MCom I Semester Business Environment Insurance Regulation Development Act Study Material Notes

MCom I Semester Business Environment Insurance Regulation Development Act Study Material Notes : Insurance Regulation and Development act 1999 (IRDA ) Composition of IDRA Finance Accounts and Audit of IRDA Powers and Functions of IDRA Powers of make rules Insurance advisory Committee (IAC) Power to Make Regulations Insurance Advisory Committee ( IAC) Long Answer Questions Short Answer Questions Objectives Questions :

CTET Paper Level 2 Set XI Model Paper Question Answer in English

Insurance Regulation and Development Act

Before the Insurance Regulation and Development Act, 1999 (IRDA) came into being, Controller of Insurance appointed under Section 2B of Insurance Act, 1938 performed the functions of superintendence, control and management of all kinds of insurance companies. The first act on insurance was enacted in 1912, it was related to life insurance business. Another legislation was passed in 1928. But after nationalisation of life insurance in 1956 and general insurance in 1972, the role of Controller became dormant, untill 1999. After Indian economy got liberalised during early 1990s, competition from private Indian companies became imperative and certain amendments to the Insurance Act, 1938 became necessary. This act later led to enactment of Life Insurance Act, 1956 and General Insurance Business Act, 1972. As a result through the Act of Parliament, LIC and GIC came into existence. These legislation no doubt have to a large extent reduced the rampant and often discriminative practices prevalent prior to their enactments.

INSURANCE REGULATION AND DEVELOPMENT ACT, 1999 (IRDA)

This Act is also known as IRDA. The Insurance Act 1938 was amended vide Section 30 of IRDA act, 1999, stated in the first schedule. The amendments deal with certain words, phrases and expressions. Besides this the amendment also dealt with requirement as to capital diverting shareholders funds, investments in India or abroad and various penal provisions.

COMPOSITION OF IRDA

The central government by notification appoints ‘Authority’ in the nature of body corporate enjoying all the characteristics of such entity alongwith contractual powers.

Following are included in the Act :

1 The head office of such authority’is to be decided by the Central Government.

2. The members of such ‘Authority’ shall be appointed by the Central Government depending upon their expertise and experience in the field of insurance, law, economics, accountancy, finance etc.

3. There will be 10 members of authority. The members of IRDA shall consists of : (a) Chairman, (b) Five whole time members (maximum), (c) Four part time members (maximum). One of these members should have knowledge in life insurance, general insurance and actuarial science.

4. According to Section (5), the chairperson shall hold office for a term of five years untill he reaches the age of sixty five years. He shall be eligible for re-appointment. A whole time member can hold office till he attains the age of sixty two years, moreover a member can relinquish his membership by giving three months prior notice to the Central Government.

5. He can be removed from office under provisions of Section 6 on the following grounds: (i) If he became insolvent. (ii) If he became insane. (iii) If he has been convicted for offence involving moral turpitude. (iv) If he has illegally established financial interest in the ‘Authority.’

(v) If he has been acting contrary to public interest. (vi) If he is likely to affect prejudicially his functions as a member or he has so

abused his position. (vii) As to render his continuation in the office detrimental to the public interest.

1 Meetings of IRDA: The Authority shall meet at such times and places and shall observe such rules and procedures in regard to transaction of business at its meeting. All questions which come up before any meeting of the authority shall be decided by majority of votes by the members present and voting. In the event of an equality of votes, the chairperson shall have a second or casting vote.

POWERS AND FUNCTIONS OF IRDA

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 the insurance business and re-insurance business :

(i) General Functions and Powers: Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the authority shall include:

1 Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend, or cancel such registration.

2. Protection of the interests of the policyholders in matters concerning assigning of policy, nomination by policyholders, insurable interests, settlement of insurance claim, etc.

3. Specifying code of conduct of surveyors.

4. Conducting investigations and enquiries relating to issues concerning insurance business.

5. Regulating maintenance of margin of solvency.

6. Adjudicating and setling disputes between intermediaries and insurers.

(ii) Special Powers: Special powers of authority are as follows:

If the Authority realises that the description sent by any company are not correct, it can:

(1) Ask for complimentary information or ask for rectification of errors. 6) It may send notice that books of accounts should be made available for inspection. GH) It may examine officers of insurance institution under oath in relation to such documents.

2. Powers of investigation: Under Section 33, authority may, by written order, appoint any person to investigate the affairs of insurance ce investing officer can appoint auditor for his help. If such investing order is issued, it would be the duty of every officer of insurance company that they should provide books of accounts, documents, statements and information’s.

3. Powers to issue directions: The authority can issue directions to the insurers who were guilty, or apprehension was expressed about their business dealings or in general public interest. The insurance company will obey this direction under Section 34.

4. Powers related to reappointment in insurance company : In case of an insurer, having no appointment, re-appointment shall come into effect if such appointment or re-appointment is made with the previous approval of the authority.

(a)] Where the authority is satisfied that in the public interest or for preventing the affairs of an insurer being conducted in a manner detrimental to the interests of the policy holders or for securing the proper management of any insurer, it is necessary to do so, he may, for reasons to be reordered in writing, by order remove from office with effect from such date as may be specified in the order, any director or chief executive officer, of the insurer.

(b)] (iii) If the authority is of opinion that in the public interest or in the interest of an insurer, it is necessary to do so, he may, by order in writing, appoint one or more persons to hold office as additional directors of the insurer. The number of additional directors shall not at any time, exceed 5 or 1/3 of the maximum strength fixed for the Board whichever is less.

5 Other Powers: Other powers of authority are as follows:

(i) The authority may order closure of foreign business on suspicion of unfair trading which may harm the public interest.

(ii) If authority is of the opinion that the terms and conditions of re-insurance treaty are not favorable or detrimental to public interest, he may, by an order make modification in the terms and conditions of such treaty or contract.

(iii) The authority may appoint officer to search and seize any documents, books, vouchers and reports if there is apprehension of concealment or of any mischief on the part of insurers.

(iv) Tariff Advisory Committee was established to control, regulate the rates and terms offered by insurers. The rates, advantages, terms and conditions as opined by the Advisory Committee shall be binding on insurers.

(v) No person shall act as surveyor or loss assessor in respect of general insurance business unless he holds a valid license issued to him by the authority.

FINANCE, ACCOUNTS AND AUDIT OF IRDA

The Central Government grants funds, necessary for such authority. The fund shall be called as “IRDA Fund.” It includes government grants, fees and charges, money owned by the authority from other sources specified by Central Government and premium income received from the insurer. The funds shall be applied for meeting salaries and allowances of members, officers and employees of the authority and meeting other legitimate expenses of the authority.

The accounts of the authority shall be audited by the CAG according to their schedule and the expenditure required for such audit has to be borne by the authority. Any other person appointed by CAG may enjoy same privileges and can have access to books, documents and other relevant papers. The certified Accounts of the ‘Authority’ whether audited by CAG or persons appointed by we are to be put forward to the Central Government and the same be laid before the Parliament by such Union Government.

POWERS TO MAKE RULES

The Central Government may by, notification, make rules for carrying out the provisions of this Act.

In particular and without prejudice to the generality of the forgoing powers, such rules may provide for all or any of the following matters namely:

1 The salary and allowances payable to, and other terms and conditions of and service of the members other than part-time members may be altered.

2. The fixation allowances to be paid to the part-time members.

3. The form of annual statement of accounts to be maintained by the authority.

4. The form and the manner in which and the time within which returns and statements and particulars are to be furnished to the Central Government.

5. The matters on which the Insurance Advisory Committee shall advise the authority.

6. Any other matter which is required to be prescribed or in respect of which provision is to be made by rules.

INSURANCE ADVISORY COMMITTEE (IAC)

The authority may, by notification, establish with effect from such date as it may specify in such notification, a committee to be known as the Insurance Advisory Committee. The committee shall consist of not more than twenty five members excluding ex-officio members to represent the interests of commerce, industry, transport, agriculture, consumer forum, surveyors, agents, inter-mediaries, organisations engaged in safety and loss prevention, research bodies and employees’ association in the insurance sector. The chairperson and the members of the authority shall be the ex-officio chairperson and ex-officio members of the Insurance Advisory Committee. The objects of the committee shall be to advise the authority on matters relating to the making of the regulations.

POWER TO MAKE REGULATIONS

The authority may, in consultation with the Insurance Advisory Committee, by notification make regulations consistent with the Act and the rules made there under to carry out the purpose of this Act.

In particular and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters namely:

1 The time and places of meeting of the authority and the procedure to be followed at such meeting including the quorum necessary for the transaction of business.

2. The terms and conditions of service of officers and other employees of the authority.

3. The powers and the functions which may be delegated to the committees of the members.

4. Any other matter which is required to be, or may be specified or in respect of which provision is to be or may be made by regulations.

EXERCISE QUESTIONS

Long Answer Questions

1 Describe the statutory provisions, relating to the registration of an insurance company.

2. Describe functions and powers of IRDA.

3. Describe the law relating to the licensing and remuneration of an insurance agent.

4. Describe the constitutional powers and functions of IRDA.

Short Answer Questions

1 What do you understand by IRDA?

2. State the law relating to the licensing of surveyors and assessors.

3. Write the duties of IRDA.

4. Write the powers of IRDA.

5. Write the main functions of IRDA. Objective Questions

(I) Select the Correct Alternatives :

1 IRDA is known as:

(a) Authority

(b) Rules

(c) Bye-rules

(d) none of these

2. IRDA came in force from:

(a) 2001

(b) 2000

(c) 1999

(d) 1998

3. In the organization of IRDA, the number of its members is :

(a) 10

(b) 15

(c) 12

(d) 8

4. Essential for an insurance company:

(a) issue certificate of registration

(b) cancellation

(c) renewal

(d) all of above

5. Meeting of IRDA are presided by:

(a) chairperson

(b) secretary

(c) vice-chairperson

(d) none of these

[Ans.: 1. (a), 2. (b), 3. (a), 4. (d), 5. (a)]

(II) Write True or False :

1 The authority shall observe rules and procedures in regard to transaction of business at its meeting.

2. U/S 33 the authority may appoint an officer to investigate and search the matters of insurer.

3. The Central Government may, by notification, make rules for carrying out the provisions of the Act.

4. The authority may, by notification, establish a committee to be known as the Insurance Advisory Committee.

[Ans.: 1. True, 2. True, 3. True, 4. True]

(III) Fill in the Blanks :

1 The authority has a right to make …………. or evaluation if the report submitted by insurer does not show correct state of affairs of its business.

2. The authority may cancel the certificate of …..

3. The investing office may appoint ………….. to help him.

4. The Chairperson of the authority ………….. the meetings.

[Ans.: 1. order, 2. registration, 3. auditor and assessor, 4. presides)