IRDA Compliances for Insurance Companies

CS Shirish Bhootra
Dec 5, 2022
4 min read

Written by CS, Shirish Bhootra

Introduction

Business entities have to comply with various compliances as provided under laws applicable to them. These compliances differ from entity to entity. For example, compliance for a company is different from that of a partnership firm. Standard compliance is a registration under authorities under the laws as applicable.

Among various forms of business, one is insurance. The entities have to be initially registered as a company with the Registrar of Companies (ROC) for the insurance business. Along with Company Law, the insurance company must also follow IRDA compliances.

IRDA: An Overview

The Insurance Regulatory and Development Authority(IRDA) is established to govern the insurance sector. It is a statutory body that frames rules and regulations applicable to the insurance business and analyzes insurance companies' operations.
Insurance Companies are incorporated to uphold the resources and have diversified investments of resources accumulated.
IRDA compliances are essential to have proper investment, transparency, and accountability.

IRDA Formation

In 1991, the Government of India started reforms in the financial and economic sectors.
In 1993, a committee came into existence to recommend reforms in the insurance sector. Mr. R. N. Malhotra, Retired Governor of the Reserve Bank of India, supervised the committee.
In 1994, the committee suggested reforms after profoundly analyzing the insurance sector.
In 1999, an autonomous body was established and named the Insurance Regulatory and Development Authority (IRDA) under the IRDA Act, 1999.

Why is it essential to follow IRDA Compliance?

For insurance companies, IRDA compliances are essential with the authority's rules and by-laws in this respect. Along with this, there are various other reasons for its importance:

1. Insurance companies are registered as per the applicable provisions.

2. To have an adequate settlement of claims and grievances of policyholders.

3. To ensure that insurance companies act in the interest of policyholders.

4. To monitor insurance companies through an effective monitoring system.

Regulatory Authorities

The Insurance Regulatory and Development Authority of India (IRDAI) is the primary regulatory authority for IRDA compliance for insurance companies. Laws relating to insurance are specified under the Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999.

There are other regulatory authorities and laws that insurance companies have to be compliant.

IRDA Compliance for Insurance Companies falls under the following authorities:

The insurance sector has to comply with the Companies Act, 2013 laws and previous company laws for setting up a company. It will fall under the purview of the Ministry of Corporate Affairs (MCA) and the Registrar of Companies (ROC) to establish an insurance company.
FEMA provisions are also applicable to Insurance Companies. RBI has framed regulations in this regard.
E-Commerce Insurance Company has to comply with Section 34 of the Insurance Act, 1938, and Section 14 of the IRDA Act, 1999.

Eligibility Norms:

To carry out the insurance business, the entity must be registered as a company under the Companies Act by complying with provisions as applicable.

To register with IRDAI, the insurance company must also comply with Insurance Act and Insurance laws and must adhere to the following minimum capital requirements :

for an Insurance Company- Rupees 100 Crores
for Reinsurance Company- Rupees 200 Crores

IRDA Compliance Procedures for Insurance Companies:

Various IRDA compliance for insurance companies are as follows :

Formation or incorporation of an Insurance Company and Governance Norms.
The company must be registered as a public company with the Company Act 2013 or the previous company law.
Submission of resolutions, declarations from directors, the appointment of directors and auditors, and annual filings to the Ministry of Corporate Affairs.
Insurance companies registered under this Act are liable to file various board resolutions regarding directors' appointment or resignation, auditors' appointment, issues related to shares, etc., with the ROC.
An exemption to file a balance sheet in XRBL is provided to Insurance Companies. The annual return filed through forms AOC-4 and MGT-7 must be submitted within 60 days of the Annual General Meeting.
The insurance companies must comply with Corporate Governance Guidelines framed by IRDAI.
Internet Compliance in E-Commerce for Insurance Companies.
An independent ISNP (Insurance Self Network Platform) is to be developed by the applicant. Permission is required from the authority before setting up such a platform.
An application must be made in Form-ISNP-1 to conduct E-Commerce activities for an insurance company.
Fees of rupees 10,000 to be paid by the applicant are required.
The authority will return the form within 15 days, provided it has all the required details.
The authority has the power to allow and secure the license.
Conditions to be complied with before granting permission.
Focus on the interest of policyholders would have due weightage.
The authority would look at the prospects of internet-based insurance functions before approving.
No breach of guidelines framed by authority.
No violations with respect to the provisions of the IRDA Act, 1999; Insurance Act, 1938; Regulations Guidelines, Insurance Rules, orders, notices, circulars, etc., issued by the authority of the applicant.
Compliance with Insurance Regulatory and Development Authority/Audit by Insurance Company.

Annual Compliance:

Compliance means abiding by rules and orders applicable to the entity. A business has to comply with a particular set of compliance filings and returns as per provisions of laws applicable to that business. The management and executive personnel of the company consider laws applicable to the company.

For compliance, a company must have an effective compliance management system that supports a risk management system to mitigate compliance risks.

Annual compliance refers to a set of obedience that a company has to comply with after being incorporated to start and continue its operations. Non-compliance with such provisions may result in striking off the company name.

Conclusion:

In a nutshell, IRDA compliance must ensure that insurance companies have smooth and proper functioning. It acts in favor of both the company as well as the policyholders.

References:

IRDA Compliance for Insurance Company, Legalraasta (Legalraasta)