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Unit 7: Insurance Regulatory and Development Authority Act (IRDA Act)

In this unit, we will study in detail about Insurance Regulatory and Development Authority Act Notes
(IRDA Act). As you know, the insurance contract is of promises or assurances by the insurance
companies to compensate the insured in case of mis-happening but nothing is tangible. When
the product is intangible (which cannot be seen or touch) and volume of such contracts is huge
then the disputes do arise in any industry. To settle these disputes the Government of any
country appoints regulator and also enforces the law which controls the industry.
In the next unit, you will study about the meaning and definition of life insurance and whether
or not life insurance is a scientific concept. You will also study about the classification of policies
prevailing in market. It will also summarize the concepts of annuity and mortality tables. The
next unit will also explain the role of LIC.

7.1 History

You must have observed that every country has its own insurance laws. In India also, Government
started exercising control on Insurance business by passing two Acts in the year 1912 namely:
Provident Insurance Societies Act V of 1912 and
Indian Life Insurance Companies Act VI of 1912.
These acts were later comprehensively amended and a new Act namely Insurance Act 1938 came
into existence for controlling:
Investment of funds,

Expenditure, and
Management of the insurance companies.
The Office of Controller was established to implement this Act.
Again, this Act was amended in 1950 as per the need of the hour. But in view of growing
malpractices in Life Insurance business and also due to the illiteracy level being high and lack of
will for spread of Life Insurance business, it was nationalized by Government of India.
LIC Act was passed in June, 1956, and this Act came into force from 1st Sept.1956. Similarly
general insurance business was nationalized Act came into force w.e.f. 1st April 1973 through
General Insurance Business Nationalization Act 1972 (GIBN Act 1972). To implement these acts
the Government made some minor changes in the Insurance Act 1938.
In early 90’s, with the world market forces playing with full strength; growing literacy level;
better regulatory systems and need for fast growth in this sector, the need of the hour was to go
with the world and throw open Life and General Insurance Sector to private entrepreneurs once
again so that there is no monopoly and the customer/consumer/buyer gets more choices than
one type of Insurance product.

To study the liberalization process in Insurance sector in India, Malhotra Committee was formed
under the Chairmanship of Late Shri R.N. Malhotra. The Malhotra committee submitted its
report in 1994 which recommended that private companies be allowed to operate in India. The
Government accepted the Committee’s recommendation and Insurance Regulatory Authority
(IRA) was set up in 1996 to show the path for privatization of insurance Industry. The main aim
was the development of Insurance covering all strata of society (to not only rich but poor, folks
from rural, tribal, unorganized sector, social sector, disabled community, daily wagers, women
at large, etc.) gained importance through concerns put forth by political leaders, trade unionists,
social organizations, cooperatives and policy makers; which amended the name IRA to IRDA
(Insurance Regulatory & Development Authority). Again some amendments were made in the
Insurance Act 1938 for smooth functioning of IRDA.

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