The
Insurance Regulatory Development Authority Act, 1999 marked the end of
government monopoly in the insurance business. The IRDA Act received the assent
of the President of India on 29 December 1999. The IRDA Act has ramifications
on The Insurance Act (1938), The Life Insurance Corporation Act (1956) and The
General Insurance Business(Nationalisation) Act (1972).
The
following are salient features of the IRDA Act (1999):
- The insurance sector
in India has been thrown open to the private sector. The second and third
schedules of the Act provide for removal of existing corporations (or
companies) to carry out the business of life and general (non-life)
insurance in India.
- An Indian insurance
company is a company registered under the Companies Act, 1956, in which
foreign equity does not exceed 26 per cent of the total equity
shareholding, including the equity shareholding of NRIs, FIIs and OCBs.
- After commencement of
an insurance company, the Indian promoters can hold more than 26 per cent
of the total equity holding for a period of ten years, the balance shares
being held by non-promoter Indian shareholders which will not include the
equity of the foreign promoters, and the shareholding of NRIs, FIIs and
OCBs.
- After the permissible
period of ten years, excess equity above the prescribed level of 26 per
cent will be disinvested as per a phased programme to be indicated by
IRDA. The Central Government is empowered to extend the period of ten
years in individual cases and also to provide for higher ceiling on share
holding of Indian promoters in excess of which disinvestment will be
required.
- On foreign promoters,
the maximum of 26 per cent will always be operational. They will thus be
unable to hold any equity beyond this ceiling at any stage.
- The Act gives
statutory status for the Interim Insurance Regulatory Authority (IRA) set
up by the Central Government through a Resolution passed in January 1996.
- All the powers
presently exercised under the Insurance Act, 1938, by the Controller of
Insurance (CoI) will be transferred to the IRDA.
- The IRDA Act also
provides for the appointment of CoI by the Central Government when the
Regulatory Authority is superseded.
- The minimum amount of
paid-up equity capital is Rs.100 crore in case of life insurance as well
as general insurance, and Rs.200 crore in the case of re-insurance.
- Solvency margin
(excess of assets over liabilities) is fixed at not less than Rs.50 crore
for life as well as general insurance; for reinsurance solvency margin is
stipulated at not less than Rs.100 crore in each case.
- Insurance companies
will deposit Rs.10 crore as security deposit before starting their
business.
- In the non-life
sector, IRDA would give preference to companies providing health
insurance.
- Safeguards for policy
holders’ funds include specific provision prohibiting investment of policy
holders’ funds outside India and provision for investment of funds in
accordance with policy directions of IRDA, including social and
infrastructure investments.
- Every insurer shall
provide life insurance or general insurance policies (including insurance
for crops) to the persons residing in the rural sector, workers in the unorganized
or informal sector or for economically vulnerable or backward classes of
the society and other categories of persons as may be specified by
regulations made by IRDA.
- Failure to fulfill
the social obligations would attract a fine of Rs.25 lakh; in case the
obligations are still not fulfilled, licence would be cancelled.
Key to abbreviations:
IRDA: Insurance Regulatory Development Authority
NRI: Non-Resident Indian
FII : Foreign Institutional Investor
OCB: Overseas Corporate Body