Regulations of Insurance Business
Regulations of Insurance Business
This domain tests the legal framework within which Indian life insurers operate: the IRDAI Act, 1999, the Insurance Act, 1938, licensing, capital and solvency, conduct rules, commissions, grievance redressal and anti-money-laundering controls.
Core rules
- Regulator: IRDAI was established under the IRDAI Act, 1999 to regulate, promote and ensure orderly growth of the insurance sector. It licenses insurers, intermediaries and agents and issues regulations and master circulars.
- Capital and solvency: a life insurer needs minimum paid-up capital of ₹100 crore. It must maintain a solvency margin of 150% of the required solvency margin under Section 64VA of the Insurance Act, 1938, and report regularly.
- Conduct: rebating is prohibited under Section 41; commissions are payable only to licensed intermediaries within prescribed limits. KYC and AML/CFT requirements apply at onboarding and on payouts.
- Policyholder protection: insurers must maintain grievance redressal systems; unresolved complaints can go to the Insurance Ombudsman. Free-look, claim timelines and disclosure requirements are prescribed.
Worked example
An insurer reports available solvency margin of ₹180 crore and required solvency margin of ₹100 crore. Its solvency ratio is 180/100 = 180%, above the 150% minimum, so it is compliant. If available margin fell to ₹140 crore, the ratio would be 140%, a breach; the insurer would need a corrective action plan and could face investment or business restrictions. The key is that 150% is applied to the required margin, not to total liabilities.
Traps that cost marks
- Mixing minimum capital (₹100 crore) with the solvency ratio (150%).
- Treating the solvency ratio as available assets divided by total liabilities.
- Forgetting that rebating is a statutory offence, not a sales discount.
- Assuming a corporate agent and a broker have the same legal role.