Historical Background

In India, Government started exercising control on Insurance business by

passing two acts in the year 1912 namely;

Provident Insurance Societies Act V of 1912 and

Indian Life Insurance Companies Act VI of 1912.

These acts were later comprehensively amended and a new Act namely Insurance Act
1938 came into existence for controlling;

Investment of funds,

Expenditure and

Management of the insurance companies.

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Again, this Act was amended in 1950 as per the need of the hour.
But in view of growing malpractices in Life Insurance business and also
due to the illiteracy level being high and lack of will for spread of Life
Insurance business, it was nationalized by Government of India.

LIC Act was passed in June; 1956, and this Act came into force
from 1st Sept.1956. Similarly general insurance business was nationalized
Act came into force w.e.f 1st April 1973 through General Insurance
Business Nationalization Act 1972 (GIBN Act, 1972). To implement these
acts the Government made some minor changes in the Insurance Act 1938.
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In early 90’s, with the world market forces playing with full strength;
growing literacy level; better regulatory systems and need for fast growth in
this sector, the need of the hour was to go with the world and throw open Life
& General Insurance Sector to private entrepreneurs once again so that there is
no monopoly and the customer/ consumer/ buyer gets more choices than one
type of insurance product.

To study the liberalization process in Insurance sector in India, Malhotra

Committee was formed under the Chairmanship of Late Shri R.N. Malhotra.
The Malhotra committee submitted its report in 1994 which recommended that
private companies be allowed to operate in India.
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The Government accepted the Committee’s recommendation and
Insurance Regulatory Authority (IRA) was set up in 1996 to show the path
for privatization of insurance Industry. The main aim was the development of
Insurance covering all strata of society (to not only rich but poor, folks from
rural, tribal, unorganized sector, social sector, disabled community, daily
wagers, women at large, etc.) gained importance through concerns put forth
by political leaders, trade unionists, social organizations, cooperatives and
policy makers; which amended the name IRA to IRDA (Insurance Regulatory
& Development Authority). Again some amendments were made in the
Insurance Act 1938 for smooth functioning of IRDA.
Insurance Regulatory Development Authority
Act(IRDA), 1999
This Act was passed by Parliament in Dec.1999 & it received
presidential assent in Jan.2000. The aim of the Authority is “to protect
the interest of holders of Insurance policies to regulate, promote and
ensure orderly growth of Insurance industry & for matters connected
therewith or incidental thereto.” Under this Act, an authority called
IRDA is established which replaces Controller of Insurance under
Insurance Act 1938.
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• Definitions

Like any other Act, various terms have been defined as follows under Section 2:

a) “Appointed Day” means the date on which the Authority is established.

b) “Authority” means the Insurance Regulatory and Development Authority.

c) “Chairperson” means the chairperson of the Authority.

d) “Fund” means the Insurance Regulatory and Development Authority Fund.

e) “Interim Insurance Regulatory Authority” means the Insurance Regulatory

Authority set up by the Central Government.
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f) “Intermediary or Insurance intermediary” includes Insurance brokers,
reinsurance brokers, insurance consultants, surveyors and loss assessors.

g) “Member” means a whole time or a part time member of the

Authority and includes the Chairperson.

h) “Notification” means a notification published in the Official Gazette.

i) “Prescribed” means prescribed by rules made under this Act.

j) “Regulations” means the regulations made by the Authority.

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• Features of Authority

Corporate body by the aforesaid name which means it will act as group of
persons, called members, who will work jointly not as an individual person like
Controller of Insurance.

Having perpetual succession which means any member may resign or die but
the Authority will work.

A common seal with power to enter into a contract by affixing a stamp on the
documents.

Sue or be sued means the Authority can file a case against any person or
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• Composition of Authority

The Authority shall consist of 9 persons as per details given below:

Chairperson.

Not more than 5 whole time members.

Not more than 4 part time members.

These persons shall be appointed by the Central Govt. from amongst

persons of ability, integrity & standing who have knowledge or experience in life
Insurance, general Insurance, actuarial science, finance, economics, law
accountancy, administration or other discipline which would in the opinion of the
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• Tenure (Section 5)

The Chairman tenure will be for 5 years and eligible for reappointment till he attains
the age of 65 years.

The appointment of members will be for 5 years and eligible for reappointment but
not exceeding the age 62 years.

Removal of Members (Section 6)

The Central Government can remove any member of the Authority if he;

a) Is declared bankrupt.

b) Has become physically or mentally incapable of acting as a member.

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d) Has acquired such financial or other interest which affect his function as a member.

e) Has so abused his position as to render his continuation in office detrimental to the public
interest.

But no member can be removed form the office unless & until the reasonable opportunity of being
heard is given to such member in the matter.

• Salary & Allowances (Section 7)

The Chairperson and full time members’ shall receive the salary & allowance as prescribed by the
Government.

• Bar on future employment (Section 8)

The Chairperson and the whole time members cannot accept any appointment without Govt.
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• Superintendence & Direction (Section 9)

The Chairperson shall have overall control & provide direction in respect of all
administrative matters of the Authority. He will chair the meeting as and when he is
present in the meeting.

• Meeting of Authority (Section 10)

The meeting of the Authority will be held at the time and place as decided by the
Chairperson as per regulation made under this act. If the Chairperson is unable to
attend the meeting then the members will choose the Chairperson from amongst the
present members. All the issues to be discussed in the meeting shall be decided by a
majority of votes by the present and voting. In case of equal voting the decision of
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• Duties, Powers & Functions of Authority (Section 14)

Duties: The Authority shall have the duty to regulate, promote and ensure orderly growth of
the Insurance business and reinsurance business subject to the provisions of any other
provisions of the act.

Powers & Functions to:

(a) Issue to the applicant (Insurance company or Insurance Agent or Surveyors or

Insurance Brokers or Third Party Administrators) a certificate of registration, renew,
modify, withdraw, suspend or cancel such registration;

(b) Protection of the interests of the policyholders in matters concerning assigning of

policy, nomination by policyholders, insurable interest, settlement of insurance claim,
surrender value of policy and other terms and conditions of contracts of insurance;
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(c) Specifying requisite qualifications, code of conduct and practical training
for insurance brokers , agents, surveyors, Third Party Administrator ;

(d) Specifying the code of conduct for surveyors and loss assessors (Who
assess the loss of policyholder in case of General Insurance);

(e) Promoting efficiency in the conduct of insurance business;

(f) Promoting and regulating professional organisations connected with the

insurance and re-insurance business;

(g) Levying fees and other charges on insurance companies, Agents, Insurance
Brokers, Surveyors and Third party Administrator;
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(h) Calling for information from, undertaking inspection of, conducting enquiries
and investigations including audit of the insurers, intermediaries, insurance
intermediaries and other organisations connected with the Insurance business;

(i) Control and regulation of the rates, advantages, terms and conditions that may
be offered by insurers in respect of general insurance business not so controlled
and regulated by the Tariff Advisory Committee under section 64U of the
Insurance Act, 1938 (w.e.f., 1/1/2007 TAC has ceased to function).

(j) Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and other
insurance intermediaries;
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(k) Regulating investment of funds by insurance companies;

(l) Regulating maintenance of margin of solvency i.e., having sufficient funds to pay
insurance claim amount;

(m) To settle the disputes between insurers and intermediaries or insurance intermediaries;

(n) Supervising the functioning of the Tariff Advisory Committee;

(o) Specifying the percentage of premium income of the insurer to finance schemes for
promoting and regulating professional organisations referred to in clause(f);

(p) Specifying the percentage of life insurance business and general insurance business to
be undertaken by the insurer in the rural or social sector; and

(q) Exercising such other powers as may be prescribed.

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• Grants from the Central Government (Section 15)

The Government after approval from the Parliament may grant funds to discharge their
duties as per this Act.

• Constitution of Funds (Section 16)

(1) There shall be a fund to be called “The Insurance Regulatory and Development
Authority Fund” and there shall be credited there to:—

a. all Government grants, fees and charges received by the Authority;

b. all sums received by the Authority from such other source as may be decided upon by
the Central Government;

c. the percentage of prescribed premium income received from the insurer/insurance

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(2) The Fund shall be applied for meeting:—

a. the salaries, allowances and other remuneration of the members, officers and
other employees of the Authority:

b. the other expenses of the Authority in connection with the discharge of its
functions and for the purposes of this Act.

• Accounts and Audit (Section 17)

(1) The Authority shall maintain proper accounts and other relevant records and
prepare an annual statement of accounts in such form as may be prescribed by
the Central Government in consultation with the Comptroller and Auditor-
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(2) The accounts of the Authority shall be audited by the Comptroller and Auditor-
General of India at such intervals as may be specified by him and any expenditure
incurred in connection with such audit shall be payable by the Authority to the
Comptroller and Auditor-General.

(3) The Comptroller and Auditor-General of India and any other person appointed by
him in connection with the audit of the of the accounts of the Authority shall have
the same rights, privileges and authority in connection with such audit as the
Comptroller and Auditor-General generally has in connection with the audit of the
Government accounts and, in the particular shall have the right to demand the
production of books of account, connected vouchers and other documents and
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(4) The accounts of the Authority as certified by the Comptroller and Auditor General of India or
any other person appointed by him in this behalf together with the audit-report thereon shall be
forwarded annually to the Central Government and that Government shall cause the same to be
laid before each House of Parliament.

• Establishment of Insurance Advisory Committee (Section 25)

(1) 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.

(2) The Insurance Advisory Committee shall consist of not more than twenty-five members
excluding ex-officio members to represent the interests of commerce, industry, transport,
agriculture, consumer fora, surveyors, agents, intermediaries, organisations engaged in safety and
loss prevention, research bodies and employees’ association in the insurance sector.
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(3) The Chairperson and the members of the Authority shall be the ex-officio Chairperson
and ex officio members of the Insurance Advisory Committee.

(4) The objects of the Insurance Advisory Committee shall be to advise the Authority on
matters related to insurance.

(5) The Insurance Advisory Committee may advise the Authority on such other matters as
may be prescribed.

• Miscellaneous Provisions

The Central Government can issue the direction to the Authority on policy matters not
on administrative and technical matters and the Authority is bound to follow such
direction.
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• The Chairperson, Members and employees of Authority shall be deemed to be public servant while
performing the duties as per the provision of this Act.

• The Authority can delegate its powers to Chairperson or members or officers and employees of the
Authority as per regulation made under this act.

• The Authority has the power to make rules related to salary & allowances and other terms &
conditions to be applicable to its Chairperson, members, employees or officers.

• The Authority has power to make regulations to be followed at its meetings.

• The rule & regulation made by the Authority shall be placed before the Parliament.

• Any rule or regulations made under this act will bar the applicability of other laws of the land.

• The Authority has the powers to make amendments in Insurance Act 1938, LIC Act 1956 & GIBN
Act 1972.
IRDAI Latest Developments
• The Insurance Regulatory and Development Authority (IRDAI) removed
the individual cap on commission paid to intermediaries by life
insurance companies and stipulated expenses on the management
structure (EOM) that insurers have to implement.

• The new rules are effective from the current financial year (2023-24).

• As per new rules, there is a cap on expenses by insurers and will have a
single budget including commissions and operating expenses.

• The new EOM rules aim to benefit policyholders through better pricing
as insurers are expected to cut expenses and pass benefits to customers.
Conclusion
• However, experts are cautioning that this could lead to the mis-selling of policies
as insurers will revise annual targets for agents upwards.

• The penetration rate is helpful in understanding the growth of the insurance sector
in India. Penetration rate can be defined as the ratio of premiums underwritten in a
particular year to GDP.

• Economic survey 2022-23 noted the growth of the insurance sector in India but it is
not growing at a faster rate since most policyholders select savings-based products.

• The economic survey also noted that the penetration rate was 4.2% in 2021 when
compared to 2.7% in 2000.