IMPACTS OF VARIOUS IRDAI INITIATIVES, ENDEAVOURS & NEW REGULATIONS BEING IN PLACE FOR INDIAN INSURANCE SECTOR

Introduction:
IRDA (currently referred as IRDAI) came in existence after the enactment of IRDA Act, 1999 by parliament. The mission of IRDA is to protect the interests of policy-holders to regulate, promote and ensure orderly growth of Insurance Industry and for the matters connected therewith or incidental thereto.

IRDA is the watchdog and controller of the insurance industry in India and it works to bring better regulations for the welfare of policyholders. IRDA is a statutory body that regulates the insurance sector in India, to protect the interests of policyholders, while ensuring growth of the insurance industry.

 

The duties and functions of IRDA include the following:-

 

1. To issue to the applicant Certificate of Registration, renew, modify, cancel, and suspend such registration.

2. To ensure protection of Policy-holders’ interest.

3. To specify requisite qualification, code of conduct and Practical Training to for the Intermediaries / Agents.

4. Promoting efficiency in the conduct of Insurance Business.

5. Promoting and Regulating professional organization connected with Insurance Business.

6. Specifying Code of Conduct for Surveyor & Loss Assessor.

7. Levying fees and other charges for carrying out purpose of the IRDA Act.

8. Regulating investment of funds of Insurance Companies.

 

9. Calling information, conducting enquiry, investigation, audit, inspection of insurers and other Organizations connected with Insurance Business.

10. Control / Regulation of Rates, Terms, Conditions and Advantages of Products offered by Indian Insurers.

11. Specifying Form and Manner in which Books of Accounts and Statement of Accounts to be maintained by Insurers and Intermediaries.

12. Regulating Maintenance of Solvency Margin of Insurers.

13. Adjucating dispute between insurer and intermediaries.

14. Supervising the currently assigned functions of Tariff Advisory Committee (TAC).

15. Specifying percentage of Insurance Business to be undertaken in Rural & Social Sectors.

 

From the initial days of April, 2000, Indian Sole Regulator, the IRDAI, immediately on assuming the Power & Responsibilities first started observing the existing Indian Market and thereafter IRDA had come forward with all their Regulations to ensure strict compliance of the business / regulatory norms, terms & conditions. The important IRDA Regulations may be noted as:

1. Registration of Indian Insurance Companies, 2000.

2. Regulation Relating to Investment of Fund, 2000.

3. Obligation of Insurer to Rural Sector, 2000.

4. Regulations for Insurance Brokers, 2002.

5. Regulation Relating to Insurance Advisory Committee, 2000.

6. Licencing of Insurance Agents, 2000.

7. Regulation Relating to Asset/Liabilities & Solvency Margin of Insurer, 2000.

8. Regulation Concerning Appointment of Actuary, 2000.

9. Regulation on Actuarial Report & Abstract, 2000.

10. Regulation on Advertisement & Disclosure, 2000.

11. Meeting Regulation, 2000.

12. General and Life Re-insurance Regulation, 2000.

13. Regulation on Preparation of Financial Statement & Auditors Report of Insurance Companies, 2000.

14. Regulation on Tpa Health Services, 2001.

15. Regulation on Reinsurance (Ri) Advisory Committee, 2001.

16. Regulation on Licencing and Requirement of Professional Qualification of Surveyor and Loss Accessor 2000.

17. Regulation on Manner of Premium Receipt, 2002.

18. Regulation on Protection of Policy Holder’s Interest, 2002.

19. Major Amendment on Licencing of Insurance Agent, 2002.

20. Regulation on Licencing of Corporate Agent, 2002.

21. Regulation on Distribution of Surplus, 2002.

22. Regulation Relating to Qualification of Actuary, 2004.

23. Regulation on Micro Insurance, 2005, etc.

 

First of all let us we discuss the impact of Latest New Regulations for General Insurance Companies for Issuance of Capital.

1) Issuance of capital by indian insurance companies transacting other than life insurance business:

The Insurance Regulatory and Development Authority of India (“IRDA”) has on December 15, 2015 issued the IRDA (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance Business) Regulations, 2015 (“IRDA Capital Regulations”). The IRDA Regulations have come into effect from December 18, 2015 and supersedes the IRDA (Issuance of Capital by General Insurance Companies) Regulations, 2013.

 

The salient features of the IRDA Capital Regulations have been summarized below:

1. Indian Insurance Companies that have been granted certificate of registration to transact the business of general insurance or health insurance or reinsurance will have to seek prior approval of the IRDA before approaching the Securities Exchange Board of India (“SEBI”) for public issue of shares and for any subsequent issue, by whatsoever name called, under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”) by either any or all of the manner set out below:

i. Divestment of equity by one or more of the promoters or the investor(s) through a public offer for sale; or
ii. Issue of capital.

2. Any other manner of issue of capital other than as specified above or transfer of shares beyond the specified limit under the Insurance Act, 1938 shall be subject to approval of the IRDA pursuant to the IRDA (Transfer of Equity Shares of Insurance Companies) Regulations, 2015. Further, the applicant company could either issue shares as fully paid up or partly paid up shares, provided that period for payment of calls on shares cannot exceed 1 (one) year;

3. The General Insurance Corporation of India and the insurance companies specified under section 10A of the General Insurance Business (Nationalization) Act, 1972 (“IB Nationalization Act”) can apply for approval of IRDA only on satisfactory compliance with the provisions of section 10B of IB Nationalization Act;

4. The promoters and/ or investors of the applicant company shall abide by the lock-in period, if any, specified by the IRDA at the time of grant of Certificate of Registration;

5. The applicant company shall make the application in the prescribed format. While considering the application, IRDA may take into account, inter alia, the applicant company’s overall financial position, the period for which general insurance or health business or reinsurance business has been carried on by the applicant company, its regulatory and compliance record, the purposes for raising of capital, maintenance of the prescribed regulatory solvency margin, compliance with IRDA regulations, rules and guidelines, including the corporate governance guidelines, the Indian Insurance Companies (Foreign Investment) Rules, 2015;

6. Amongst various conditions that IRDA may deem fit, IRDA may prescribe certain conditions at the time of grant of approval which may relate to minimum lock-in period for the promoters and investors from the date of allotment, dilution of shareholding, mandated disclosures in the offer documents, amendments to the charter documents of the applicant company, transfer restrictions;

7. Approval of the IRDA shall not in any manner be deemed to be or serve as a validation of the representations by the applicant company in any offer document and the same has to be explicitly disclosed in the offer document;
8. The validity of the approval of the IRDA for issue of capital shall be 1 (one) year from the date of the approval letter, within which the applicant company will have to file the Draft Red Herring Prospectus (DRHP) with SEBI under the ICDR Regulations. IRDA may, on written request from the applicant company, extend the validity by a further period of 6 (six) months.

 

The IRDA Capital Regulations have been notified after factoring in comments from industry players on allowing Indian insurance companies not involved in life insurance business giving access to public markets to raise funds through a public issue in accordance with ICDR Regulations. IRDA would continue to evaluate various factors while granting such approval, including if such issuance would be detrimental to the interests of policyholders or the insurance business in the country.

 

2) Regulation on accounting standard in India involving entire insurance sector:

1. The Ministry of Corporate Affairs (MCA), Government of India has notified the Companies (Indian Accounting Standards) Rules, 2015 on February 16, 2015. A reference is also invited to the Press Release dated January 18, 2016 issued by the MCA outlining the roadmap for implementation of International Financial Reporting Standards (IFRS) converged Indian Accounting Standards (Ind As) for banks, non-banking financial companies, select All India Term Lending and Refinancing Institutions and Insurers.

2. In this connection, it is advised that Insurers shall follow the Indian Accounting Standards as notified under the Companies (Indian Accounting Standards) Rules, 2015, subject to any guideline or direction issued by the Authority in this regard, in the following manner:

(i) Insurers shall comply with the Indian Accounting Standards (Ind AS) for financial statements for accounting periods beginning from April 1, 2018 onwards, with comparatives for the periods ending March 31, 2018. Ind AS shall be applicable to both standalone financial statements and consolidated financial statements. “Comparatives” shall mean comparative figures for the preceding accounting period.

(ii) Insurers shall apply the Indian Accounting Standards (Ind AS) only as per the above timelines and shall not be permitted to adopt the Indian Accounting Standards (Ind AS) earlier.

3. The Indian Accounting Standards (Ind AS) implementation is likely to significantly impact the financial reporting systems and processes and, as such, these changes need to be planned, managed, tested and executed in advance of the implementation date. Insurers are advised to set up a Steering Committee headed by an official of the rank of an Executive Director (or equivalent) comprising members from cross-functional areas of the insurer to immediately initiate the implementation process. The name and details of the designated official and the team, if not forwarded earlier, shall be forwarded by email. The Audit Committee of the Board shall oversee the progress of the Ind AS implementation process and report to the Board at quarterly intervals. The critical issues which need to be factored in the Indian Accounting Standards (Ind AS) implementation plan include the following:

(i) The Indian Accounting Standards (Ind AS) Technical Requirements as prescribed: Diagnostic analysis of differences between the current accounting framework and the Indian Accounting Standards (Ind AS) to be made vividly, significant accounting policy decisions impacting financials, drafting accounting policies, preparation of disclosures, documentation, preparation of proforma of the Indian Accounting Standards (Ind AS) financial statements, timing the changeover to current practice to the prescribed the Indian Accounting Standards (Ind AS), and dry-run of accounting systems and end-to-end reporting process before the actual conversion.

(ii) Systems and processes: Evaluate system changes – assessment of processes requiring changes, issues having significant impact on information systems (including IT systems), and develop/strengthen data capture system, where required.

(iii) Business Impact: Profit planning and budgeting, taxation, capital planning, and impact on solvency.

(iv) People – Evaluation of resources: Adequate and fully dedicated internal staff for implementation, comprehensive training strategy and program.

(v) Project Management: Managing the entire process-holistic approach to planning and execution by ensuring that all linkages are established between accounting, systems, people and business, besides effective communication strategies to stakeholders.

4. Insurers shall assess the impact of the Indian Accounting Standards (Ind AS) implementation on their financial position including the adequacy of capital, taking into account the solvency regulations requirements and place quarterly progress reports to their Boards. Insurers also need to be in preparedness to submit proforma the Indian Accounting Standards (Ind AS) financial statements to the Authority from the quarter ended December 31, 2016, onwards. The proforma the Indian Accounting Standards (Ind AS) financial statements shall be filed within the time lines specified in the Authority’s circular No. IRDA /F&I /CIR /F&A /012 /01 /2010 dated 28th January, 2010.

5. The Authority (IRDA) shall also take steps to facilitate the implementation process. To begin with, from July 2016, the Authority (IRDA) shall hold periodic meetings with insurers in this regard. The Authority shall issue necessary instructions / guidance / clarifications on relevant aspects as and when required.

6. Insurers shall disclose in the Annual Report, the strategy for the Indian Accounting Standards (Ind AS) implementation, including the progress made in this regard. These disclosures shall be made from the financial year 2015-16 until implementation.

7. The Boards of the insurers shall have the ultimate responsibility in determining the Indian Accounting Standards (Ind AS) direction and strategy and in overseeing the development and execution of the Ind AS implementation plan.

8. The directions contained herein are issued under Section 34 of the Insurance Act, 1938 and insurers shall ensure strict compliance of the same.

9. All Insurers are advised to place this communication before the ensuing meeting of their Board of Directors and confirm the compliance.

 

3) New regulations on policyholders as notified by Insurance Regulatory and Development Authority of India (irdaI) regarding non-linked insurance products (NLIP).

Earlier in the year 2010, IRDAI revised the regulations applicable to the Unit-linked Insurance Policies (ULIP). Important points in the regulations were:

1. Lock-in period of the products increased to 5 years from 3 years;

2. Minimum premium payment term increased to 5 years;

3. Insurance cover made compulsory for all insurance products;

4. Maximum limit on expenses was introduced. Prior to the regulations, policyholders were subjected to huge losses due to heavy expenses.

 

These regulations changed the face of the ULIP insurance market and IRDA has now formulated a new set of regulations for NLIPs.

 

IRDA, in its Gazette notification on 16th February 2013, has stipulated a number of path-breaking changes in the guidelines for designing for the non-linked insurance policies i.e. for a traditional life insurance product. These guidelines require that existing products of life insurers which are non-compliant to that extend could not be marketed post the deadline as stipulated by IRDA, that is, 30th September 2013. Products launched in accordance with the new guidelines had been marketed with effect from 1st September 2013 and onwards.

 

However, IRDA had subsequently revised that deadline to 31st December 2013. Therefore, the life insurers required to launch products that comply with these revised guidelines on or before 1st January 2014. IRDA’s these new guidelines to Life Insures will certainly impact the Indian insurance industry since majority of the non-linked insurance policies (NLIPs) are the most popular insurance products sold in India. Most policies sold by the Life Insurance Corporation of India (LIC), a government-owned insurer, are NLIPs.

 

One very important element of policyholder protection is that insurers and intermediaries shall be non-coercive while selling. Not only shall they be non-coercive but more importantly, they shall not mis-sell. The Policyholder Protection Regulations and Regulations for the various intermediaries, notified by IRDA are geared to address these issues. However, given the complexity of some of the products, IRDA felt the need for more specific solutions relating to mis-selling in the specific area of Unit Linked Insurance Products (ULIPs).

 

In respect of ULIPs, IRDA has stipulated that insurers must provide the prospect/policyholder all relevant information about amounts deducted towards various charges for each policy year so that the prospect could take an informed decision. Further, insurers are required to provide Benefit Illustrations giving two scenarios of interest rate – 6 per cent and 10 per cent respectively. The prospect is also required to sign the illustration while signing the proposal.

 

4) As per the directive Ref: Irda/hlt/misc/cir/030/02/2011 dated10-02-2011. The authority, (irdai) the ‘Portability of health insurance policies’ has been pronounced:

1. In general, health insurance policies have specific exclusions for pre-existing diseases for a specified period of cover during the initial years. However, it has been observed that in cases where policyholder wishes to switch from one insurer to other, they do not gain any credit for the period of cover with previous insurer. Consequently the insured is tied to the insurer which is detrimental to competition. This places in policyholder at a distinct disadvantage.

2. In order to address this, the Authority is satisfied that the following guidelines on the portability of health insurance policies shall be allowed in the manner prescribed in this guideline. This circular is issued in exercise of powers conferred upon the Authority under section 14(1) of the IRDA Act, 1999 to protect the interests of the policyholders and to regulate, promote and ensure the orderly growth of the insurance industry.

3. All insurers issuing health insurance policies shall allow for credit gained by the insured for pre existing condition(s) in terms of waiting period when he/she switches from one insurer to another or from one plan to another, provided the previous policy has been maintained without break.

4. This credit (in terms of waiting period) would be limited to the sum assured (including bonus) under the previous policy.

5. The insurers shall strictly comply with Regulation 4(6) of IRDA (Protection of policyholders’ interests) Regulations, 2002 in accepting the proposals when the policyholder is switching from one insurer to other.

6. If the policy results into discontinuance because of any delay by the insurer in accepting the proposal, the insurer shall not treat the policy as discontinuance and shall allow portability.

7. Insurers shall clearly draw the attention of the policyholder in the policy contract and the promotional material like prospectus, sales literature etc that:

i. All health insurance policies are portable;

ii. Policyholder should initiate action to approach another insurer, to take advantage of portability, well before the renewal date to avoid any break in the policy coverage due to delays in acceptance of the proposal by the other insurer.

8. All insurers are hereby directed that the entire database including the claim details of the policies, where the policyholders has opted for portability, shall be shared with their counterparts, if requested by the counterpart within seven working days of such request by the counterpart.

9. All applications for the portability shall be acknowledged by the insurers within three working days.

10. This had been applicable for all existing contracts and new contracts with effect from 1st July 2011.

 

Rights of the Insured in relation to portability issues of Health Policies are as given in details below:-

1) You can port your policy from and to any general insurance company or specialised health insurance company;

2) You can port any individual/ family policies;

3) Your new insurer has to give you the credit relating to waiting period for pre-existing conditions that you have gained with the old insurer;

4) Your new insurer has to insure you at least up to the sum insured under the old policy;

5) The two insurers should complete the porting as per the timelines prescribed in the IRDA (Protection of Policyholders’ Interests) Regulations and guidelines;

 

Conditions applicable in case of portability of Health Policies:-

1) You can port the policy only at the juncture of renewal. That is, the new insurance period will be with the new insurance company;

2) Apart from the waiting period credit, all other terms of the new policy including the premium are at the discretion of the new insurance company;

3) At least 45 days before your renewal is due you have to;

4) Write to your old insurance company requesting a shift;

5) Specify company to which you want to shift the policy;

6) Renew your policy without a break (there is a 30 day grace period if porting is under process).

 

5) Guidelines on insurance repositories and electronic issuance of insurance policies:

As per the Circular Ref. IRDA/ ADMN/ GDL/ GLD/ 080/ 04/ 2011 dated 29th April, 2011 had given the ‘Guidelines on Insurance repositories and electronic issuance of insurance policies’ which stipulates as below:

1. Exclusive maintenance with insurance repositories:
(1) Where an insurer issues and maintains ‘e insurance policies’, he shall mandatorily do so by utilizing the services of an insurance repository granted certificate of registration by the Authority under these Guidelines. All such insurance policies in electronic form shall be treated as valid insurance contracts.

(2) Every insurer shall enter into service level agreements with all insurance repositories that have been granted a certificate of registration by the Authority for issuing and maintenance of e insurance policies.

2. Eligibility norms for setting up an Insurance Repository:
(1) The Authority shall not consider an application for insurance repository, unless the applicant belongs to one of the following categories, namely:-

a. A public limited company registered under the Companies Act, 1956 with a minimum share capital of Rs 5 lakhs;

b. A public financial institution as defined in section 4A of the Companies Act, 1956 (1 of 1956);

c. A wholly owned subsidiary of an existing depository registered with Securities and Exchange Board of India under the Depositories Act, 1996.

d. A company fully promoted by either life insurance council or general insurance council or by both together or jointly with any of the above.

e. Any other institution permitted by the Authority.

(2) One of the main objects of the company shall be to act as an insurance repository of “e insurance policies” issued by insurers and to undertake their changes, modifications and revisions based on such requests by policyholders.

(3) The Net Worth of the applicant, on grant of in-principle approval by the Authority, shall be at least Rs 25 Crores before issuance of certificate of registration to it.

(4) The applicant or its sponsors shall have demonstrable competence and experience of similar activities, volumes and technology.

(5) The applicant or its sponsors shall have proven financial and organizational strength to undertake and execute the project.

(6) The applicant or its sponsors shall have no conflict of interest with insurance business.

(7) The insurance activities to be undertaken by the applicant shall be under the sole supervision of the Authority with no conflict with the supervisory role of other regulatory bodies.

(8) The applicant shall have no foreign direct investment.

(9) Any transfer of shares exceeding 5% of the paid up capital in the applicant company shall require prior approval of the Authority.

(10) The insurance repository or its approved person shall not be engaged in insurance solicitation or in any of insurance related activities and services. Provided that any IRDA licensed entity may act as approved person.

(11) To avoid a potential conflict of interest no insurance company shall hold more than 10% of the paid-up capital of the applicant company or hold any managerial position in the applicant company.

3. Application for grant of certificate of registration:
(1) The Authority shall have power to limit the number of insurance repositories and shall call for “Request for Proposals” as and when deemed necessary.

(2) On calling for ‘Request for Proposal’ an application for the grant of a certificate of registration as an “insurance repository” shall be made to the Authority in Form – Insurance Repository -1. It shall be accompanied by a non refundable processing fee of Rs 10,000/- drawn on IRDA, Hyderabad.

(3) No person shall act as an insurance repository unless it obtains a certificate of registration from the Authority and no insurer shall engage an insurance repository who has not obtained a certification of registration from the Authority.

(4) The power of the Authority to grant the certificate of registration shall be final.

(5) The certificate of registration shall be renewed every year on payment of an annual fee of Rs 20,000 in favour of IRDA payable at Hyderabad unless the Authority decides, either to suspend or cancel it, as provided in these Guidelines.

 

6) Impact of modifications on earlier regulations in insurance:

 

More recently, IRDA has taken certain initiatives in the form of specific regulations / modifications to existing regulations. There are certain distribution related modifications with a view to ensuring that there is no scope for the involvement of unlicensed personnel / entities in the sale of insurance products. There is also no scope for payment of any remuneration other than commission where sale has been affected. This measure reduces the expenses of the insurer, thereby lowering the premiums to be paid by the policyholder. Further, IRDA has also addressed the issue of Referrals with the IRDA (Sharing of database for distribution of insurance products) Regulations, 2010 that leaves no scope for misuse of the system.

 

7) Initiative of irda on prospect product matrix by insurers, based on needs analysis:

Implementation of a Prospect Product Matrix by insurers, based on Needs Analysis is another initiative the IRDA is making as a step in curbing wrong advice and misselling. Further, guidelines relating to distance marketing have been issued by IRDA. The guidelines address the challenges relating to misspelling using distance marketing mode, which is fallout of the advancement in technology. While the benefits of having new and faster channels need to be reaped, the loopholes created by them need plugging and this is precisely what the guidelines are aimed at.

 

8) Financial literacy and consumer education initiatives by IRDAI:

1. The financial literacy and consumer education initiatives are aimed at ensuring that the customer is well informed and financially educated while purchasing insurance products. During 2011-12, IRDA has carried out awareness campaigns in English, Hindi and vernacular languages through print and electronic media. Apart from media campaigns through newspapers, radio and television etc; essay competition under the Bima Bemisaal banner for students was conducted during the year 2011-12 and IRDA’s exclusive Consumer Education Website was launched.

2. The Authority conducted its 3rd seminar on ‘Policyholder Protection and Welfare’ on 3rd June, 2012 at Kolkata. During the seminar, the Authority released its Consumer Affairs Annual Booklet 2011-12 containing updates on Policyholder Protection measures; analysis of complaints statistics and details about Comic Series (Volume-2) on Insurance Ombudsman, ULIP, Motor and Health. The policyholders’ handbooks on Life, Motor, Health, Intermediaries, Property and Travel Insurance in various Indian languages (other than Hindi) were also released where IRDA continues to support consumer bodies in its efforts to spread word about insurance as well as about the rights and duties of a policyholder.

9) New regulations related to maintenance of solvency margins of all the Indian insurers:

Every insurer is required to maintain a Required Solvency Margin as per Section 64VA of the Insurance Act, 1938. Every insurer shall maintain an excess of the value of assets over the amount of liabilities of not less than an amount prescribed by the IRDA, which is referred to as a Required Solvency Margin.

 

The IRDA (Assets, Liabilities and Solvency Margin of Insurers) Regulations, 2000 describe in detail the method of computation of the Required Solvency Margin. Subsequently vide Circular No. 056/IRDA/ACIL/Solvency Margin February-07 dated 23/02/2007 to all the Life Insurers Regarding Reporting of Maintenance of Solvency Ratio – on Quarterly Basis and the Time Table for submission these quarterly reports – it has been decided that all Life Insurers which are registered with IRDA need to move towards this Quarterly Reporting. Time Table for the submission of these quarterly reports directed by IRDA is as follows:

 

9.1. Life Insurers

 

9.1.1. In the case of life insurers, the Required Solvency Margin is the higher of an amount of fifty crores of rupees (one hundred crores of rupees in the case of reinsurer) or a sum which is based on a formula given in the Act and the regulations framed there under. One of the important factors that influence insurance penetration is the capital requirement under the solvency margin.

 

The pure term products provide simple life cover and it is believed that companies could design products, which could reach various segments of the population in meeting their insurance needs, thereby enhancing insurance penetration. In line with this objective, the Authority had decided to allow the life insurers to reduce the capital requirement in the case of pure term products without changing the factor loadings in the case of the remaining products. Suitable instructions modifying these requirements were issued by IRDA in 2008-09. It is expected that the lower level of solvency for pure term products would provide significant relief to the life insurers both under individual products and under group products. This will also help the insurers in launching more pure term products for sufficiently longer periods and at affordable rates.

9.1.2. At the end of March 2012, all the twenty-four life insurers complied with the stipulated requirement of solvency ratio of 1.5. Life Insurance Corporation of India then reported a solvency ratio of 1.54, which was the same as at the end of March 2011. Twenty two life insurance companies have maintained the solvency ratio at above 1.70; out of which seventeen had the solvency ratio at above

9.2. Non-life Insurers

9.2.1. In the case of non-life Insurers, the Required Solvency Margin shall be the maximum of the fifty crores of rupees (one hundred crore of rupees in the case of reinsurer); or higher of RSM-1 and RSM-2 computed as under:

9.2.1.1. RSM-1 means the Required Solvency Margin based on net premiums, and shall be determined as twenty per cent of the amount which is higher of the Gross Premiums multiplied by a Factor and the Net Premiums. For the purpose of calculation of RSM-1, premium of the last 12 months on rolling basis will be taken into account.

9.2.1.2. RSM-2 means the Required Solvency Margin based on net incurred claims, and shall be determined as thirty per cent of the amount which is the higher of the Gross Net Incurred Claims multiplied by a factor B and the Net Incurred claims.

9.3. Motor Third Party Pool

9.3.1. The Authority had investigated actuarial valuation of the Indian Motor Third Party Insurance Pool (IMTPIP) under the Insurance Act, 1938 in order to assess the adequacy of the reserves, which needs to be calculated as per the IRDA Regulations. The Authority, based upon the report of Shri K P Sharma, the then Consultant Actuary and after considering the submissions of General Insurance Council, has passed Order No. IRDA/NL/ORD/MPL/003/01/2012 dated 3rd January, 2012 under Section 14 of IRDA Act read with Section 64VA of Insurance Act, 1938 on Motor Third Party Pool Reserves and Account Reserves. The order is applicable to all non-life insurers (including GIC Re as reinsurer) and it mandates the insurers to provide for the Motor Third Party Pool liability at 159 per cent since 2007-08 onwards.

9.4. The Insurers have also been advised not to distribute bonus, performance incentives, etc. by whatever name such payments are called to any key management personnel, the senior management, Appointed Actuaries, Whole time Directors of the Board or any of the CEOs without the prior specific approval of the Authority.

9.5. By the end of March 2012, seventeen non-life insurers (excluding the health insurers) had complied with the stipulated solvency ratio and two companies have not met the minimum requirement of solvency margin ratio.

 

10) Supervision of market conduct by irdaI:

10.1. The test of good conduct of business by insurers is whether policyholders are treated fairly both before the contract is entered into and throughout the lifecycle of the insurance policy, until all obligations under the contract have been satisfied. From the regulatory perspective, the pre-requisite is a proper framework including relevant laws, rules, regulations, guidelines etc., within which the insurers and intermediaries operate. A good framework for conduct of business lays down benchmarks for various aspects of policyholder servicing. When it comes to monitoring and supervision, the Regulator should be able to identify concerns from a macro and systemic level and bring about required changes in the framework.

10.2. The lifecycle of a policy includes the proposal stage, the issuance of the policy if the proposal is accepted and various policy and claims servicing areas ranging from correction in the policy details to a change of address, receiving a claim intimation, arranging for a survey (wherever applicable), disposing of a claim, etc. The Authority has laid down turnaround times for policyholder servicing in its regulations for protection of policyholders’ interests brought out in 2002 and these relate to right from the time before a contract is entered into through to the point of all obligations under a contract being settled. Delays vis-a-vis these timeframes would mean a deficiency in service. When there is a deficiency in service, the prospect or policyholder, as the case may be, may approach the grievance redress channel of the insurer and the IRDA, if needed to escalate the case; or the Ombudsman, if it falls within the jurisdiction of the same.

 

11) IRDAI’S directives to resolve complaints against insurers & greivance dispossal:

11.1. The initiative of IRDA in implementing the Integrated Grievance Management System (IGMS) has created a central repository of industry complaints, which lends itself to various types of analyses relating to conduct of business by insurers. The regulatory interventions by IRDA on ULIPs have brought down the percentage of complaints pertaining to this category, reflecting an improvement in the conduct of business in this area.

11.2. Prescription of a standard proposal form for life insurance and the requirement that the insurers shall have in place a “Prospect Product Matrix” that will determine suitability of products based on needs analysis is an initiative that will help reduce mis-selling.

11.3. In non-life insurance, analysis of the data on IGMS shows that ‘Non-receipt of Policy Bond’ is the main cause of complaint though complaints relating to claims come a close second. Conduct of business concerns in this sector mostly relate to health insurance and motor insurance – refusal to give cover; refusal to renew; forced selling through tying insurance with other goods and services; disputes related to quantum of claim and disputes relating to liability under a policy.

 

Conclusion:

In the Indian regulatory system, process & architecture, what different regulators will manage is specifically defined by law. Present system might not be the best system and is not the only system in the world, but in India we have enacted ourselves a system where each sector is separate. The scope of regulatory overlap is invariably limited as each Act carefully specifies the limits and what exactly are the roles and functions of each of the regulators.

 

There are differences in opinion between IRDA & SEBI about what the SEBI remit is and what SEBI believes its own merit is – may this turf war may go on but ultimately both are here to ensure consumer satisfaction, investor protection and financial stability. Things of this nature need definite clarity. Having multiple regulators doing the similar task would not be good for the consumers or the industry. So there must be sufficient initiative of IRDA to resolve all these
disparities.

 

We find that management expenses of all the insurers affect bottom lines more sharply, so IRDA intended to bring in various systems to enable and cajole insurance companies and absolutely ensure that the insurers comply by looking at extra solvency requirements. Moreover, as the Indian insurance industry has already made a strong enough base and going by the trend of the market – the days are very near when one of the biggest contributors to the Indian stock markets will be investment from the insurance sector.

 

So the regulator has to tighten their control in manifolds. Broadly speaking investment by insurance companies is regulated by the provisions of the Insurance Act, with 50% of investments going into government securities, 35% into approved investment and 15% being in other than approved investments. There are other issues such as concentration and sector risks. From the regulatory point of view it has to be typically ensured that the insurers must have in place automated or efficient systems that can provide full range of information.

 

To stop the general insurers’ practice of giving discount without any concern for base level threshold premium, in the recent meeting in General Insurance Council, it has been proposed that a minimum rate must be in place for all classes of business in order to prevent mindless competition in de-tariffed non-life sector. Let us expect that IRDA must keep these product minimum rates at a strong watch.

 

Reference: References have been taken from the contemporary text materials / various IRDA Reports / different current discussions as read in hard & soft forms.