Marketing Aptitude: Insurance Regulatory and Development Authority of India (IRDAI)

The Insurance Regulatory and Development Authority of India (IRDAI) is the national agency of Government of India (GoI) for the Indian insurance industry. It is the regulatory body established under the Insurance Regulatory and Development Authority Act, 1999 and reports to Ministry of finance. Its headquarters is in Hyderabad, Telangana.

Purpose of forming the IRDA

  • To protect the interest of policy holders and to secure their fair treatment.
  • To promote fast and systematic growth of the insurance industry.
  • To set promote, monitor and implement high standards of integrity, financial soundness, fair dealing and competence of those it regulates.
  • To ensure that insurance customers receive exact information about the products and services and to make them aware of their responsibilities and duties in this regard.
  • To insure speedy settlement of genuine claims.
  • To prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery.
  • To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards if financial soundness amongst market players.
  • To take action where such standards are inadequate or ineffectively enforced.
  • To bring optimum amount of self-regulation in day to day working of the industry consistent with the requirements of prudential regulations.

Insurance Intermediaries

Insurance intermediaries serve as a bridge between the consumers (seeking to buy insurance policies) and the insurance companies (seeking to sell those policies). These intermediaries are expected to keep in constant touch with their policyholders to become aware of the changes in their lives such as marriages, deaths of relatives, release of mortgages, etc. Anyone of these may require some changes in the title to policy moneys or more insurances, etc. The contact conveys a message that the agent cares for the policyholder and the family. If intermediaries (such as agents, brokers) are seen only at the time the policy was taken,  they are likely to be perceived as selfish, not concerned about the policyholder’s interests and in all diminishes the reputation of insurance company. Thus, customers’ loyalty to the insurer depends on how strong the agent’s link with the customer is. For example, in fire or health insurance, the following factors should be taken into account by the agents or brokers, while dealing with the consumers: –

  • For Fire insurance: type of construction, occupancy, location and types of goods, etc. are taken into account.
  • For health insurance, age, sex, profession, habits, health conditions, etc., are taken into account.

Types of Insurance intermediaries

Following are the types of Insurance intermediaries: –

  • Insurance agent: – An insurance agent is licensed by the IRDA to solicit and acquire insurance business including business relating to continuance, renewal or revival of policies of insurance. An agent may be of two types:-
  • Individual Insurance Agent: – He is the one who holds a license to act as an insurance agent either for one life insurer or a general insurer.
  • Composite Insurance Agent: – A Composite Insurance Agent means an insurance agent who holds a license to act as an insurance agent for a life insurer and a general insurer.
  • Corporate Agent: – A Corporate Agent is the one who holds a license to acts as an insurance agent either for one life insurer or a general insurer.
  • Composite Corporate Agent: – A Composite Corporate Agent is the one who holds a license to act as an insurance agent for a life insurer and a general insurer.
  • Insurance broker: – An insurance broker is licensed by the Insurance Regulatory and Development Authority (IRDA) who arranges insurance contracts with insurance companies on behalf of his clients. He may represent more than one insurance company. In other words, he may deal with more than one life or general or both.

Functions of an Insurance agent

  • To solicit and procure life or general insurance business for the insurer.
  • To understand the prospect’s needs and persuade him to buy a plan of life/general insurance that suits his interests best.
  • To complete the formalities (paper work, medical examination) necessary to get the policy expeditiously keep in touch to ensure that changing circumstances are reflected in the arrangements relating to premium payments, nomination and other necessary alterations.
  • To facilitate quick settlement of claims.
  • Be totally honest with both the prospect and the

Code of conduct of an Agent

As per regulations framed by IRDA, every agent shall adhere to the code of conduct specified below: –

  • Identify himself and the insurer of which he/she is an agent.
  • Show the agency identity card to the prospect and also disclose the agency appointment letter to the prospect on demand.
  • Explain all available options to the prospect.
  • Recommend a specified insurance plan according to the needs and wants of the prospect.
  • Disclose the scales of commission in respect of the insurance product offered for sale, if asked by the prospect.
  • Indicate the premium to be charged by the insurer for the insurance product offered for sale.
  • Explain the nature the information required in the proposal form by the insurer.
  • Impress upon the prospect the need to disclose all information.
  • Make all enquiries about the prospect.
  • Inform the insurer about any material facts, including habits that could adversely affect the underwriting decision.
  • Convey to the prospect about the acceptance or rejection of the proposal.
  • Advise policyholders to effect nomination under the policy.
  • Render necessary assistance and advice to every policyholder on all policy servicing matters including assignment of policy,change of address or exercise of options under the policy or any other policy service, wherever necessary.
  • Render necessary assistance to the policyholders or claimants or beneficiaries in complying with the requirements for settlement of claims by the insurer.
  • Make every attempt to ensure remittance of premiums by the policyholders within the stipulated time.
  • By giving notice orally and in writing.
  • Not to induce prospects to submit wrong information or documents submitted to the insurer for acceptance of the proposal.
  • Not to interfere with any proposals introduced by any other insurance agent.
  • Not demand or receive from beneficiary share of proceeds under an insurance contract.
  • Not cause the termination of an existing policy with a view to effect a new proposal.

Principles of Insurance

  • Principle of Uberrimae fidei (Utmost Good Faith): – According to this principle, both the parties i.e. the policyholder and the insurance company should have good faith towards each other. A person getting insured must disclose every fact and figure about the subject matter of insurance contract in the proposal form of insurance. The insurance company (or insurer) must also provide complete, correct and clear information regarding terms and conditions of the contract to the policy holder. In case of any concealment of fact or false statement, the insurer can declare the contract void and he will not be liable for paying any compensation. This principle is applicable to all contracts of insurance i.e. life, fire, marine, etc.
  • Principle of Insurable Interest: – According to this principle, a person getting insured must have the insurable interest on the subject matter of insurance. In simple words, insurable interest is where a person has a valid reason to insure and stand to suffer a direct financial loss if the event insured against occurs. To express insurable interest, there must be something tangible that can be insured – such as property, life or rights imposed by law. If a thief in possession of stolen goods does not have the right to insure them. This principle is applicable to all contracts of insurance.
  • Principle of Indemnity: – Indemnity means an exact financial compensation for coverage of losses only. According to this principle, the insurance company agrees to compensate the insured for the actual loss suffered. In simple words, indemnity is considered to be the exact compensation required to restore the policyholder to the financial position they enjoyed immediately before a loss occurred. This principle doesn’t apply to life insurance contracts. It is applicable to fire, marine and other general insurance.
  • Principle of Contribution: – According to this principle, if an insured party has taken insurance policy with two or more insurance companies for same subject matter or risk, though not necessarily with equal degrees of liability. Then, in the event of a claim, all of the insurers should pay an equitable proportion of the claim payment. Or, we can say that the insured party can claim the compensation only to the extent of actual loss from any one insurer or all the insurers, it can’t make profit by making claim for same loss more than once. This principle is corollary of the principle of indemnity and is applicable to all contracts of indemnity.
  • Principle of Subrogation: – If a policy holder gets the claim money by their insurer (or insurance company) for the losses due to damage to his insured property, the ownership right of such property would be of the insurer company. The insurer may get a right to pursue funds from another source, such as a third-party who caused the incident. This principle is applicable only when the damaged property has any value after the event causing the damage. It is also the corollary of the principle of indemnity and is applicable to all contracts of indemnity.
  • Principle of Loss Minimization: – This principle states that it is the duty of the insured to take all possible steps to minimize the loss to the insured property on the happening of uncertain events such as a fire outbreak or blast, etc.
  • Principle of Causa Proxima (Nearest Cause or direct cause): – This principle is applicable when the loss is the result of two or more causes and the insurance company considers the nearest cause of loss to settle the claim.

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