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

7.3 Salient Features of IRDA Act Notes

By now, you must be eager to know the salient features of IRDA Act. Well, lets’ discuss them. 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):
1. 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.

2. 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.
3. 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.
4. 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 shareholding of Indian promoters in excess of
which disinvestment will be required.

5. 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.
6. 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.
7. All the powers presently exercised under the Insurance Act, 1938, by the Controller of
Insurance (CoI) will be transferred to the IRDA.
8. The IRDA Act also provides for the appointment of CoI by the Central Government when
the Regulatory Authority is superseded.
9. The minimum amount of paid-up equity capital is ` 100 crore in case of life insurance as
well as general insurance, and ` 200 crore in the case of re-insurance.

10. Solvency margin (excess of assets over liabilities) is fixed at not less than ` 50 crore for life
as well as general insurance; for reinsurance solvency margin is stipulated at not less than
` 100 crore in each case.
11. Insurance companies will deposit ` 10 crore as security deposit before starting their
business.
12. In the non-life sector, IRDA would give preference to companies providing health insurance.
13. 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.

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