(b) manner of divesting of excess shareholding by promoters;

(c) manner and conditions of investment;

(d) maintenance of required solvency margin at all times by the insurers;

(e) issue of licence to insurance agents, intermediary or insurance intermediary and surveyors by the Authority as also suspension and cancellation thereof;

(f) obligations of insurers to compulsorily undertake specified percentage of insurance business in rural and social sector;

(g) enhanced penalties for contravention of and failure to comply with, the provisions of the Act and offences by companies; and

(h) powers of the Authority to make regulations as required by the Act.

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