Regulation of insurance business
Domain 4: Regulation of insurance business
This domain tests the Indian regulatory framework: the Insurance Act 1938, IRDA Act 1999, LIC Act 1956 and GIC Act 1972, registration, solvency, conduct and policyholder protection.
Core rules
- IRDAI is the regulator; it registers insurers and intermediaries, approves products and sets solvency and investment norms.
- Insurers need minimum paid-up capital; foreign investment is permitted within the prescribed cap, subject to ownership and control conditions.
- Solvency margin is the excess of admitted assets over liabilities, expressed against the required solvency margin; the regulatory minimum is a ratio of 150%.
- Intermediaries include agents, corporate agents, brokers, surveyors and TPAs; each has eligibility, training and conduct requirements.
- Policyholder protection includes free-look, grievance redressal, ombudsman and timely claim settlement.
Worked example
An insurer has a required solvency margin of ₹100 crore and an available solvency margin of ₹130 crore. Its solvency ratio is 130/100 = 130%, which is below the 150% minimum. The insurer must infuse capital or reduce risk until the ratio reaches 150%. A ratio of 180% would mean available margin of ₹180 crore against the same requirement.
Traps
- Treating the solvency ratio as profit or premium growth.
- Confusing IRDAI with the insurer or the ombudsman.
- Assuming foreign investment changes control automatically.
- Ignoring conduct rules for intermediaries.