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So long as insurance remained the monopoly of the Government, the need for an independent regulatory authority was not felt. However, with the acceptance of the idea that there can be private insurance entities, the need for a regulatory authority becomes paramount. With the passing of the Insurance Development and Regulatory Act in 2000, the insurance regulatory authority has become a statutory authority. Protecting consumer interest involves proper disclosure, keeping prices affordable, some mandatory products and standardization. Most importantly, it has to make sure that consumers get paid by insurers. From the consumers’ point of view, the most important function of the regulatory authority will be to ensure quick settlement of claims without unnecessary litigation. With respect to solvency and financial health, regulations will have to be introduced to ensure that insurance companies follow appropriate prudential norms such as solvency margins. Large funds are under the custody of the insurers and they get invested to produce additional returns. The management of these funds is important to the insurer, the insured and the economy. Entry into the insurance industry must also be regulated with suitable capital adequacy norms. The third role should be one of development. The insurance industry in India has a large potential and the framework of regulation must enable the industry to tap this vast potential.

IRDA over the last decade has brought into force a number of regulations which are well conceived. They have received wide spread appreciation. The recent decision of IRDA to move to a free tariff regime for several general insurance products is welcome. The prescription of tariff is contrary to market principles and insurance products need to be priced based on market forces.

The reform of the insurance sector is part of the overall economic reform process that is underway. The basic philosophy underlying the new economic policy is to improve the productivity and efficiency of the system. This is sought to be achieved partly by creating a more competitive environment. The growth of the real economy depends upon the efficiency of the financial sector. A greater element of competition is being injected into the financial system as well.

All regulators need to keep in mind that there is a fine distinction between regulations and controls. Regulations lay down norms while controls have a propensity to micromanage institutions. Regulators must take care to ensure that regulations do not slide into controls.

The insurance industry in our country underwent a big change in 2000 when private participants were allowed into the industry along with a streamlined regulatory and supervisory regime. There are at present 14 private life insurance companies along with LIC and 12 entities in non-life sector. There is evidence to show that competition has done good to insurance industry. The rate of growth of the industry in the post liberalization period has been faster. It has also developed in terms of product innovation and the use of alternative distribution channels.


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