Insurance Act, 1938, IRDA Act, 1999 and IRDAI Regulations
Insurance Act, 1938 - the numbers that are tested
- Section 3: registration by IRDAI before carrying on insurance business.
- Section 6: minimum paid-up equity capital ₹100 crore for life, general and reinsurance.
- Section 64VA: solvency margin of at least 1.5 times the required margin.
- Section 64UM: claims above ₹20,000 require a licensed surveyor's report, due within 30 days of appointment.
- Section 41: no rebate of premium or commission, directly or indirectly, as an inducement.
- Section 45: a life policy cannot be called in question after three years, except on the ground of fraud.
- Section 42D: agents must hold a licence. Section 101A: reinsurance with an Indian reinsurer.
IRDA Act, 1999 - the regulator
Section 3 establishes IRDAI; Section 4 sets composition (chairperson, five whole-time and four part-time members); Section 14 lists its duties - to regulate, promote and ensure the orderly growth of insurance and reinsurance; Section 25 creates the Insurance Advisory Committee. Headquarters: Hyderabad.
IRDAI regulations
Product and pricing, investment, assets/liabilities and solvency margin (2016), expenses of management including commission (2023), corporate governance (2016), intermediaries, and grievance redressal.
Worked example
An insurer holds an available solvency margin of ₹120 crore against a required margin of ₹100 crore. The ratio is 1.20, below the 1.5 floor, so the insurer is in breach and must file a correction plan with IRDAI - even though its assets exceed its liabilities.
Traps
- Quoting 2.0 or 1.0 as the solvency ratio.
- Confusing Section 40 (commission) with Section 41 (rebate).
- Saying a policy can never be repudiated after three years - fraud is the exception.
- Assuming the IRDA Act grants registration; the Insurance Act does.