IRDA and Insurance Ombudsman

July 10, 2022

What is IRDA?

The Insurance Regulatory and Development Authority (IRDA) is the regulatory authority that controls the entire insurance business throughout the nation. The authority lays down rules and regulations for effective supervision and smooth functioning in the insurance sector. Its main aim is to protect the interest of the policyholders, conduct insurance business in an ethical manner across the country and ensure orderly growth of the insurance sector.

Formulation of IRDA Act

In the year 1994, the Act was passed as per the major recommendation of the Malhotra Committee, as there is a dire need for proper authority to control insurance matters in India. The Act was enforced by the Parliament of India in 1999 and later was amended in the year 2002. Now, IRDA is established as the apex authority which regulates matters of both Life insurance and Non-Life insurance business. The Act also allows the private player. To enter the insurance sector with maximum foreign equity of 26 per cent.

Composition of authority

According to Section 4 of the IRDA Act, the authority consists of:

A chairman- knowing life insurance and general insurance, who shall hold the office for five years or till he/she attains the age of 65 years whichever comes earlier.
Whole-time members- the constitution must not exceed five members who is knowing life insurance and general insurance. The term of office shall be for five years or till he/she attains the age of 62 years whichever comes earlier.
Part-time members- the members are appointed by the Central Government.

How does IRDA work?

Section 14 of the Insurance Regulatory and Development Authority of 1999 states certain liabilities of the Authority as

The Authority shall issue a certificate of license, renew, amend, suspend or cancel any registration.
The most vital responsibility of such authority is to protect its policyholders in matters like settlement, surrender value of the policy, premium disputes or any dispute relating to the terms and conditions of the insurance contract.
It specifies the code of code to be followed in the insurance sector.
The purpose of levying fees and other charges are matters of concern for such authority.
We are undertaking inspections and conducting queries internally or with other organizations.
To conduct the insurance and re-insurance business smoothly and efficiently.

Role of IRDA in India

Before the IRDA Act of 2000 was the Insurance Act of 1938, which was the apex authority regulating the insurance business in India but there were many loopholes under the Act of 1938. Thus, IRDA was established as a powerful governing body to regulate the functioning of the insurance sector.

Promotes transparency, smooth and systematic functioning of insurance business in the financial market.
Prohibit malpractices and set up grievance settlement authority to protect its policyholders.
Ensure speedy growth and development of the insurance industry efficiently.
Provide long-term funds to ensure the speedy growth of the country’s economy.
Build a proper management system to encourage high financial standards by the insurance policyholders.
Promote integrity and obtain a sufficient amount of self-regulation in the insurance industry.

Who is an insurance ombudsman?

An insurance ombudsman is a governing body established by the Government of India on 11^th November 1998. The main objective of this body is to deal with the matters relating to disputes in the insurance sector. The authority is responsible to conduct and hear the grievances and complaints of the policyholders and resolving the conflicts outside the court in a smooth and cost-efficient manner in India.

History of Insurance Ombudsman

The Reserve Bank of India found such deficiency in the insurance industry and introduced the authority under Section 114 (1) of the 1938 Act in the year 1998. The need was felt when there has been a huge load of pending cases in civil courts. Thus, a need was felt to establish an authority where there would be speedy disposal of cases. Now the aggrieved person can file before the Insurance ombudsman. In the year 2021, there has overcome deficiency where one can file his/her complaint through an online portal and be able to track their complaints online.

Appointment of an Insurance Ombudsman

An insurance ombudsman is appointed for a term of three years or till he/she attains the age of Sixty-five, whichever is the earliest. The appointment of such is initiated by the recommendation of the committee consisting of the Chairman under IRDA, General Life Insurance (GIC), Life Insurance Corporation (LIC) and a representative of the government. The Insurance Act of 1938 under Section 40 C also provides a specific procedure for the formation of general insurance as well as life insurance council.

Complaints under the insurance ombudsman

An insurance ombudsman accepts complaints relating to delay in settlement, claim settlement, mis-spelling, premium, etc. the ombudsman can award a claim up to Rs. 20 lakhs only. A complaint by an aggrieved party can only be lodged through the online portal. The complaint addressed against the insurance company should respond within 30 days or if the complainant is not satisfied with the response, they can approach the ombudsman through a written complaint. It is then, that the complainant must accept the recommendations by the ombudsman within 15 days from the date and if they are still not satisfied with the award or recommendations then they can move their complaint to Consumer courts.

Conclusion

The insurance business in India is increasing time after time and similarly, there is a need for up-gradation. The establishment of the IRDA Act has brought us many changes and rigidity with its rules and regulations. The main focus of the Act is that it seeks to protect its policyholders and maintain a smooth and efficient environment in the sector. The Act encourages fair operations in the insurance sector and speedy recovery. The role of the insurance ombudsman is to set efficient and cost-effective responses comparing civil courts. In the year 2019-20 38538 complaints were addressed and out of such only 8722 remained pending. The award or the recommendation passed by the authority comes to effect within 30 to 60 days for appeal. The main purpose of this scheme is to help the citizens and ensure speedy justice.

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July 10, 2022