Insurance Regulation and Compliance
Insurance Regulation and Compliance
This domain examines the statutory architecture regulating insurers, intermediaries and market conduct in India, and how compliance obligations translate into day-to-day controls. Questions typically test the source of a rule, the regulator's powers and the consequence of breach.
Statutory framework
The Insurance Act, 1938 remains the primary statute for registration, capital, solvency, accounts and returns. The IRDA Act, 1999 created the Insurance Regulatory and Development Authority of India (IRDAI) and gives it power to frame regulations. Both statutes operate together; the 1999 Act did not repeal the 1938 Act. Key compliance areas include:
- Registration and capital: insurers must be registered with IRDAI and maintain the prescribed paid-up capital.
- Solvency: the required solvency ratio is 1.50 (150% of the required solvency margin). Breach triggers notification, a corrective action plan and regulatory restrictions.
- Conduct and intermediation: agents and corporate agents must be licensed; commission and remuneration are regulated; rebating is prohibited.
- Policyholder protection: IRDAI rules require claim decisions within prescribed timelines, written reasons for rejection, and access to grievance redressal and the Insurance Ombudsman under the Insurance Ombudsman Rules, 2017.
- Product filing: products are launched through the file-and-use route, with prescribed disclosures.
- AML/KYC: insurers must verify identity, monitor transactions and report suspicious activity.
Worked example
A general insurer's solvency ratio slips to 1.38. The appointed actuary reports the breach. The insurer must inform IRDAI, submit a corrective action plan and expect restrictions on dividends, expansion or investments until the ratio is restored to 1.50. Declaring a large shareholder dividend before restoration would compound the breach and invite enforcement.
Traps that cost marks
Assuming the 1938 Act was repealed; confusing solvency with liquidity or profitability; treating commission-sharing with unlicensed persons as a minor issue; and ignoring that policyholder-protection timelines run from receipt of the last necessary document.