IRDA[/b]
Liberalization
of the Indian Insurance market was recommended in a report released in 1994 by
the Malhotra Committee (Governor of RBI), indicating that market should be
opened up to private-sector competition, and ultimately, foreign private-sector
competition. It was observed that the level of satisfaction of the customers of
LIC was high. The purposes of the committee are:-
·
To
suggest the structure of insurance industry, to assess the strengths and
weaknesses of insurance companies in terms of meeting their objectives, to have
a variety of insurance products with
high quality service variety and to develop financial resources for
development.
·
To
make recommendations for changing the structure of the insurance industry, for
changing the general policy framework.
·
To
take suggestions to improve the functioning of LIC and GIC.
·
To
make recommendations on regulation and supervision of the insurance sector in India.
·
To
make recommendations on the role and functioning of surveyors, intermediaries.
The
committee made a number of important recommendations:-
·
LIC
should recruit agents carefully and train them accordingly
·
The
committee suggested that the Federation of Insurance Institute, Mumbai should
start new courses for intermediaries.
·
Settlement
of claims should be done without any delay.
·
LIC
and GIC should improve their existing structures (product pricing, systems and
procedures, customer service).
·
Insurance
companies should pay attention to the rural insurance business.
·
The
committee suggested allowing new players in the market.
On
December7, 1999, the government passed IRDA Act; the Act repealed the monopoly
conferred to LIC in 1956 and to GIC in 1972. New licenses were being given to
private companies. IRDA separated out life, non-life and reinsurance insurance
business, which means a company, has to have separate licenses for each line of
business.
FEATURES
OF THE 1999 IRDA ACT
The Insurance Regulatory and
Development Act of 1999 set out “to provide for the establishment of an
Authority to protect the interests of holders of insurance policies, to
regulate, promote and ensure orderly growth of the insurance industry and for
matters connected therewith or incidental there to and further to amend the
Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the General
Insurance Business (Nationalization) Act, 1972.
The Act effectively
reinstituted the Insurance Act of 1938 with (marginal) modifications. Whatever
was not explicitly mentioned in the 1999 Act referred back to the 1938 Act.
LICENSING
The
IRDA Act, 1999, sets out details of registration of an insurance company along
with renewal
Requirements.
The minimum
capital requirement for direct non-life and life insurance business is[/b]
100 crores (i.e.
INR 1 billion).[/b]
The IRDA regulates the entry
and exit of players, capital norms, and maintains a strict watch on the equity
and solvency situation of insurers. Should an application be rejected, the
applicant will have to wait for a minimum of two years to make another
proposal, which will have to be with a new set of promoters and for a different
class of business.
For renewal, it stipulates a fee of one-fifth of one percent of total
gross premiums written direct by an insurer in India during the financial year
proceeding the renewal year.[/b]
It also seeks to give a
detailed background for each of the following key personnel: chief executive,
chief marketing officer, appointed actuary, chief investment officer, chief of
internal audit and chief finance officer. Details of the sales force, activities
in rural business and projected values of each line of business are also
required. Further, the Act sets out the reinsurance requirement for (general)
insurance business.
For all general insurance a
compulsory cession of 20%, regardless of the line of business, to the General
Insurance Corporation (the designated national reinsurer) is stipulated.
Currently, India allows foreign insurers to
enter the market in the form of a joint venture with a local partner, while
holding no more than 26% of the company’s shares. Compared to the other
regional markets, India
has more stringent restrictions on foreign access.
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