IRDAI & Types of Insurance

Insurance is a critical component of India's financial system, providing risk mitigation for individuals, families, and businesses. The Insurance Regulatory and Development Authority of India (IRDAI) is the apex body governing this sector. For JAIIB candidates, understanding the insurance regulatory framework, types of insurance products, and government insurance schemes is essential, especially given the growing role of bancassurance in banking operations.

• Regulates the insurance industry
• Protects policyholders' interests
• Frames rules and regulations under Section 114A of the Insurance Act, 1938
• Grants certificate of registration to new insurance companies
• Oversees industry activities for sustained development
• Provides solutions for disputes through the IRDA Ombudsman
• Controls and regulates rates of insurance to prevent unwanted premium hikes
• Sets minimum percentage limits for General and Life Insurance, developing both urban and rural sectors

Registration:

• Every insurer must obtain a Certificate of Registration from the Controller of Insurance
• Registration must be renewed annually

Accounts and Audit:

• Maintain separate accounts for each class (Fire, Marine, Miscellaneous)
• Required documents: Cover notes, policies, premiums, endorsements, bank guarantees, claims register, agency register, cash books, reinsurance details

Total insurers in operation: 68

• Public sector: 8 (including ECGC, AIC, LIC, 4 general insurers, GIC Re)
• Private sector: 60 (23 life, 21 general, 6 standalone health, 10 reinsurers including foreign reinsurers and Lloyd's India)

Paid-up Value: After premiums are paid for a defined period, if subsequent premiums are not paid, the sum assured is reduced to a proportionate amount.

• Covers transits by water, air, road, rail, registered post, courier, or combination
• Covers interest in the cargo and third-party interests upon transfer of ownership
• Salvage: Partly damaged goods or wreck of property settled on Total Loss basis

If sum insured is not adequate, the policy pays only proportionate loss. Property must be correctly valued to avoid under-insurance.

• Provides life cover to multiple persons under a single policy called the Master Policy
• Low cost due to savings in administrative and medical examination expenses
• Special features regarding selection and underwriting of lives

• Effective from 2005
• Accepted as an essential ingredient of financial inclusion packages
• Micro-insurance policy: General or life insurance with a sum assured of Rs. 50,000 or less
• General micro-insurance products include: health insurance, belongings (huts, livestock), tools, instruments, personal accident contracts
• In addition to obligations for rural and social sector business by all insurers

Bancassurance is the selling of insurance products through banking channels, leveraging the extensive branch network of banks.

Under the RBI Act, Chapter III-E covers matters where multiple regulators (RBI, SEBI, IRDAI, PFRDA) have jurisdiction. Section 45Y states that differences of opinion on hybrid or composite instruments shall be referred to a Joint Committee with representatives from Government, RBI, SEBI, IRDA, and PFRDA.

1. R.N. Malhotra Committee (1994) recommended opening insurance to private participation, leading to IRDA Act 1999
2. Insurance Act, 1938 is the foundational legislation; Section 114A empowers IRDAI to frame rules
3. Insurance registration must be renewed annually
4. Total insurers: 68 (8 public, 60 private); GIC Re is the sole public sector reinsurer
5. PMJJBY: Age 18-50, premium Rs. 436/year, coverage Rs. 2 lakhs (life insurance)
6. PMSBY: Age 18-70, premium Rs. 20/year, coverage Rs. 2 lakhs accidental death (accident insurance)
7. Micro insurance: Sum assured Rs. 50,000 or less; IRDAI regulations effective from 2005
8. Health insurance tax benefit under Section 80D (separate from 80C for life insurance)
9. Marine cargo insurance covers all transit modes including combinations
10. Salvage = partly damaged goods settled on Total Loss basis
11. Group insurance uses a Master Policy for lower costs
12. Bancassurance = selling insurance through banking channels