Insurance Business Regulation and Compliance
Insurance Business Regulation and Compliance
This domain tests the regulatory framework, licensing, solvency, conduct and compliance obligations that govern insurers and intermediaries.
Core rules (India)
- Statutes: Insurance Act 1938, IRDA Act 1999 and IRDAI regulations. IRDAI is the regulator.
- Registration: insurers need a certificate of registration; minimum paid-up capital is INR 100 crore for life, general and reinsurance.
- Solvency: the solvency ratio is available solvency margin divided by required solvency margin. The control level is 150%; falling below triggers corrective action.
- Intermediaries: agents, brokers, web aggregators, TPAs and corporate agents must be licensed and comply with code of conduct, training and commission rules.
- Products: most products are filed under file-and-use; some categories need prior approval. File-and-use is not the same as prior approval.
- Conduct: fair treatment of customers, disclosure, grievance redressal, Insurance Ombudsman, claim settlement timelines.
- AML/CFT: KYC, customer due diligence, suspicious transaction reporting, record-keeping under PMLA 2002.
- Governance: board responsibilities, key management persons, risk management, outsourcing and reporting.
Worked example
An insurer has available solvency margin of INR 90 crore and required solvency margin of INR 60 crore. Solvency ratio = 90/60 = 1.5 = 150%. This is exactly at the control level, so the insurer must take corrective action and report to IRDAI. At 180% it would be above the control level and compliant, though other risks still need monitoring.
Traps
- Confusing solvency ratio with minimum capital.
- Thinking file-and-use means prior approval.
- Ignoring commission caps and disclosure.
- Treating the Ombudsman as a court of law.
- Missing AML obligations for intermediaries, not just insurers.