Question: What are the Regulations and Controls in Life Insurance?

Answer: The supervisory control of insurance companies is exercised by Insurance Regulatory and Development Authority (IRDA) and these powers flow from Insurance Act, 1938 as well as from IRDA Act, 1999. IRDA Act, 1999 states: "Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of insurance business and reinsurance business."

Regulatory and supervisory powers of the IRDA are wide and pervasive. These can be summarized as under.

Registration/Licensing: Any company proposing to enter in the insurance business has to apply to the authority for registration certificate. The authority has the powers to issue the licence subject to its satisfaction that the proposed company is financially sound and has the managerial expertise to run the business. The authority has also got the powers to renew it, modify it or even suspend and cancel such registration.

Product and its Pricing: The authority shall be satisfied about the nature of the product and its pricing before it is placed for marketing amongst the consumers. The powers to control the price of the product is in addition to the premium rates which are fixed by the Tariff Advisory Committee (TAC) constituted under section 64U of Insurance Act, 1938. Chairman of the authority is also ex officio Chairman of TAC. The authority should also be satisfied with the terms and conditions mentioned in the policy documents.

Investment of Funds: The investment policy of the insurance companies is governed by the broad guidelines framed by the authority. It may direct the insurer to invest certain proportion of their funds in specified securities. For instance, the present directives are that general insurance companies have to invest minimum of 30 percent of their funds in government securities and 15 percent in housing projects including purchase of fire fighting equipments by state governments. Only 55 percent of the funds may be invested in market securities and amongst market securities only in approved securities.

Solvency Margin:The authority has to ensure that insurers maintain the solvency margin as laid down in the Act. In case companies fail to comply with solvency margin requirements, the authority can initiate disciplinary action against the defaulting companies.

Appointment of Actuary: : As per the directives of the authority, it is mandatory for insurer to appoint an actuary. The qualifications of actuary have been laid down. The functions and duties of actuary have been prescribed by the authority.

Appointment to Chief Executive/Managing Director: It is obligatory on the part of insurance companies to take prior approval of the authority before appointing chief executive, managing director or whole time director in the company. The authority has also been vested with the power to remove any managerial person and also appoint any additional director in the company.

Power of Investigation and Inspection:: The authority can institute any inquiry against the insurer to investigate the affairs of the company and for this purpose can appoint any person as investigator. Based on the report, authority can take disciplinary action against the insurer including suspension of its registration.

Accounts and Balance Sheets: The insurers are required to prepare a balance sheet, a profit and loss account, a separate account of receipts and payments and a revenue account in respect of each class of business. These are to be audited by a qualified auditor.

Intermediaries: The authority shall also monitor the activities of intermediaries who are being engaged by the insurers to market their products. The licence to the agents will be issued by the authority. As and when brokers are allowed to operate, they will also have to obtain the licence from the authority.

Surveyors and Loss Assessors: The qualifications for surveyors to be eligible to obtain a licence are prescribed by the authority. Their licences are also being issued by the authority.

Reinsurance: Reinsurance programmes of insurance companies are being monitored by the authority on a continuous basis. As per the directives of the authority, insurance companies are required to cede a part of their premium income to designated Indian reinsurer. Insurers are supposed to keep the authorities apprised of their insurance programm, both outward and inward, and seek authority's approval.

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