- The IRDAI or the Insurance Regulatory Authority of India was established in 1999 and it is an autonomous, statutory body responsible for regulating the insurance sector in India.
- You might wonder, that though the IRDAI is there to protect the policyholders, who keeps an eye on IRDAI? That’s where the Insurance Advisory Committee comes into the picture.
If you have ever purchased insurance, you obviously want to secure yourself financially in case of a loss. Who are you really putting your trust in when you are making such a contract with a company?
When the insurance market opened up in 2000, foreign firms were allowed to buy up to 26 per cent stake in Indian insurance companies. This was possible, thanks to IRDAI. IRDAI is like the regulatory body of a sabzi mandi that allows multiple sabziwallas to set up shop and manages them so that you, the customers, have more to choose from in a competitive market and are protected on various occasions.
The next question that arises then is, who regulates or keeps the IRDAI in check?
Firstly, what is IRDAI?
The IRDAI or the Insurance Regulatory Authority of India was established in 1999 and it is responsible for regulating the insurance sector in India. It is essentially your watchdog, ensuring insurance companies don’t fool customers in any way.
Post-liberalization and privatization in 1990, the Indian government set up the Malhotra Committee (headed by ex-RBI governor RN Malhotra) in 1993 to evaluate the insurance sector in India. One of their recommendations was setting up IRDAI to regulate the insurance sector. Today, IRDAI has its headquarters in Hyderabad.
What does IRDAI consist of?
The IRDAI is a 10-member body comprising – a chairman, five full-time members, and four part-time members.
Now you might wonder, though the IRDAI is there to protect you, the policyholder’s interests, who is there to keep an eye on IRDAI and ensure they are doing their job?
That’s where the Insurance Advisory Committee comes into the picture. The IAC comprises 25 members (not ex-officio members) who come from backgrounds and represent the interests of commerce, agriculture, transport, consumers, surveyors, agents, intermediaries etc.
Objectives of IRDAI
Mainly, IRDAI is responsible for ensuring that the provisions of the Insurance Act, 1938 are followed by insurance companies and other stakeholders in the insurance sector. According to the IRDAI’s website, these are some of their mission and values:
- Protecting policyholders’ interests and fair treatment.
- Impartial regulation of the insurance industry.
- Making sure of the financial stability of the insurance sector.
- Making regular changes and reforms in the insurance sector so that it operates without any trouble.
Who controls IRDAI?
The members of IRDAI are appointed by the Government of India. It comes under the Ministry of Finance, to which it needs to produce an annual report giving a true account of its activities and the developments happening in the insurance sector.
So, apart from the Insurance Advisory Committee, the IRDAI is also answerable to the Ministry of Finance, the Government of India.
Functions of IRDAI
As one can assume, the IRDAI has a wide range of responsibilities. Some of its functions are:
- Giving registration certificates to insurance companies. They also modify, renew, cancel or suspend them, if need be.
- Inspecting records and conducting audits of all companies in the insurance sector (insurers, intermediaries, etc)
- Regulating insurance rates.
- Ensuring insurance agents, brokers and companies follow the code of conduct and that they are up to standard.
- Safeguarding policyholder interests, ensuring policies are given properly to buyers, claim settlements go smooth, policyholders get their insurance interest and surrender value of policy etc.
How does it work in Europe and USA?
In countries such as the UK, the Financial Conduct Authority (FCA) regulates around 51,000 financial services firms and financial markets. It is a public body under the UK’s Treasury and Parliament. Under this, they also regulate the insurance sector in the UK. It is essentially the British version of the IRDAI.
In the US, the regulatory body is the National Association of Insurance Commissioners (NAIC). It is the standard-setting and regulatory support organization. It regulates the insurance sector in the USA. It has been created and is governed by insurance regulators from all 50 states. Like IRDAI, one of its aims is to promote competitive insurance markets, ensure fair treatment of policyholders and ensure the financial stability of insurance companies.
Landmark decisions made thanks to IRDAI
Here are some key actions that the IRDAI has taken that have had a significant impact on the policyholder:
- Choice to policyholders to renew, migrate, port COVID-specific health covers – When the pandemic hit, short-term COVID-19 specific health policies became popular among households, especially at a time when vaccines were still not available in the market. In October 2019, IRDAI allowed insurance companies to offer policyholders to renew, migrate and port COVID-specific health insurance coverage. This move was welcomed as it encouraged more people to be brought under the insurance bracket and avail more comprehensive coverage.
- In March 2020, owing to the COVID-19 pandemic, the IRDAI put a hold on the premium hikes to provide relief to motor insurance holders until further notice.
- Standardization of exclusions in health insurance – Prior to October 2019, age-related ailments such as Alzheimer’s, Parkinson’s, knee-cap replacement surgery, cataract surgery etc. were not listed on health insurance policies. Thanks to IRDAI’s standardization of exclusions in health insurance, they will now have to be covered by the insurance company. Due to the lack of standardization earlier, these widely varied from one insurer to another, which led to a lot of confusion among policyholders.
- . In India, third party motor insurance cover is mandatory for all vehicles. IRDAI set the TP rates, and revises these rates every year, based on the number of claims and ratio of loss for insurers.
As mentioned above, IRDAI is the apex body that is up and about regulating the insurance sector in India. Its job is to make sure that insurance companies are working properly and protects the policyholders’ interests.
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