1. Insurance Laws (Amendment) Act, 2015

The latest Amendment Act of Insurance Laws, 2015 sought to amend the Insurance Act, 1938, The General Insurance Business (Nationalization) Act, 1972 and the Insurance Regulatory and Development Authority Act, 1999.  It was the first major amendment in the Indian Insurance Laws since the enactment of the IRDA Act, 1999.

1.1. The prolonged Amendment

The Insurance Laws Amendment bill which sought to increase FDI from 26% to 49% among other reforms was first put forth by the UPA in the year 2004, but could not be passed due to strong opposition. The coalition government led by Congress in the year pushed for the amendment again in 2008; however a committee on finance which was led by Yashwant Sinha shot the bill down by recommending against the proposed reforms.

In the year 2012, the erstwhile UPA cabinet gave its assent to the bill, and in 2014, the successor government led by BJP referred the same to a committee headed by Chandan Mitra. In 2015, the Union Cabinet gave its assent to the proposed amendments in light of the recommendations made by the committee, and an ordinance was issued to this effect, as the parliament was not in session. Later in 2015, the old bill (without the recommendations) was withdrawn by the Rajya Sabha and the new bill was passed. [1]

1.2. Effect of the 2015 Amendment with specific reference to IRDA

IRDA is the controlling authority of insurances in India. It carries out the various functions in the furtherance of the positive duties obligated under the IRDA Act, 1999 and the Insurance Act, 1938. Thus, the Amendment Act is bound to impact the IRDA. The enactment of 2015 establishes authority as u/s 3 of the Amendment Act, by substituting section1 (A) of the Insurance Act, 1938 as:

(1A) ”Authority” means the Insurance Regulatory and Development Authority of India established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999.[2]

The Amendment Act has 165 separate mentions of the word “authority”, which echoes the assertion made by the researchers that, the enactment vastly discusses the relevance of IRDA in the insurance industry.

Apart from the key amendments like increasing the extent of foreign direct investment from 26% to 49%, the amendment brought about the following key changes:

  1. It mandated that the properties in India not to be insured with foreign insurers except with the permission of Authority, (in place of the central government) failing which a penalty upto 5 crore rupees may be imposed.
  2. The amendment provided that the Authority may withhold the registration already made in favor of an insurance company if it is satisfied that in the country in which such person has been debarred by law or practice of that country to carry on insurance business.
  3. The amendment provided for various instances which could enable the authority to cancel the registration of an insurer wholly or in part, which included insolvency, non-compliance of regulations and laws under the Insurance Act.
  4. The amended Law has several provisions for levying higher penalties ranging from up to Rs.1 Crore to Rs.25 Crore for various violations including mis-selling and misrepresentation by agents / insurance companies.[3]
  5. The amendment further provides for any insurer or the insurance intermediary aggrieved by any order of the IRDA to prefer an appeal to the Securities Appellate Tribunal (SAT).

Apart from these provisions, the amendment generally empowers the IRDA, as it expands the powers of the regulator and makes its exercise very flexible, and while doing the same; it increases the reach of the insurance industry, which reflects in terms of increased insurance penetration. Since the amendment in the year 2014, the insurance penetration (as % of GDP) has increased from 3.3 to 3.44 in 2015, to 3.49 in 2016 and 3.69 in 2017.[4]

2. Other Initiatives by the IRDA and their Benefits

Since October, 2016 IRDA has mandated E-insurance account to purchase insurances, the same is expected to decrease the cost by 15-20% for life insurance and 20-30% for non-life insurance.[5]

In April 2017, IRDA started a web portal isnp.irda.gov.in that allows the insurers to sell and register policies online. This portal is open to intermediaries in insurance business also; the same is expected to boost the economics of the industry furthermore.

IRDA recently allowed life insurance companies that have completed 10 years of operations to raise capital through Initial Public Offerings (IPOs). Companies will be able to raise capital if they have embedded value of twice the paid-up equity capital. Insurance sector companies in India raised around Rs 434.3 billion (US$ 6.7 billion) through public issues in 2017 alone.[6]

3. IRDA and the Insurance Ombudsman Regulations, 2017

3.1. Functioning of the Insurance Ombudsman under the Regulations

The Central government notified the latest Insurance Ombudsman Regulations in furtherance of the S.24 of the IRDA Act, 1999 and the Redressal of Public Grievances Rules, 1998. The new rules strengthen the position of the Insurance Ombudsman in the Indian Insurance Sector. The powers derived by the ombudsman through the duties and functions enlisted for him under Rule 12 talk about how he is to receive and consider complaints or disputes relating to the delay in settlements of claims, repudiation of policies, disputes over premium paid/payable, the legal construction of contracts of insurance etc.

Rule 12(2) provides that the ombudsman shall act as a counsellor and mediator relating to the aforementioned contingent on the consent of the parties. The Central Government or as the case may be, the IRDAI may, at any time refer any complaint or dispute relating to insurance matters specified.

3.2. Accountability of the Insurance Ombudsman

Now, since the Insurance Ombudsman are entrusted with such great extent (they can award compensation upto 30 Lakhs of Rupees)[7] there must be an element of accountability on these officials, the onus to ensure the same is on the IRDA.

The executive council of insurers is provided for by the Rules, the same is entrusted to control and facilitate the office of the Insurance Ombudsman. The council while is to help with the functioning of the office of the ombudsman, it is also under a positive obligation to inquire into allegations levelled against the ombudsman, provide the ombudsman to make a representation and then forward the inquiry report and the representation of the ombudsman to the IRDA.

The IRDA is under an obligation to decide upon the action to be taken, if any against the insurance ombudsman, and even effect the removal of the ombudsman. IRDA can further inquire suo moto in the functioning of the Insurance Ombudsman and order the executive council of insurers to initiate proceedings and then act.[8]

The IRDA is to be further submitted by the Insurance ombudsman a statement of accounts and any other relevant information and submit to the Executive Council of Insurers with a copy to the IRDAI by the 30th June annually. Further the executive council is also under an obligation to furnish a report with the general view of the performance of the Insurance Ombudsman before IRDA post 30th June and before 30th September annually. IRDA shall consider these reports and take steps as it deems necessary.

Further, an advisory committee of five eminent persons (including one central government nominee) to review the performance of the Insurance Ombudsman is to be constituted by the IRDA, which shall submit its report to the IRDA.

4. Conclusion

The Insurance Regulatory and Development Authority while is the controlling authority of the insurance markets in India, while it has certainly done a lot to regulate the insurance sector, the aspect of development has been conveniently side-lined. The initiatives like the e-insurances and the insurance ombudsmen have been excellently drafted, but not implemented that greatly.

Further, despite the various grants and sanctions from the union government for the insurance sector, the insurance watchdog has very casually left the execution to the various governments without much vigilance.

The failure in speedy disposal of the various disputes before the authority has created deterrent effect of sorts among investors in the markets. The lack of insurance ombudsmen is further of urgent attention, as these officials are the sentinels of the public.

IRDA has however been a greatly successful regulator in the Indian market, the level of transparency in the policy making and the availability of the insurance data in the public domain has increased exponentially over recent times. The digitalization initiative in itself has increased people’s access and has made IRDA much more accountable.

5. Recommendations

The researchers propose the following recommendations to ensure a better insurance sector in the country:

  1. The vacancies in the Insurance regulators and the ombudsmen offices should be regularly filled up.
  2. Stringent penalties for breach of duty shall be imposed on the authority by way of amendments in the Act.
  3. A process must be incorporated by way of a legislation to facilitate the dispute redressal initiated by the companies.
  4. The authority must create a portal for the luminaries and other academicians to upload their recommendations.
  5. IRDA should organize awareness drives to empower the policy holders and the potential policy holders through discourses on their rights.

[1] Insurance Laws (Amendment) Act, 2015.

[2] S.3, The Insurance Laws (Amendment) Act, 2015.

[3] Ss. 4, 53, 63, 88, The Insurance Laws (Amendment) Act, 2015.

[4] Swiss Re Institute, Increasing Penetration and Density of Insurance Over the Years, http://www.ibef.org (accessed on 29th September, 2018).

[5] Aranca Research, Insurance, July 2018.

[6] IRDA, Annual report, 2018.

[7] Rule 17, Insurance Ombudsman Rules, 2017.

[8] Rule 9, Insurance Ombudsman Rules, 2017.

This article has been authored by Anurag Shankar Prasad.