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Independent Regulatory Body – IRDAI

Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry.
IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions:

Company is formed and registered under the Companies Act, 1956

  • The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company.
  • The company's sole purpose is to carry on life insurance business or general insurance business or reinsurance business.
  • The minimum paid up equity capital for life or general insurance business is Rs.100 crores.
  • The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores.
The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders' interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. The Authority has its Head Quarter at Hyderabad.

India Insurance Policies at a Glance

Indian insurance companies offer a comprehensive range of insurance plans, a range that is growing as the economy matures and the wealth of the middle classes increases. The most common types include: term life policies, endowment policies, joint life policies, whole life policies, loan cover term assurance policies, unit-linked insurance plans, group insurance policies, pension plans, and annuities. General insurance plans are also available to cover motor insurance, home insurance, travel insurance and health insurance.
Due to the growing demand for insurance, more and more insurance companies are now emerging in the Indian insurance sector. With the opening up of the economy, several international leaders in the insurance sector are trying to venture into the Indian insurance industry.

Insurance Ombudsman

The institution of Insurance Ombudsman was created by a Government of India Notification dated 11th November, 1998 with the purpose of quick disposal of the grievances of the insured customers and to mitigate their problems involved in redressal of those grievances. This institution is of great importance and relevance for the protection of interests of policy holders and also in building their confidence in the system. The institution has helped to generate and sustain the faith and confidence amongst the consumers and insurers. Appointment of Ombudsman: The governing body of insurance council issues orders of appointment of the insurance Ombudsman on the recommendations of the committee comprising of Chairman, IRDA, Chairman, LIC, Chairman, GIC and a representative of the Central Government. Insurance council comprises of members of the Life Insurance council and general insurance council formed under Section 40 C of the Insurance Act, 1938. The governing body of insurance council consists of representatives of insurance companies.

Micro Insurance

Micro insurance is the protection of low-income people (those living on between approximately $1 and $4 per day against specific perils in exchange for regular premium payment proportionate to the likelihood and cost of the risks involved. This definition is exactly the same as one might use for regular insurance except for the clearly prescribed target market: low-income people. The target population typically consists of persons ignored by mainstream commercial and social insurance schemes, as well as persons who have not previously had access to appropriate insurance products.

FDI in Insurance

The insurance sector opened up in 2001, with the foreign direct investment ("FDI") limit being set to 26 per cent. According to various reports this sector has subsequently witnessed two phases: one that saw high growth between 2001 and 2010 and the other, a dormant period between 2010 and 2012. However, apart from these periods of rapid and moderate growth, the industry has also seen product and operational innovations, given the increase in competition.
The future of the insurance sector looks optimistic. Taking a reformative step, finance minister had proposed increasing the FDI cap in the insurance sector to 49 per cent. To this effect, in July 2014, the Cabinet Committee on Economic Affairs ("CCEA") approved 49% FDI in insurance, thus green-flagging reforms in the sector. This is a welcome move for the insurance industry which was looking to raise more capital from overseas for quite some time now.

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