Following are the salient features of the Act:
1. Act to Establish the Regulatory Authority
The preamble of the Act states that it is, “An Act, to provide for the establishment of an authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the Insurance Industry and for matters connected there with or incidental thereto.” It is clear from the preamble that the Act is to establish authority which will:
Protect the interests of holders of insurance policies;
Regulate, promote and ensure orderly growth of Insurance Industry;
and other matters which may be connected with or incidental to the above mentioned purposes.
Section 3 of the Act, ,provides that the authorities shall be a Body Corporate with the name “The Insurance Regulatory Authority”. It also provides that it , shall have the perpetual’ succession and a common seal. Subject to the Act, it shall have the power to acquire, hold and dispose of the property both movable and immovable. It shall have contractual authority as well as power to sue and be sued.
2. Composition of Authority
Section 4 of the Act, lays down the Composition of the Authority to be as follows:
The Authority shall consist of the following members, namely:
a Chairperson; ,
not more than five whole-time members;
not more than four part-time members;
to be appointed by the Central Government from amongst persons of ability, integrity and standing who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration or any other discipline which would, in the opinion of the (Zentral Government, be useful to the Authority.
Provided that the Central Government shall, while appointing the Chairperson and the whole-time members, ensure that at least one person each is a person having knowledge or experince in life insurance, general insurance or actuarial science, respectively.
The Chairman and every other whole time member shall hold an office for a term of five years from the date of his joining and shall be eligible for reappointment. The age of retirement for whole time members is sixty two years and for the Chairperson sixty five years. Similarly, there can be part time members.
The Chairman and the whole time members are barred from taking up an employment within two years from leaving the office under Central Govt., State Govt. or an insurance company except with the approval of the Central Govt.
3. Insurance Advisory Committee
Section 25 of the Act provides that an Insurance Advisory Committee consisting of not more than twenty five members (including ex-officio) wilt be constituted. The members will represent the interest of commerce, industry, transport, agriculture, consumer forum, surveyers, agents, inter -mediaries, organisations engaged in safety and loss prevention, research bodies and employees’ association of the Insurance sector. The Chairperson and the members of the Authority shall be ex officio members of the committee.
The Authority in consultation with the committee can make regulations to achieve its objectives. In exercise of this authority IRDA has framed a number of regulations. The salient features emerging out of these regulations are discussed in – subsequent parts.
4. Ending the Monopoly of LIC and GIC
Section 30, 31, & 32 of the IRDA Act have amended certain provisions of the Insurance Act, 1938, LIC Act of 1956 and the General Insurance Business (Nationalisation) Act, 1972 in line with First, Second and third schedule of the Act.
These amendments have ended the exclusive privilege of LIC, GIC and its subsidiaries to carry on life and general insurance business respectively. Thus, it has allowed the entry of private sector into life and non-life insurance.
5. The Insurance Business opened to Indian Companies Only
The business has been opened to Indian Companies only. The Indian Company for the purpose has been defined by Section 2 of the Insurance Act, 1938, as follows.
An Indian insurance company has been defined in Section 2 as an insurer being a company:
formed and registered under the Companies Act, 1956;
in which the aggregate holdings of equity shares by foreign company either by itself or through its subsidiary companies or nominees do not exceed 26 % of paid up equity share capital of such Indian Insurance Company;
The sole purpose is to carry on life insurance or general insurance or re-insurance business. .
As per Clause 11 of the IRDA (Registration of Indian Insurance Companies) Regulations 2000, the quantum of paid up equity capital held by the foreign company either by itself or through its subsidiary company or its nominees, foreign investors, non- resident Indians, overseas corporate bodies and multinational agencies will be considered for determining 26 % of the paid up equity capital held by the foreign company.