Whenever it comes to questions of the law, Indian courts are bound by the precedent system, which is based on the doctrine of stare decisis. In India, lower courts are bound by the Supreme Court's decisions. Therefore, the Supreme Court of India's decisions have a binding effect on lower courts. However, there are times when there are conflicting decisions among judicial bodies.
IRDA regulates insurance and reinsurance companies, as well as insurance intermediaries. IRDA full form is Insurance Regulatory and Development Authority of India (IRDAI).
India is a vast and complex insurance market, with a diverse range of products and insurers operating in it. The insurance sector in India has undergone several reforms over the years. As of now, there are two main pieces of legislation that regulate the Indian insurance sector: the Insurance Act, of 1938 (the "Insurance Act") and the Insurance Regulatory and Development Authority Act, of 1999 (the "IRDA Act").
The Ministry of Finance proposed significant modifications to the Insurance Act and the IRDA Act through the Insurance Laws (Amendment) Bill, 2022, which, if implemented in its current form, will make significant changes to registration requirements and operational matters pertaining to the Indian insurance industry.
The International Financial Services Centre Authority (IFSCA) additionally governs insurance companies that are based in the International Financial Services Centre (IFSC) in India.
IRDAI (full form Insurance Regulatory and Development Authority of India (IRDAI) regulations cover a wide range of topics, including
· Indian insurer’s registration
· IFSC Insurance Office (IIO) registration
· IFSC Insurance Intermediary Office Registration
· The establishment and closure of liaison offices in India by an insurance company registered outside the country.
· Insurers must maintain assets and solvency margins.
· Issuance of capital
· The way financial statements are prepared.
· Commission/remuneration and reward structures
· Outsourcing arrangements
· Companies operating in the insurance industry must register and follow corporate governance norms.
IRDAI regulations apply to all insurers, including
· General insurers
· Life insurers
· Standalone health insurers
· Reinsurers
All insurance intermediaries must adhere to IRDA regulations.
· Corporate agents
· Insurance brokers
· Web aggregators
· Third-party administrators
· Surveyors and loss assessors and
· Insurance marketing firms
Moreover, the Foreign Exchange Management (Insurance) Regulations 2015 (the "FEMA Insurance Regulations") govern how a person resident in India (a person who has lived in India for at least 182 days in the previous financial year) can take or continue to hold general insurance policies or life insurance policies issued by foreign insurers.
The Reserve Bank of India (RBI) has also issued Master Direction – Insurance of 1st January 2016 (as amended), which, read with the FEMA Insurance Regulations, provides guidance on several topics such as issuing general insurance policies, collecting premiums, and settling claims with respect to general, life, and health insurance policies.
The evolution of Indian insurance laws has had a major impact on the market, giving consumers more protection and allowing them to make informed decisions. It has also helped to open competition in the sector which has pushed companies to provide better services at competitive prices. With increased regulations, insurers must now be more transparent when it comes to pricing and claims processing.
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What is the Difference Between Insurance and Reinsurance?
Insurance is a contract between an individual or entity and an insurance company. The individual or entity pays a premium to the insurance company, and in return, the insurance company agrees to cover certain losses or damages that may occur in the future. The coverage provided by insurance policies can include a variety of risks, such as life, property, health, liability, and more.
Reinsurance, on the other hand, is a form of insurance for insurance companies. Reinsurance is the practice of transferring some of the risks that an insurance company has assumed to another insurance company, called a reinsurer. The reinsurer then assumes part of the risk and the insurance company pays a premium to the reinsurers for doing so. Reinsurance is used by insurance companies to protect themselves against losses that are larger than what they can handle on their own.
In summary, insurance is a contract between an individual or entity and an insurance company that provides coverage for specific risks, while reinsurance is a form of insurance for insurance companies that helps them manage risk by transferring some of their exposure to other insurers(Reinsurers).
The Writing of Insurance and Reinsurance
An Indian insurance company is allowed to conduct insurance business in India under the Insurance Act. A company wishing to conduct insurance business in India is required to apply for a certificate of registration with the IRDAI in accordance with a three-stage procedure set out in the IRDAI’s Registration of Indian Insurance Companies Regulations, 2022, as amended (the “Registration Regulations”). It repeals the Indian Insurance Regulatory Authority (IRDA) Regulations, 2000.
A certificate of registration is required for every insurance business category (i.e., life, general, standalone health, and reinsurance). Registration Regulations also allow private equity funds, investors, or promoters to invest in insurance companies, subject to certain conditions.
Applicants applying for registration must also meet certain essential requirements, including, but not limited to
· Foreign investment limits
· Minimum capitalization requirements
· Qualifications of directors and officers
· Planned infrastructure
· General conduct and performance records of Indian promoters and foreign investors in their business or profession
Overseas Firms Doing Insurance Business in India
· In 2000, the Indian Government decided to open the insurance sector to foreign players, allowing for a 26% FDI investment. This cap needed to be raised as the economy and the sector matured. In 2015, the government increased the FDI limit to 49%. In 2016, all investments in Indian insurance companies up to 49% became exempt from government approval under the Automatic Route. On February 1, 2021, Union Finance Minister started implementing the increase in the FDI (Foreign Direct Investment) limit for Indian insurance companies from 49% to 74%. This was to further allow foreign ownership and control in Indian insurance companies. The change was made as a result of 2020's amendment to the Consolidated Foreign Direct Investment Policy of 2020. However, such investments continue to be subject to approval or verification by the Insurance Regulatory and Development Authority of India (IRDAI).
· According to the Amended Insurance Rules, the majority of directors and key management personnel, as well as at least one of the chairperson of the board of directors, managing director, or chief executive officer (collectively termed as senior management), must be resident Indian citizens. This requirement applies to all insurance companies with foreign investments, regardless of size. The Amended Insurance Rules also specify a one-year period from the day of the adoption of these rules, for applicable companies to comply with this senior management qualification.
· India has emerged as one of the fastest-growing economies in the world with a burgeoning middle class and increasing disposable income. In general, foreign insurers are not permitted to write direct insurance business in India. Indian residents cannot purchase insurance from overseas insurers unless the purchase is approved by the Reserve Bank of India. A non-admitted insurer who has been registered with IRDAI as a cross-border reinsurer can write insurance for Indian risks from overseas based on the IRDAI's regulations.
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