Regulatory and Statutory Environment (IRDAI and Allied Law)
Domain 8 maps the statutes and regulators that govern insurance in India. Questions test which law applies to which activity and what IRDAI can and cannot do.
Core rules
- The Insurance Regulatory and Development Authority of India Act, 1999 created IRDAI, which licenses insurers and intermediaries, approves products, monitors solvency and protects policyholders.
- The Insurance Act, 1938 supplies core rules on registration, capital, policy terms, nomination, assignment and Section 45. The LIC Act, 1956 and GIC Act, 1972 govern the public-sector insurers.
- The Motor Vehicles Act, 1988 makes third-party motor cover compulsory. The Marine Insurance Act, 1963 governs marine insurance. The Consumer Protection Act, 2019 provides consumer remedies.
- IRDAI-prescribed solvency control level is a solvency ratio of 1.5. Minimum paid-up capital for insurers is ₹100 crore under the Insurance Act. Foreign investment is permitted up to 74%.
- The Insurance Ombudsman machinery provides an alternative grievance remedy under the Insurance Ombudsman Rules, 2017.
Worked example
An insurer has available solvency margin of ₹180 crore and required solvency margin of ₹120 crore. Solvency ratio = 180 ÷ 120 = 1.5, or 150%. This meets the 1.5 control level. Reasoning: the ratio compares available capital to the required margin; a ratio below 1.5 invites regulatory action.
Traps that cost marks
- Saying IRDAI sells or issues policies.
- Treating the Ombudsman as a court.
- Forgetting that third-party motor cover is statutory.
- Mixing the solvency ratio with the capital requirement.