STRUCTURE & FUNCTIONS OF IRDA

Subject: Global Insurance Regulations MFS-405

Submitted to: Mr.P.R.K.Murti Faculty, Masters in Law of Financial Services and Capital Markets

Submitted by: K.Samhitha, Roll no: FS10-017, IInd Year, IInd Semester Masters in Law of Financial Services and Capital Markets

NALSAR University of law

Institute of Insurance and Risk Management

Table of Contents

Topics
Chapter-1 1.1-Introduction 1.2-History of Insurance 1.3-Insurance is Necessary for Economic Prosperity 1.4-A Competitive Insurance Market is in the National Interest 1.5-Regulation should be Adequate 1.6-Regulation should be Minimally Intrusive

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4 4 8 8 10 11

Chapter-2 2.1-Introduction of IRDA 2.2-Expectations from IRDA 13 13

Chapter-3 3.1-Duties, Powers and Functions of IRDA 3.2-Structure of IRDA: 3.3-Establishment and incorporation of authority 3.4-Tenure of office of chairperson and other members 3.5-Removal from office
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15 16 17 17 18

3.6-Chairman selection process 3.7-Advisory committee

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Chapter-4 4.1-Ombudsman 4.2-Appointment of Insurance Ombudsman 4.3-Power of Ombudsman 20 20 21

Chapter-5 Conclusion BIBLIOGRAPHY 22-25 26

Chapter-1 1.1-INTRODUCTION The rationale underlying competition is that market forces are best at allocating resources and at enhancing consumer choice and value. Thus, moves to render markets more competitive should be encouraged, taking into account the level of development of the market and recognizing the necessity for reasonable safeguards to protect the public. In this respect, the WTO Financial Services Agreement marked an important milestone in the evolution toward competitive markets. However, market access alone does not ensure vigorous, fair competition. Regulatory reforms also are needed. The next step toward structuring insurance markets that better serve the interest of each countrys citizens is regulatory reform built on a set of pro-competitive principles designed to ensure competitive, solvent, and fair markets. This report offers such a set of principles that are designed to permit national insurance markets to serve the public interest better. These

principles are not an argument for elimination of regulation. In fact, pro-competitive regulation requires a greater not lesser emphasis on solvency oversight, disclosure and consumer information, and market monitoring. An insurance market structured around these principles will be one in which regulation is adequate, impartial, and minimally intrusive and, importantly, in which the regulatory process is transparent.

1.2-HISTORY OF INSURANCE In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business. An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein , among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

Today there are 24 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 23 life insurance companies operating in the country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the countrys GDP. A well -developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country.

1.3-Insurance is Necessary for Economic Prosperity Financial services generally and insurance in particular are of primordial importance to economic development. The more developed and efficient a countrys insurance market, the greater will be its contribution to economic prosperity. Insurance promotes economic prosperity in seven ways: First, insurance can promote financial stability and reduce anxiety. Second, private insurance can substitute for and complement government security programs. Third, insurance can facilitate trade and commerce. Fourth, insurance can help mobilize national savings. Fifth, insurers can enable risk to be managed more efficiently. Sixth, insurers and reinsurers have economic incentives to help insured reduce losses. Seventh, insurers foster a more efficient allocation of a countrys capital.

1.4-A Competitive Insurance Market is in the National Interest That competitive insurance markets are in the national interest continues to be acknowledged worldwide, although several governments seem tentative. Many governments continue to deny their citizens and businesses access to low-priced, high-quality insurance policies and services. These actions suggest either that (1) regulation exists more to protect established private interests than the overall national interest or (2) policy makers remain skeptical that competitive markets will deliver the benefits to the national economy as suggested above. The report analyzes each of these issues, noting that the interests of private parties often override the greater interest of the public at large to the great detriment of the national economy and citizens. All insurance markets have imperfections that justify some level of government intervention. The report analyzes two classes of such problems, noting that information problems for

insurance customers and attempts by competitors to gain market power warrant meaningful regulatory oversight to ensure solvent, competitive markets.

Insurance Regulatory Approaches Vary Greatly It is possible to distinguish three fundamental types of government intervention in insurance. One approach emphasizes competitive markets and minimal intrusion with respect to market forces and insurers decisions. The second approach relies on more restrictive regulation of market forces and the partial or complete sheltering of private insurers from competition. Countries that delegate the provision of insurance to the government fall into the third category. Each of these systems faces a particular set of issues in restructuring markets and regulatory systems to be more competitive in the national interest. The report offers a brief examination of six countries insurance regulatory structures, to illustrate how the various areas of regulatory policy come together.

The Path towards Competitive, Solvent Insurance Markets In todays globally competitive financial services world, the nature and specific features of each governments intervention into its market should be reassessed to ensure that every aspect is essential and is accomplishing its goal at minimum market disruption. The most common rationale for government intervention into insurance markets is to protect buyers in economic terms, to rectify market imperfections. To do this, insurance regulation should seek to ensure that quality, reasonably-priced products are available from reliable insurers. A well-structured competitive market will ensure that the quality, reasonable-pricing, and availability goals are attained. Hence, an important role of government is to promote fair competition to achieve these goals, while protecting buyers from misleading, collusive, and other anti-competitive practices. At the same time, arguably the most important governmental role is to ensure that insurers are reliable.

To promote these twin goals of having a competitive and solvent insurance market, insurance regulation should have the following traits: Adequacy Impartiality Minimal intrusiveness Transparency 1.5-Regulation Should be Adequate Regulation should be adequate, meaning that it should be sufficient to rectify significant market imperfections and, thereby, protect the public. Several principles of adequacy follow. Competition Law. To establish an adequate system of regulation, governments must, first,

have necessary laws and regulations in place that create the framework for a competitive market. Our first principle, therefore, is that: Governments should enact and enforce laws that provide an effective framework for competitive insurance markets. Prudential Regulation. Laws and regulations should address all relevant aspects of insurer operations, from creation to liquidation. The most essential component relates to prudential regulation, which brings us to the next principle related to adequacy of regulation: Governments should enact and enforce laws that establish reasonable solvency standards and regulation as the primary means of protecting the public. Resolving the problems of financial difficulties for existing insurers should be a priority. Thus, our next principle would lead to the creation of appropriate and consistent ways of dealing with insurers that incur financial difficulties. As a part of reasonable solvency regulation, governments should establish, make public, and enforce appropriate and consistent rules and procedures for identifying and dealing with financially troubled insurers. Regulatory Effectiveness. The next step to ensure adequate regulation in a competitive market involves creating an independent regulatory agency with sufficient resources to enforce laws and regulations efficiently, effectively, and impartially. Governments should establish an insurance

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regulatory agency that operates in the national interest and has sufficient resources to efficiently, effectively, and impartially enforce the nations insurance laws and regulations. Phased-In Liberalization. Observers correctly note that insurance regulatory oversight in many emerging market-economy countries may not be sufficiently attuned to protecting consumers in a liberalized, competitive market. They may need to enhance prudential supervision, competition regulation, and market-conduct regulation as they deregulate and liberalize their insurance markets. At the same time, the movement from a restrictive to a competitive market does not take place overnight, which brings us to our next principle. Governments should develop and implement pro-competitive insurance regulation in a way and at a pace that ensures adequate protection of the public but that proceeds without undue delay and is subject to a reasonable implementation timetable. Regulation Should be Impartial The principle of impartiality is fundamental to a competitive market. It means that governments should accord no competitor or group of competitors more favorable treatment than that extended to other competitors or groups of competitors. Thus, our next pro-competitive

regulatory principle is that: Governments should ensure that insurance regulation and enforcement are applied with consistency and impartiality between competitors, irrespective of the nationality. 1.6-Regulation Should be Minimally Intrusive The Limits of Regulation. A government will have multiple ways of rectifying each

imperfection that it identifies. However, some means will prove far more disruptive to the competitive market than others. In selecting among its many alternatives, governments should select those that accomplish the purpose at minimal disruption to the smooth functioning of their insurance markets. Thus, an important pro-competitive principle is that: Insurance regulation should be limited to that which is (1) justified as providing meaningful protection and (2) minimally intrusive to accomplish its purpose.

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Distribution and Product Regulation. Restrictive markets usually adopt a philosophy that insurers may do only that which is expressly authorized. Such regulation can ensure a stable market, but such markets are rarely innovative, typically offer high-priced insurance, and provide comparatively limited consumer choice and value, as noted throughout this report.Thus, consistent with the minimally intrusive standard, the next principle is: Subject only to that regulatory oversight essential to protect the public, governments should allow the market to determine (1) what financial services products should be developed and sold, (2) the methods by which they are to be sold, and (3) the prices at which they will be sold Disclosure and Consumer Information. When a government moves from a restrictive

regulatory system to greater reliance on competition, some consumer protection functions shift from the government to consumers themselves. Government should ensure that insurance buyers understand that such a fundamental shift has taken place. Government should ensure that customers have access to sufficient information to be able to make informed purchase decisions and protect their own interests. This brings us to our next principle: Governments should ensure that insurance customers have access to information sufficient to enable them to make informed, independent judgments as to (1) an insurers financial condition and (2) the benefits and value of its products. The Regulatory Process Should be Transparent Transparency in the regulatory process is fundamental to ensuring a competitive market. This brings us to one of the most important pro-competitive principles: Governments should make existing insurance laws and regulations easily available to the public, including to consumers and businesses and to insurers and other financial services providers. Another dimension of the transparency principle applies to proposed laws and regulations. This dimension requires that all interested parties have the opportunity to know about and to comment on proposed regulations and that methods to challenge regulatory decisions be available.

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Chapter-2 2.1-Introduction of IRDA The IRDA (Insurance Regulatory and Development Authority) is the national regulatory body for Insurance industry (both Life and Non-Life Insurance Companies) under the auspices of Government of India, situated at Hyderabad. IRDA was established by an act enacted in Indian Parliament known as IRDA Act 1999 and was amended in 2002 to incorporate some emerging requirements as well as to overcome some deficiencies in the entire process. Mission of IRDA a) To protect the interests of the policyholders b) To promote, regulate and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto c) Conduction of insurance businesses across India in an ethical manner.

2.2-Expectations from IRDA The law of India has following expectations from IRDA... To protect the interest of and secure fair treatment to policyholders. To bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy. To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates. To ensure that insurance customers receive precise, clear and correct information about products and services and make them aware of their responsibilities and duties in this regard.

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To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery. To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players. To ensure that insurance customers receive precise, clear and correct information about products and services and make them aware of their responsibilities and duties in this regard. To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery. To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players. To take action where such standards are inadequate or ineffectively enforced. To bring about optimum amount of self-regulation in day to day working of the industry consistent with the requirements of prudential regulation.

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Chapter-3 3.1-DUTIES, POWERS AND FUNCTIONS OF IRDA Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA 1. 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. 2. 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 policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; 3. specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents; 4. specifying the code of conduct for surveyors and loss assessors; 5. promoting efficiency in the conduct of insurance business; 6. promoting and regulating professional organizations connected with the insurance and re-insurance business; 7. levying fees and other charges for carrying out the purposes of this Act; 8. calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organizations connected with the insurance business; 9. 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 (4 of 1938);

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10. 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; 11. regulating investment of funds by insurance companies; 12. regulating maintenance of margin of solvency; 13. adjudication of disputes between insurers and intermediaries or insurance intermediaries; 14. supervising the functioning of the Tariff Advisory Committee; 15. specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause (f); 16. specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and 17. exercising such other powers as may be prescribed from time to time,

3.2-STRUCTURE OF IRDA:

As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority (IRDA, which was constituted by an act of parliament) specify the composition of Authority

The Authority is a ten member team consisting of a) A Chairman; b) Five whole-time members; c) Four part-time members,

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(all appointed by the Government of India)

3.3-Establishment and incorporation of authority (1) With effect from such date as the Central Government may, by notification, appoint, there shall be established, for the purposes of this Act, an Authority to be called "the Insurance Regulatory and Development Authority". (2) The Authority shall be a body corporate by the name aforesaid having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property, both movable and immovable, and to contract and shall, by the said name, sue or be sued. (3) The head office of the Authority shall be at such place as the Central Government may decide from time to time. (4) The Authority may establish offices at other places in India. 3.4-Tenure of office of chairperson and other members (1) The Chairperson and every other whole-time member shall hold office for a term of five years from the date on which he enters upon his office and shall be eligible for reappointment: Provided that no person shall hold office as a Chairperson after he has attained the age of sixty-five years: Provided further that no person shall hold office as a whole-time member after he has attained the age of sixty-two years. (2) A part-time member shall hold office for a term not exceeding five years from the date on which he enters upon his office.

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(3) Notwithstanding anything contained in sub-section (1) or sub-section (2), a member may (a) relinquish his office by giving in writing to the Central Government notice of not less than three months; or (b) be removed from his office in accordance with the provisions of section 3.5-Removal from office (1) The Central Government may remove from office any member who(a) is, or at any time has been, adjudged as an insolvent; or (b) has become physically or mentally incapable of acting as a member; or (c) has been convicted of any offence which, in the opinion of the Central Government, involves moral turpitude; or (d) has acquired such financial or other interest as is likely to affect prejudicially his functions as a member; or (e) has so abused his position as to render his continuation in office detrimental to the public interest. (2) No such member shall be removed under clause (d) or clause (e) of sub-section (1) unless he has been given a reasonable opportunity of being heard in the matter. 3.6-Chairman selection process Government of India has circulated to broad base IRDA chairman selection process. It is felt in the market that placing of retired civil servants as IRDA Chairman has served the purpose of administrative fiefdom of the regulator. Mostly, the regulator has become passive to market realities and most of the original public policy intentions have been systematically replaced by personal preferences. There seems to be no oversight of public policy erosions. Taking

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advantage of the completion of term of current incumbent, there seem to be an attempt to correct the future course but people do not perceive any outcome to result as the market does not seem to throw up candidates of the stature of Howard Davies for Indian market. But a right leadership is the solution to the requirement of this booming market. 3.7-Advisory committee

Is the current Chairman of IRDA. Full-time Members: Currently, they are Mr. K K Srinivasan (Nonlife Member), Sri G Prabhakara (Life Member), Dr R Kannan(Member, Actuary) and Sri R.K. Nair (Member, F & I). There is provision for a panel of other members and part time members. IRDA formed a high powered Insurance Law Reforms Committee known as KPN Committee with important insurance advisors like Mr. N Govardhan and Dr K C Mishra as its members. There were also a few non-advisory committee members like Mr. Liaquat Khan and Mr. T Viswanathan etc.

Full force and utility of various institutions like Advisory Committee and self-regulatory organizations are not yet realized as the regulator seems to be in a long learning mode. Due to over delegations, Individual incumbents decide the pace and extent of utilization of prudential and statutory bodies. Research is limited to opinion seeking through legacy channels. Market waits for revision of insurance act and establishment meaningfully functioning regulatory organs devoid of excess delegation and subjective localization of development agencies. Unlike other Indian administrative Regulatory Agencies IRDA is perceived as a silent regulator with activities confined to its local existence.

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Chapter-4 4.1-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. 4.2-Appointment of Insurance 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. 4.3-Power of Ombudsman Insurance Ombudsman has two types of functions to perform (1) conciliation, (2) Award making. The insurance Ombudsman is empowered to receive and consider complaints in respect of personal lines of insurance from any person who has any grievance against an insurer. The complaint may relate to any grievance against the insurer i.e. (a) any partial or total repudiation of claims by the insurance companies, (b) any dispute regarding premium paid or payable, (c) dispute on legal construction of policy wordings in case such disputes relate to claims, (d) delay in settlement of claims

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& (e) non-issue of any insurance document. Ombudsman powers are restricted to insurance contracts of value not exceeding 20 lakhs. The insurance companies are required to comply with the awards passed by the Ombudsman within 3 months.

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Chapter-5 CONCLUSION

IRDA needs to improve the distribution and design of products as well as enhance communication within the sector Since the entry of private sector, the Indian insurance sector has changed dramatically to offer a variety of insurance solutions through a distribution network spread across the country. The Insurance Regulatory and Development Authority (Irda) has played an important role in providing direction to the industry. The initial phase of the insurance industry experienced high growth fuelled by a buoyant economy. As the industry moved from its infancy towards maturity, the regulatory architecture played an important role by guiding and steering the industry on the right track. It has helped in building a robust insurance industry and made favourable initiatives to give the industry an additional boost. However, as the industry moved into the second decade, and post the global financial turmoil, the expectations from IRDA changed. This is the phase where the industry can grow exponentially if presented with a favorable policy framework to assist the development of insurance in India. There was an opportunity to develop a roadmap for the industry in consultation with all stakeholders, including insurers and industry bodies. However, in its quest to drive stability and improve systems and processes in the industry, the regulator came out with stringent regulations in quick succession over the last few years that have had a negative impact on the growth of the insurance sector. Distribution:

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Insurance is sold through a consultative sales process. Agency distribution is one of the main channels for insurers and best suited not only to provide reach but also the customised solutions based on a comprehensive need assessment. The regulator has taken some positive steps to define the role of agent advisors not just as distributors but also the advisors through the full tenure of the policy by implementing guidelines on a minimum persistency ratio to be maintained by each agent. Even the discussion draft on orphan policies management aims to ensure continued service to policyholders. The exposure draft on need-based selling is another attempt by the regulator in the correct direction towards curbing mis-selling. Along with these efforts, it is important to create a professional agent force and attract the right talent. There are many agents who operate part-time and leave the profession within the first two years and are under-productive. On the other hand, there are professional agents who earn their living only through this profession. Such professional agents need to be encouraged. There could be more talent drawn to the industry if it can be given a corporate structure by segmenting agents on the basis of their performance. Also, qualified professionals such as CA, CFP, ICWA, etc, can be allowed auto-enrollment to become an insurance agent. At a time when the insurance industry is facing agent attrition, all these measures by the regulator will help recruit better talent for the industry. Corporate agents should be treated differently from retail individual agents because corporate agents not only help reduce the distribution expenses, they also act as bankers, a group policyholder and even a shareholder in some cases. Also, in a relatively new market for insurance, the role of alternate channels should not be undermined as it brings readily available distribution networks to enhance reach. Though the initial costs are high for these channels, over time through economies of scale, corporate agents would bring down costs and the benefits of that will ultimately flow to policyholders. Bancassurance is another critical distribution channel that has gained significance, especially over the last few years. Banks with an existing branch network can help enhance insurance ownership in low penetration areas. The proposed open architecture system puts zonal restrictions on primary bancassurance relationships. This proposal does not provide incremental reach or product options to customers and at the same time creates execution challenges in terms of training and consistency of customer experience.
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Liberalisation of the bancassurance sector in a phased manner and optimising the architecture to improve penetration and growth from a long-term perspective could be significant for the future of the bancassurance channel. Product design: Over the past couple of years, the lifeline of the insurance sectorproductshave been the worst hit. Frequent changes in product designs have led to a negative growth trend for the industry. Ideally, IRDA should put in place a broad framework for product design, in consultation with insurers and shift to a use and file regime. The Appointed Actuary and the CEO of each life insurance company could be made responsible to certify that the product design is within the framework. This change will not only make the product approval process easy, it will provide an impetus to product novelty, resulting in better distributors interest as they will be able to offer innovative products based on their customers needs. The new pension regulation mandates capital guarantees both on maturity and on the surrender of policy. This restricts the freedom to invest in equities that as per all empirical studies provide best returns on investment over the long-term. It is imperative that the capital guarantee at the time of surrender should be done away with to provide the true benefit of pension plans. Governance framework: In any relationship, communication is the most important factor for long term association. Both insurers and the regulator should have a constructive engagement on a regular basis for the development of the insurance sector in India. Ultimately, the goals for both of them are the sameto see a thriving insurance industry that serves customers. It may be easier to achieve this by conducting various regulatory working groups under the Life Insurance Council, General Insurance Council and specialist representatives from IRDA could participate in these groups. This will reduce gaps in understanding between the regulator and regulated entities, thus helping in creating a mutual and acceptable regulatory regime. Insurance is a business that makes long-term assumptions. It takes a few years before these assumptions are evaluated against experience and adopted for revision in pricing. Frequent regulatory changes made the long-term assumptions and capital investments infructuous. As a
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result, most insurance companies spend their time and energy on customising their processes and systems to the new regulations. A well laid-out governance structure will help IRDA regularly interact with industry representatives. What IRDA, in consultation with industry bodies, can do is create a regulatory roadmap for the next 3-5 years and provide an adequate time-frame for implementation of any regulation. It can move to a principle based regulatory regime from the current rule-based regulatory framework. And this agenda of self-regulation can be driven by the LIC & GIC. IRDA should also play a more proactive role in protecting industry interests in policy decisions and in the implementation of rules and regulations framed by the government. A case in point is the new tax exemption eligibility condition under section 80C and 10(10D), which has been revised from the previous sum assured to a multiple of 5 times to 10 times. While this is consistent with the life insurance industrys thought, it is a substantial change to be implemented in such a short timeframe. This provision has lost its significance as IRDA has already taken care of this issue to a great extent through a minimum tenure and lock-in period for life insurance plans. This provision almost excludes older people from life insurance benefit as the policy tenure will have to be increased to create viable products. A proactive discussion between the ministry of finance and IRDA could have helped solve the issue. The insurance industry is continuing in its efforts towards making profitable growth. That too, at a time when the global and domestic economic situation is volatile. The insurers would need some reassurance from the regulator and together they can drive the agenda of both protecting the consumers and driving the growth of the industry. Shareholders, who have invested almost R33,000 crore of capital, deserve to get decent returns on their investment. Catering to the needs of the customers should be the topmost priority; however, it is time for a favorable regulatory environment to enable equitable distribution of financial outcomes amongst all stakeholders.

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BIBLIOGRAPHY

1. http://www.financialexpress.com/news/regulating-insurance-for-growth/947546/0 2. http://www.myinsuranceclub.com/glossary/irda 3. http://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo101 4. http://en.wikipedia.org/wiki/Insurance_Regulatory_and_Development_Authority 5. http://www.medindia.net/patients/insurance/insurance-concepts-and-irda-duties-powerfunction.htm

6. http://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo233&mid=7.1

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