Salient Features of IRDA Act 1999

[Rajkumar Agarwal]

Can you tell me in detail about the Salient features of IRDA (Insurance Regulatory Development Authority) Act 1999?

The Insurance Regulatory Development Authority Act, 1999 marked the stop of government control in the insurance business.

The IRDA Act received the assent of the President of India on 29 December 1999. The IRDA Act has effect on The Insurance Act (1938), The Life Insurance Corporation Act (1956) and The General Insurance Business (Nationalization) Act (1972).

The following are salient features of the IRDA Act (1999):

1. The insurance sector in India is thrown open to the private sector. The 2nd and 3rd 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.

2. An Indian insurance company is a company scheduled under the Companies Act, 1956, in which foreign equity does not exceed 26% of the total equity shareholding, including the equity shareholding of NRIs, FIIs and OCBs.

3. After start of an insurance company, the Indian promoters can hold more than 26% of the total equity holding for a period of 10 years, the balance shares being held by non-promoter Indian shareholders who will not include the equity of the foreign promoters, and the shareholding of NRIs, FIIs and OCBs.

4. After the permissible period of 10 years, excess equity above the prescribed level of 26% is disinvested as per a phased programme to be indicated by IRDA. The Central Government is empower 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 is required.

5. On foreign promoters, the maximum of 26% 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The IRDA Act also provides for the appointment of CoI by the Central Government when the Regulatory Authority is superseded.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.