Regulations of Insurance Business
The Regulations of Insurance Business domain examines the legal framework governing insurers and intermediaries: registration, capital, solvency, market conduct, policyholder protection, and grievance redressal. In the Indian context, expect questions on the Insurance Act 1938, the IRDAI Act 1999, and IRDAI regulations.
Core rules
- An insurer must be registered with IRDAI; foreign insurers operate through permitted Indian entities or branches.
- Minimum paid-up capital is prescribed for life, general, and reinsurance businesses.
- Solvency margin compares available assets over liabilities with the required margin; IRDAI commonly requires a ratio of 150%.
- Agents, brokers, and surveyors must be licensed and follow conduct rules.
- Policyholder protections include the free-look period, grievance redressal, and access to the Insurance Ombudsman.
- Investments and financial reporting are regulated to protect solvency and policyholders.
Worked example
A general insurer has an available solvency margin of ₹120 crore and a required solvency margin of ₹100 crore. Solvency ratio = 120/100 = 1.20, or 120%. If the required threshold is 150%, the insurer is below the control level and must submit a corrective plan; it cannot freely declare dividends. Reasoning: the ratio measures capital adequacy, not accounting profit.
Traps
Confusing the solvency ratio with the minimum capital requirement; assuming the Ombudsman can award unlimited amounts; missing free-look or claim-settlement timelines; and treating licensing rules as optional industry guidance.
Key points
- IRDAI registration and capital requirements gate market entry.
- Solvency ratio compares available to required margin; 150% is a key threshold.
- Intermediaries need licences and must follow conduct rules.
- Free-look and Ombudsman protect policyholders.
- Investment and reporting rules constrain insurer finances.