This has been taken from our blog,Brinks of economic Thoughts.
INSURANCE REGULATORY AND DEVELOPMENT ACT 1999
In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector. The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.
In its report submitted in 1994, the committee recommended, among other things, that:
Private players be included in the insurance sector.
Foreign companies be allowed to enter the insurance sector, preferably through joint ventures with Indian partners.
The Insurance Regulatory and Development Authority (IRDA) be constituted as an autonomous body to regulate and develop the insurance sector.
The key objectives of the IRDA would include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums while ensuring the financial security of the insurance market.
Brokers representing the customer be brought in as another marketing and distribution channel, a practice prevalent in most developed markets
Raise the level of professional standards in risk management and underwriting and speed up settlement of claims.
Following the recommendations, the IRDA was constituted as an autonomous body in 1999 and incorporated as a statutory body in April 2000. With the coming into force of the IRDA Act, 1999, the insurance industry was opened up to the private sector
Under the IRDA Act, an Indian insurance company will be allowed to conduct insurance business provided it satisfies the following conditions:
It must be formed and registered under the Companies Act, 1956; The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, should not exceed 26% paid up equity capital of the Indian insurance company;
Its sole purpose must be to carry on the life insurance business or general insurance business or reinsurance business.2 To operate the insurance business in India, the Indian insurance company has to obtain a certificate of registration from IRDA.
It has also been provided in the IRDA Act that on or after the commencement of the IRDA Act, no insurer will be allowed to carry on the life and general insurance business in India, unless it has a paid up equity capital of Rs. 1 billion. For carrying on the reinsurance business, the minimum paid up equity capital has been prescribed as Rs. 2 billion. The Reserve Bank of India(RBI) has also issued guidelines for banks entry into the insurance business.
Harsh vardhan pathak
Msc economics integrated
while studying insurance sector i came across with malhotra committee recommendations to invite foreign players in indian insurance sector..,,i prepared this note from online news material,,,it was more of copy pasted,,,but i read each line in my continuous journey to explore field of contemporary finance]