1. ANNUAL REPORT
2011-12
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
INDIA
Head Office Delhi Office
3rd Floor, Parishram Bhavan Gate No. 3, 1st Floor, Jeevan Tara
Basheerbagh, Hyderabad – 500 004 Parliament Street, New Delhi – 110 001
INDIA INDIA
Phone : +91-40-2338 1100 / 1300 Phone : +91-11-2374 7648
Fax : +91-40-6682 3334 Fax : +91-11-2374 7650
Website: www.irda.gov.in
E-mail: irda@irda.gov.in

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LETTER OF TRANSMITTAL
th
Ref. No. 101/1/R&D/SD/AR-2011-12/10/Nov-12 12 November, 2012
The Secretary,
Department of Financial Services
Ministry of Finance
3rd Floor, Jeevan Deep Building
Parliament Street
New Delhi - 110 001
Sir,
In accordance with the provisions of Section 20 of the Insurance Regulatory and Development
Authority Act, 1999, we are sending herewith a copy of the Annual Report of the Authority for
the financial year ended 31st March, 2012 in the format prescribed in the IRDA (Annual Report –
Furnishing of returns, statements and other particulars) Rules, 2000.
Yours faithfully,
(J HARI NARAYAN)
Chairman
HeefjÞece YeJeve, leermeje leue, yeMeerjyeeie, nwojeyeeo - 500 004. Yeejle Parishram Bhavan, 3rd Floor, Basheerbagh, Hyderabad - 500 004. INDIA
 +91-40-6682 0957, HewÀkeÌme : +91-40-6682 3334
: Ph.: +91-40-6682 0957, Fax : +91-40-6682 3334
F&-cesue : chairman@irda.gov.in Jesye: www.irda.gov.in E-mail: chairman@irda.gov.in Web.: www.irda.gov.in

5. ANNUAL REPORT 2011-12
CONTENTS
MISSION STATEMENT
TEAM AT IRDA
OVERVIEW ..... 1
PART - I
POLICIES AND PROGRAMMES
I.1 General Economic Environment ..... 15
I.2 World Insurance Scenario ..... 16
I.3 Appraisal of Indian Insurance Market ..... 22
I.4 Review ..... 46
I.4.1 Protection of Interests of Policyholders ..... 46
I.4.2 Maintenance of Solvency Margins of Insurers ..... 50
I.4.3 Monitoring of Reinsurance ..... 51
I.4.4 Insurance Pools ..... 54
I.4.5 Monitoring of Investments by the Insurers ..... 57
I.4.6 Health Insurance ..... 61
I.4.7 Business in the Rural and Social Sector ..... 64
I.4.8 Financial Reporting and Actuarial Standards ..... 66
I.4.9 Anti-Money Laundering/Counter-Finance of Terrorism ..... 67
I.4.10 Crop Insurance ..... 69
I.4.11 Micro Insurance ..... 70
I.4.12 Directions, Orders and Regulations issued by the Authority ..... 73
I.4.13 Right to Information Act ..... 74
PART - II
REVIEW OF WORKING AND OPERATIONS
II.1 Regulation of Insurance and Reinsurance Companies ..... 75
II.2 Intermediaries Associated with the Insurance Business ..... 77
II.3 Litigations, Appeals and Court Pronouncements ..... 88
II.4 International Co-operation in Insurance ..... 90
II.5 Public Grievances ..... 92
II.6 Insurance Association and Insurance Councils ..... 95
II.7 Functioning of Ombudsmen ..... 99
v

6. ANNUAL REPORT 2011-12
PART - III
STATUTORY AND DEVELOPMENTAL FUNCTIONS OF THE AUTHORITY
III.1 Issue to the applicant a certificate of registration, renew, modify, withdraw,
suspend or cancel such registration ..... 101
III.2 Protection of the interests of policyholders in matters concerning assigning of policy,
nomination by policyholders, insurable interest, settlement of insurance claim,
surrender value of policy and other terms and conditions of contracts of insurance ..... 102
III.3 Specifying requisite qualifications, code of conduct and practical training for
intermediaries or Insurance Intermediaries and agents ..... 102
III.4 Specifying the code of conduct for surveyors and loss assessors ..... 104
III.5 Promoting efficiency in the conduct of insurance business ..... 105
III.6 Promoting and regulating professional organizations connected
with the insurance and reinsurance business ..... 107
III.7 Levying fees and other charges for carrying out the purposes of the Act ..... 107
III.8 Calling for information from, undertaking inspection of, conducting enquiries
and investigations including audit of the insurers, intermediaries, insurance
intermediaries and other organizations connected with the insurance business ..... 107
III.9 Control and regulation of rates, advantages, terms and conditions that may be
offered by insurers in respect of general insurance business not so controlled
and regulated by the Tariff Advisory Committee under section 64U of the ..... 108
Insurance Act, 1938 (4 of 1938)
III.10 Specifying the form and manner in which books of accounts shall be maintained
and statements of accounts shall be rendered by Insurers and
other insurance intermediaries ..... 109
III.11 Regulating investment of funds by insurance companies ..... 110
III.12 Regulating maintenance of margin of solvency ..... 110
III.13 Adjudication of disputes between Insurers and Intermediaries or Insurance Intermediaries ..... 111
III.14 Supervising the functioning of the Tariff Advisory Committee (TAC) ..... 112
III.15 Specifying the percentage of premium income of the insurer to finance schemes
for promoting and regulating professional organizations referred to in clause (6) ..... 112
III.16 Specifying the percentage of life insurance business and general insurance
business to be undertaken by the Insurers in the rural and social sector ..... 112
III.17 Exercising such other powers as may be prescribed ..... 113
PART - IV
ORGANISATIONAL MATTERS
IV.1 Organisation ..... 115
IV.2 Meetings of the Authority ..... 115
IV.3 Human Resources ..... 115
vi

7. ANNUAL REPORT 2011-12
IV.4 Promotion of Official Language ..... 115
IV.5 Research & Development ..... 116
IV.6 Status of Information Technology ..... 116
IV.7 Accounts ..... 119
IV.8 IRDA Journal ..... 120
IV.9 Acknowledgements ..... 120
LIST OF BOX ITEMS
1. State-wise Life Insurance Penetration and Density of Individual New Business ..... 20
2. Persistency of Life Policies and Servicing of Orphan Policies ..... 26
3. Initiatives on the Development of Health Insurance ..... 44
4. Financial Literacy and Consumer Education on Insurance ..... 47
5. Supervision of Market Conduct ..... 49
6. Formation of Indian Motor Third Party Declined Risk Insurance Pool ..... 58
7. Productivity of the Tied Agents (Life Insurance) – A Market Observation ..... 78
8. Surveyors & Loss Assessors - Recent Initiatives of IRDA ..... 87
9. Insurance Information Bureau (IIB) ..... 118
LIST OF TEXT TABLES
I.1 Real Growth in Premium During 2011 ..... 16
I.2 Insurance Penetration and Density in India ..... 18
I.3 Registered Insurers in India ..... 23
I.4 Premium Underwritten : Life Insurers ..... 24
I.5 Market Share : Life Insurers ..... 24
I.6 New Policies Issued : Life Insurers ..... 24
I.7 Paid-up Capital : Life Insurers ..... 27
I.8 Commission Expenses : Life Insurers ..... 27
I.9 Commission Expense Ratio : Life Insurers ..... 28
I.10 Operating Expenses : Life Insurers ..... 28
I.11 Operating Expense Ratio : Life Insurers ..... 28
I.12 Individual Death Claims : Life Insurers ..... 29
I.13 Group Death Claims : Life Insurers ..... 31
I.14 Number of Life Insurance offices ..... 32
I.15 Distribution of Offices of Life Insurers ..... 32
I.16 Gross Direct Premium Income in India of Non-Life Insurers ..... 34
vii

8. ANNUAL REPORT 2011-12
I.17 Company Wise Gross Direct Premium income in India : Non-Life Insurers ..... 36
I.18 Premium (Within India) Underwritten by Non-Life Insurers - Segment Wise ..... 36
I.19 Ratio of Outside India Premium to Total Premium ..... 37
I.20 Gross Direct Premium From Business Outside India : Non-Life Insurers ..... 37
I.21 Number of New Policies Issued : Non-Life Insurers ..... 37
I.22 Paid Up Capital : Non-Life Insurers and Reinsurer ..... 37
I.23 Underwriting Losses : Non-Life Insurers ..... 39
I.24 Commission Expenses : Non-Life Insurers ..... 39
I.25 Operating Expenses : Non-Life Insurers ..... 40
I.26 Net Incurred Claims : Non-Life Insurers ..... 40
I.27 Incurred Claims Ratio : Non-Life Insurers ..... 40
I.28 Investment Income : Non-Life Insurers ..... 41
I.29 Net Profits/Losses : Non-Life Insurers ..... 41
I.30 Dividends Paid : Non-Life Insurers ..... 41
I.31 Number of Non-Life Insurance Offices ..... 42
I.32 Net Retained Premium on Indian Business as per cent of
Gross Direct Premium (Excluding GIC) ..... 46
I.33 Reinsurance Placed Within India and Outside India as per cent of
Gross Direct Premium in India ..... 51
I.34 Reinsurance Ceded Outside India on Indian Business ..... 52
I.35 Net Retentions of Non-Life Insurers ..... 52
I.36 Share of Member Companies in the Indian Terrorism Pool ..... 55
I.37 Premium Rates for Terrorism Risk Insurance ..... 56
I.38 Expected Ultimate Liabilities as per GAD Estimate ..... 56
I.39 Due Dates for Net Settlements Amongst the Pool Members (IMTPIP) ..... 56
I.40 Motor Insurance Third Party Claims (IMTPIP) ..... 57
I.41 Market Share of Pool Members ..... 57
I.42 Total Investments of the Insurance Sector ..... 59
I.43 Total Investments of Life Insurers : Instrument-wise ..... 60
I.44 Investments of Life Insurers : Fund-wise ..... 60
I.45 Growth of Investments: Fund-wise ..... 61
I.46 Total Investments of Non-Life Insurers : Instrument-wise ..... 61
I.47 Health Insurance Premium ..... 62
I.48 TPA Licenses Renewed ..... 63
viii

9. ANNUAL REPORT 2011-12
I.49 TPA Infrastructure ..... 63
I.50 Third Party Administrators - Claims Data ..... 64
I.51 New Business under Micro Insurance Portfolio ..... 71
I.52 Micro Insurance Agents of Life Insurers ..... 71
I.53 Individual Death Claims Under Micro Insurance Portfolio ..... 71
I.54 Group Death Claims Under Micro Insurance Portfolio ..... 72
I.55 Duration-Wise Settlement of Death Claims in Micro Insurance – Individual Category ..... 72
I.56 Duration-Wise Settlement of Death Claims in Micro Insurance – Group Category ..... 72
I.57 List of Central Public Information Officers ..... 73
II.1 Details of Individual Agents of Life Insurers ..... 77
II.2 Details of Corporate Agents of Life Insurers ..... 78
II.3 Individual New Business Performance of Life Insurers - Channel Wise ..... 82
II.4 Group New Business Performance of Life Insurers - Channel Wise ..... 83
II.5 New Business Premium (Individual and Group) of Life Insurers - Channel Wise ..... 84
II.6 Number of Licenses Issued to Surveyors and Loss Assessors ..... 85
II.7 Grievances Relating to Surveyors and Loss Assessors ..... 86
II.8 Details of Cases Filed ..... 88
II.9 Number of Cases of Petitions Disposed / Dismissed ..... 88
II.10 Status of Grievances : Life Insurers ..... 92
II.11 Unfair Business Practice - Complaints ..... 93
II.12 Status of Grievances - Non-Life Insurers ..... 93
II.13 Disposal of Complaints by Ombudsmen during 2011-12 ..... 99
III.1 Penalties Levied by the Authority ..... 101
LIST OF CHARTS
I.1 Insurance Density in Select Countries - 2011 ..... 17
I.2 Insurance Penetration in Select Countries - 2011 ..... 17
I.3 Insurance Density in India ..... 19
I.4 Insurance Penetration in India ..... 19
I.5 Premium Underwritten by Life Insurers ..... 23
I.6 First Year Premium - Life Insurers ..... 25
I.7 Total Premium- Life Insurers ..... 25
I.8 Duration Wise Break-up of Claims Pending - Individual Policies ..... 30
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10. ANNUAL REPORT 2011-12
I.9 Duration Wise Break-up of Claims Pending - Group Policies ..... 30
I.10 Number of Life Insurance Offices ..... 33
I.11 Geographical Distribution of Life Insurance Offices ..... 33
I.12 Gross Direct Premium of Non-Life Insurers (Within & Outside India) ..... 35
I.13 Gross Direct Premium Income of Non-Life Insurers ..... 38
I.14 Segment-Wise Non-Life Premium ..... 38
I.15 Number of Non-Life Insurance Offices ..... 42
II.1 Individual New Business Premium of Life Insurers - Channel Wise ..... 82
II.2 Group New Business Premium of Life Insures - Channel Wise ..... 83
II.3 New Business Premium of Life Insurers (Individual & Group) ..... 84
II.4 Classification of Life Complaints ..... 92
II.5 Classification of Non-Life Complaints ..... 94
II.6 Class Wise Non-Life Complaints ..... 94
LIST OF STATEMENTS
1. International Comparison of Insurance Penetration ..... 123
2. International Comparison of Insurance Density ..... 124
3. First Year Life Insurance Premium ..... 125
4. Total Life Insurance Premium ..... 126
5. Individual New Business Performance of Life Insurers - Channel Wise ..... 127
6. Group New Business Performance of Life Insurers - Channel Wise ..... 129
7. State Wise Individual New Business Underwritten ..... 131
8. State Wise Group New Business Underwritten ..... 135
9. State Wise Life Insurance Penetration and Density of Individual New Business ..... 142
10. Individual Business (Within India) - Business in Force (Number of Policies) ..... 143
11. Individual Business (Within India) - Business in Force (Sum Assured) ..... 144
12. Linked and Non-Linked Premium of Life Insurers ..... 145
13. Linked and Non-Linked Commission of Life Insurers ..... 147
14. Individual Death Claims ..... 148
15. Group Death Claims ..... 150
16. Duration Wise Settlement of Death Claims - Individual Category ..... 152
17. Duration Wise Settlement of Death Claims - Group Category ..... 153
18. Assets Under Management of Life Insurers ..... 154
19. Equity Share Capital of Life Insurers ..... 157
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11. ANNUAL REPORT 2011-12
20. Solvency Ratio of Life Insurers ..... 158
21. Life Insurers - Policyholders Account ..... 159
22. Life Insurers - Shareholders Account ..... 163
23. Life Insurers - Balance Sheet ..... 167
24. Life Insurance Corporation of India - Policyholders Account (Non-Participating) ..... 171
25. Life Insurance Corporation of India - Shareholders Account (Non-Participating) ..... 172
26. Life Insurance Corporation of India - Balance Sheet (Non-Participating) ..... 173
27. Individual Business (within India) - Details of Forfeiture/Lapsed Policies in
respect of Individual Non-Linked Business ..... 174
28. Persistency of Life Insurance Policies ..... 175
29. Details of Individual Agents of Life Insurers ..... 176
30. Details of Corporate Agents of Life Insurers ..... 177
31. Average Number of Policies Sold by Individual and Corporate Agents ..... 178
32. Average New Business Premium for Individual and Corporate Agents ..... 179
33. Average Premium Per Policy for Individual and Corporate Agents ..... 180
34. State Wise Distribution of Offices of Life Insurers ..... 181
35. Region Wise Distribution of Offices of Life Insurers ..... 183
36. State Wise Number of Districts covered by Life Insurers ..... 184
37. State Wise Distribution of Individual Agents ..... 185
38. New Business Under Micro Insurance Portfolio ..... 187
39. Death Claims Under Micro Insurance Portfolio - Individual Category ..... 188
40. Death Claims Under Micro Insurance Portfolio - Group Category ..... 190
41. Duration Wise Settlement of Micro Insurance Claims - Individual Category ..... 192
42. Duration Wise Settlement of Micro Insurance Claims - Group Category ..... 193
43. Company Wise Number of Micro Insurance Agents ..... 194
44. Gross Direct Premium of Non-Life Insurers (Within & Outside India) ..... 195
45. Segment Wise Gross Direct Premium of Non-Life Insurers (Within India) ..... 196
46. Segment Wise Net Premium Income (Earned) ..... 197
47. Health Insurance other than Travel-Domestic/Overseas & Personal Accident:
Gross Premium and Number of Persons Covered ..... 198
48. Personal Accident Insurance: Gross Premium and Number of Persons Covered ..... 200
49. Channel Wise Gross Direct Premium of Non Life Insurers ..... 202
50. State Wise Gross Direct Premium Income of Non Life Insurers ..... 203
51. Incurred Claims Ratio - Public Sector Non-Life Insurers ..... 204
xi

12. ANNUAL REPORT 2011-12
52. Incurred Claims Ratio - Private Sector Non-Life Insurers ..... 205
53. Underwriting Experience and Profits of Public Sector Companies ..... 206
54. Underwriting Experience and Profits of Private Sector Companies ..... 207
55. Assets Under Management of Non-Life Insurers ..... 210
56. Equity Share Capital of Non-Life Insurers ..... 211
57. Solvency Ratio of Non-Life Insurers ..... 212
58. Public Sector Non-Life Insurers - Policyholders Account ..... 213
59. Public Sector Non Life Insurers - Shareholders Account ..... 215
60. Public Sector Non-Life Insurers - Balance Sheet ..... 216
61. Private Sector Non-Life Insurers - Policyholders Account ..... 217
62. Private Sector Non-Life Insurers - Shareholders Account ..... 225
63. Private Sector Non-Life Insurers - Balance Sheet ..... 227
64. Health Insurers - Policyholders Account ..... 229
65. Health Insurers - Shareholders Account ..... 230
66. Health Insurers - Balance Sheet ..... 231
67. Export Credit Guarantee Corporation Ltd. (ECGC) - Policyholders Account ..... 232
68. Export Credit Guarantee Corporation Ltd.(ECGC) - Shareholder Account ..... 233
69. Export Credit Guarantee Corporation Ltd. (ECGC) – Balance Sheet ..... 234
70. Agriculture Insurance Company of India Ltd. (AIC) - Policyholders Account ..... 235
71. Agriculture Insurance Company of India Ltd. (AIC) - Shareholders Account ..... 236
72. Agriculture Insurance Company of India Ltd. (AIC) – Balance Sheet ..... 237
73. General Insurance Corporation (GIC) - Policyholders Account ..... 238
74. General Insurance Corporation (GIC) - Shareholders Account ..... 239
75. General Insurance Corporation (GIC) – Balance Sheet ..... 240
76. State Wise Number of Offices of Non-Life Insurers ..... 241
77. State Wise Number of Districts Covered by Non-Life Insurers ..... 243
78. State Wise Number of Registered Brokers ..... 244
79. Third Party Administration – No. of Claims Received & Duration Wise Settlement of Claims ..... 245
80. Status of Grievances - Life Insurers ..... 247
81. Status of Grievances - Non-Life Insurers ..... 248
82. Performance of Ombudsmen at different centres- Life Insurance ..... 249
83. Performance of Ombudsmen at different centres - Non-Life Insurance ..... 250
84. Performance of Ombudsmen at different centres - Life and Non-Life Insurance Combined ..... 251
xii

13. ANNUAL REPORT 2011-12
LIST OF ANNEX
1. Insurance Companies Operating in India ..... 255
2. Fee Structure for Insurers and Various Intermediaries ..... 257
3. (i) Indian Assured Lives Mortality (1994-96) (Modified) Ultimate ..... 258
(ii) Mortality Rates of Annuitants in LIC of India ..... 259
4. Life Insurance Products cleared during the financial year 2011-12 ..... 260
5. List of Micro Insurance Products of Life Insurers ..... 265
6. Non-Life Insurance Products cleared during the financial year 2011-12 ..... 266
7. Health Insurance Products cleared during the financial year 2011-12 ..... 268
8. Obligatory Cessions received by GIC ..... 270
9. Circulars / Orders / Notifications issued by the Authority
during the financial year 2011-12 ..... 271
10. Regulations framed under the IRDA Act, 1999 ..... 276
xiii

15. MISSION STATEMENT
 To protect the interest of and secure fair treatment to policyholders;
 To bring about speedy and orderly growth of the insurance industry (including annuity and
superannuation payments), for the benefit of the common man, and to provide long term
funds for accelerating growth of the economy;
 To set, promote, monitor and enforce high standards of integrity, financial soundness, fair
dealing and competence of those it regulates;
 To ensure 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
of financial soundness amongst market players;
 To take action where such standards are inadequate or ineffectively enforced;
 To bring about optimum amount of self-regulation in day-to-day working of the industry
consistent with the requirements of prudential regulation.

17. ANNUAL REPORT 2011-12
xvii

18. ANNUAL REPORT 2011-12
PART TIME MEMBERS
xviii

19. ANNUAL REPORT 2011-12
xix

20. ANNUAL REPORT 2011-12
xx

21. ANNUAL REPORT 2011-12
xxi

22. ANNUAL REPORT 2011-12
NAME DESIGNATION
ACCOUNTS DEPARTMENT
PRASSAD RAO KALAYRU Deputy Director
BISWAJIT SAMADDAR Assistant Director
SHYAM SUNDAR MOHAKUD Junior Officer
SANEETHA K A Assistant
ACTUARIAL DEPARTMENT
J MEENAKUMARI Joint Director
J ANITA Deputy Director
P K MAITI Deputy Director
N S K PRABHAKAR Deputy Director
C SRINIVASA KUMAR Deputy Director
MANOJ KUMAR Deputy Director
SUSAN ITTYERAH Senior Assistant Director
DNKLNK CHAKRAVARTHI Assistant Director
MBVN MURTHY Assistant Director
SANTOSH KUMAR MISHRA Assistant Director
YOGITA RAWAT Assistant Director
ASHUTOSH KUMAR RAJESH Assistant Director
B SOMESWARA RAO Junior Officer
R SANGEETHA Junior Officer
LEKSHMI PILLAI Junior Officer
SARATCHANDRA Assistant
SUJOY SAHA Assistant
ADMINISTRATION DEPARTMENT
RAKESH K BAJAJ Joint Director
B RAGHAVAN Senior Assistant Director
MANJU ARORA Senior Assistant Director
K CHITTIBABU Assistant Director
HARI Junior Officer
A RAMA SUDHEER Junior Officer (PS to ED(Admn))
SUSH PAL Assistant
INDRADEEP SAH Assistant
BH SURYANARAYANA SASTRY Assistant
A B SONI Assistant
SHASHI PAL Record Keeper
xxii

23. ANNUAL REPORT 2011-12
NAME DESIGNATION
CONSUMER AFFAIRS DEPARTMENT
YEGNA PRIYA BHARAT Joint Director
KGPL RAMA DEVI Deputy Director
R SRINIVASAN Officer on Special Duty
KAMAL CHOWLA Assistant Director
MATHANGI SARITHA Assistant Director
K SRINIVAS Assistant Director
MANOJ KUMAR ASIWAL Assistant Director
NEERAJ MANI TRIPATHI Assistant
CHAIRMAN’S SECRETARIAT
V S NARENDRA CHANDRA Junior Officer
V V N KIRANKUMAR SHARMA Assistant
FINANCE AND ACCOUNTS (LIFE) DEPARTMENT
RAJ KUMAR SHARMA Deputy Director & CAO
SHARDUL SURESH ADMANE Senior Assistant Director
AKANKSHA GUPTA Assistant Director
MOHAMMAD AYAZ Assistant Director
RAMBABU GORLI Assistant Director
AMEER HASSAN Assistant
FINANCE AND ACCOUNTS (NON-LIFE) DEPARTMENT
S N JAYASIMHAN Joint Director
AMMU VENKATA RAMANA Deputy Director
Dr RAVINDER KAUR Assistant Director
SANJAY MOHAN SHARMA Assistant Director
TRILOKI NATH Assistant
B BALAKRISHNA Assistant
ANURAG BAJPAI Assistant
HEALTH DEPARTMENT
NILAMADHAB BEHERA Deputy Director
JYOTI AJIT VAIDYA Deputy Director
R PARDHA SARADHI Assistant Director
JAMUNA CHOUDHARY Assistant Director
MURTHY LAKSHMI NARASIMHA DASARI Assistant Director
xxiii

24. ANNUAL REPORT 2011-12
NAME DESIGNATION
HUMAN RESOURCES DEPARTMENT
T VENKATESWARA RAO Deputy Director
SAGEENA A Assistant Director
P MAJUMDER Junior Officer
INSPECTION DEPARTMENT
M PULLA RAO Senior Joint Director
MUKESH SHARMA Joint Director
S P CHAKRABORTY Deputy Director
G R SURYA KUMAR Deputy Director
K MAHIPAL REDDY Deputy Director
NANDAN KUMAR Assistant Director
VIKAS JAIN Assistant Director
BHASKER P KHADAKBHAVI Assistant Director
G SIVARAMAKRISHNA Assistant Director
NEELESH GUPTA Assistant Director
BASKAR THEERTHARAMAN Assistant Director
V SARVOTHAMUDU Officer on Special Duty
V SATYA SRINIVAS Officer on Special Duty
Y SRINIVASU Officer on Special Duty
B V SASTRY Officer on Special Duty
P KANTHISREE Junior Officer
AJEET ORAON Assistant
INTERMEDIARIES DEPARTMENT
SURESH MATHUR Senior Joint Director
T S NAIK Joint Director
SUDHA RAMANUJAM Deputy Director
DEEPAK KHANNA Deputy Director
SATISH V HEGDE Officer on Special Duty
NIMISHA SRIVASTAVA Senior Assistant Director
D SRINIVASA MURTHY Senior Assistant Director
SUNITHA L V S Assistant Director
MUKESH KUMAR Assistant Director
D GYANA PRASUNA Assistant Director
RAJESWAR GANGULA Assistant Director
NEETU SHAHADADPURI Assistant Director
P HIMAKIRAN Assistant Director
xxiv

25. ANNUAL REPORT 2011-12
NAME DESIGNATION
MANISH MISRA Assistant Director
K RAMBABU Assistant Director
TATI KIRAN Assistant
RAVINDRA DAS Assistant
DOMALA RAJANIKANTH Assistant
GANDI VENKATA RAMANA Assistant
INVESTMENT DEPARTMENT
RAMANA RAO ADDANKI Joint Director
R KUMAR Deputy Director
SURESH NAIR Senior Assistant Director
R UMA MAHESWARI Senior Assistant Director
MAHESH AGARWAL Senior Assistant Director
A KESHAVA RAO Junior Officer (PS to Member (F&I))
RAKESH SARODEY Assistant
INFORMATION TECHNOLOGY DEPARTMENT
A R NITHIAYANANTHAM Joint Director
SANJEEV KUMAR JAIN Joint Director
DEEPAK KUMAR GAIKWAD Deputy Director
SANJAY KUMAR VERMA Deputy Director
VINAY KUMAR MATHANGI Assistant
KLN RAGHAVA KUMAR Assistant
LEGAL DEPARTMENT
H ANANTHAKRISHNAN Joint Director
ALEEM AFAQUE Assistant Director
NARENDRA SINGH Assistant
LIFE DEPARTMENT
V JAYANTH KUMAR Joint Director
D V S RAMESH Deputy Director
SUDIPTA BHATTACHARYA Deputy Director
GAUTAM KUMAR Deputy Director
S KARTIKEYA SARMA Assistant Director
R LALITHA KUMARI Assistant Director
K SRIDHAR RAO Assistant Director
H BABU YOGISH Assistant Director
V CHITRA Assistant Director
B ARUNA Junior Officer (PS to Member (Life))
SIVA PRASAD YEDDU Assistant
xxv

26. ANNUAL REPORT 2011-12
NAME DESIGNATION
NON-LIFE DEPARTMENT
RANDIP SINGH JAGPAL Joint Director
PANKAJ KUMAR TEWARI Deputy Director
SHIKSHA SHAHA Senior Assistant Director
K SRIDHAR Assistant Director
CH B CHANDRASEKHARA RAO Assistant Director
ANIL KUMAR THATIPALLI Assistant Director
PARAMESHWAR LIMBAJIRAO SHELKE Assistant Director
S DAKSHINAMOORTHY Assistant Director
SHRIHARI ALLAMSETTY Assistant Director
SUKESH KUMAR Assistant Director
M L SOUJANYA Junior Officer (PS to Member (Non-life))
B S VENKATESH Junior Officer
AKASH DANGWAR Assistant
OFFICIAL LANGUAGE IMPLEMENTATION
JYOTI BHAGAT Assistant Director
SECTORAL DEVELOPMENT DEPARTMENT
Dr MAMTA SURI Joint Director
Dr R K SINHA Officer on Special Duty
A V RAO Deputy Director
B PADMAJA Senior Assistant Director
MUNSHI M NIZAMUDDIN Assistant Director
K ANAND RAO Assistant Director
DASIKA S MURALIMOHAN Assistant
ON DEPUTATION TO INSURANCE INFORMATION BUREAU
JAYA KUMAR Deputy Director
M MADHUSUDHAN Assistant Director
SWATI BAJAJ Assistant Director
MUKESH KEWALRAMANI Assistant Director
VIKAS KUMAR KAPOOR Junior Officer
DEVENDRA KUMAR Junior Officer
ISHTIAQUE ALAM Assistant
VIKAS S RANE Assistant
ON CONTRACT
U JAWAHAR LAL Editor, IRDA Journal
xxvi

27. ANNUAL REPORT 2011-12
OVERVIEW
The Indian Economy: and business” remains the largest component with 17.9
per cent share in the Indian economy. The same has
1. Against the backdrop of adverse macro-economic
increased gradually over the last few years, viz. 2007-08
factors, the Indian economy measured in terms of Gross
(16.1 per cent), 2008-09 (16.9 per cent), 2009-10 (17.1
Domestic Product (GDP) registered a growth rate of 6.5
per cent) and 2010-11 (17.4 per cent).
per cent in 2011-12, which is the lowest annual growth
rate of last decade. Further, this growth rate also Global Economic Environment:
happened to be lower than even that of year 2008-09,
4. According to the latest World Economic Outlook (WEO)
the year when the financial crisis began. In that year, the
published by the International Monetary Fund (IMF), the
Indian economy grew at 6.7 per cent. The hardening of
world economy is projected to grow at the rate of 3.5 per
interest rate, moderation in demand (both domestic and
cent in the year 2012, which is lower when compared to
external), slowdown in consumption expenditure,
the 5.3 per cent and 4.0 per cent growth achieved during
especially in interest rate sensitive commodities, subdued
2010 and 2011 respectively. The slowdown in the global
business confidence and global economic uncertainty
economy, which started in the advanced economies,
collectively contributed to the weakening of the Indian
mainly of Europe, has spread to major emerging
economy. While the slowdown in the economy remained
economies too including China, India and Brazil.
across the board, the industrial sector appeared to be the
worst hit. The sector reported a meagre growth rate of 5. As per projections of the IMF, the euro area would
2.6 per cent during 2011-12, as compared to 6.8 per cent continue to reel under recession in 2012 as a result of
in the previous year. With this, the sector grew at an the sovereign debt crisis, problems in the banking sector
average growth rate of 6.3 per cent in the last five years and fiscal consolidation efforts of various governments.
(2007-08 to 2011-12). The slowdown in industrial Due to recession in the European economy, the advanced
production appeared to be almost across all sub-sectors. economies as a group are expected to grow only at the
rate of 1.5 per cent in 2012 and 2 per cent in 2013.
2. The agricultural sector too grew at a substantially
Similarly, the real GDP growth in the emerging and
lower rate of 2.8 per cent in 2011-12, as compared to 7.0
developing economies is projected to slow down from
per cent achieved in the previous year. However, the
6.25 per cent in 2011 to 5.75 per cent in 2012. Lack of
same is only marginally lower than the average growth
demand from advanced economies and uncertainty
rate of the past five years (2007-08 to 2011-12) at 3.3 per
emerging from euro zone has caused the slowdown in
cent. The agricultural sector exceptionally out-performed
emerging and developing economies as well. The major
in 2010-11 on account of a very good monsoon. The
risks to the global economy are further escalation of euro
services sector continued to grow at a faster rate in
area crisis, increase in oil prices due to geopolitics and
2011-12. It witnessed a growth of 8.5 per cent (previous
volatility in the financial markets.
year 9.2 per cent). Amongst the various service sectors,
the growth rate in the “financing, insurance, real estate 6. Many policy initiatives are needed to ensure recovery
and business” services stood at 9.6 per cent in 2011-12, of the global economy, says the IMF Report. In the short
as compared to 10.4 per cent of previous year. The term, these include efforts to address the euro area crisis,
average annual growth rate of this segment continued to a temperate approach to fiscal restraint in response to
be in double digit (10.7 per cent) during the period of past weaker activity, continuation of accommodative monetary
five years, viz. 2007-08 to 2011-12. policies and ample liquidity to the financial sector. In the
long term, the most important policy initiatives include
3. The share, in terms of real GDP, of the services sector
fundamental reforms in the financial sector, progress with
in the Indian economy continued to rise consistently. The
fiscal consolidation including ambitious reform of
share went up further to 66.8 per cent in 2011-12
entitlement programs, and structural reforms to boost
(65.5 per cent in 2010-11), because of better performance
potential output.
of this sector in absolute as well as in relative (to
agricultural and industrial sector) sense. Within the 7. Many of the emerging and developing economies
services sectors, the “financing, insurance, real estate have had an unusually good run over the past decade,
1

28. ANNUAL REPORT 2011-12
supported by rapid credit growth or high commodity Indian insurance sector:
prices. Though credit growth is a manifestation of financial
10. As at end-September 2012, there are fifty-two
deepening, it cannot continue to expand at its present insurance companies operating in India; of which twenty
pace without raising serious concerns about the quality four are in the life insurance business and twenty-seven
of bank lending. Similarly, commodity prices cannot are in non-life insurance business. In addition, General
continue to grow at the elevated pace witnessed over the Insurance Corporation (GIC) is the sole national reinsurer.
past decade, other than exhibiting short-term spikes The life insurance industry recorded a premium income
related to geopolitical tensions. The key near-term of `2, 87,072 crore during 2011-12 as against `2, 91,639
challenge for emerging and developing economies is how crore in the previous financial year, registering a negative
to appropriately calibrate macroeconomic policies to growth of 1.57 per cent. While private sector insurers
address the significant downside risks from advanced posted 4.52 per cent decline (11.08 per cent growth in
economies while keeping in check overheating pressures previous year) in their premium income, Life Insurance
from strong activity, high credit growth, volatile capital Corporation (LIC), the fully state owned insurance
flows, still elevated commodity prices, and renewed risks company, recorded 0.29 per cent decline (9.35 per cent
to inflation and fiscal positions from energy prices. For growth in previous year), in its total premium underwritten.
economies that have largely normalized macroeconomic While the renewal premium accounted for 60.31 per cent
policies, the near-term focus should be on responding to (56.66 per cent in 2010-11) of the total premium received
lower external demand from advanced economies. Other by the life insurers, first year premium contributed the
economies should continue to rebuild macroeconomic remaining 39.69 per cent (43.34 per cent in 2010-11).
policy and strengthen prudential policies and frameworks. During 2011-12, the growth in renewal premium was 4.77
per cent (6.23 per cent in 2010-11). First year premium
Insurance markets: registered a decline of 9.85 per cent in comparison to
8. As per the World Insurance Report, published by the growth of 15.02 per cent during 2010-11.
reinsurance major “Swiss Re”, the global direct premium 11. In the non-life segment, the insurers underwrote gross
during 2011 dropped by 0.8 per cent against a surge at direct premium of `52,876 crore in India for the year
2.7 per cent growth witnessed in the previous year. 2011-12 as against `42,576 crore in 2010-11, registering
Globally, life insurance premium accounted for 57 per a growth of 24.19 per cent as against an increase of 22.98
cent of total insurance premium. This share is higher in per cent recorded in the previous year. The public sector
advanced economies than in the emerging markets. insurers exhibited growth in 2011-12 at 21.50 per cent;
During 2011, global life insurance premium dropped by as against the previous year’s growth rate of 21.84 per
2.7 per cent to USD 2627 billion. The premium volume cent. The private sector general insurers registered a
fell in Western Europe, China and India, whereas, it rose growth of 28.06 per cent, which is higher than 24.67 per
in Middle East and Latin America. cent achieved during the previous year.
9. On the other hand, the premium in non-life insurance Penetration and Density:
business grew by 1.9 per cent. Latin America reported
12. The potential and performance of the insurance sector
remarkably high growth. The Report mentions that the is universally assessed with reference to two parameters,
year 2011 witnessed exceptionally high catastrophe viz., insurance penetration and insurance density. These
losses in Japan, Australia, and the United States, while two are often used to determine the level of development
European countries generally enjoyed low catastrophe of the insurance sector in a country. Insurance penetration
claims. In 2011, total economic losses to Society due to is defined as the ratio of premium underwritten in a given
disasters (both insured and uninsured) reached an year to the Gross Domestic Product (GDP). The insurance
estimated USD 370 billion, compared to USD 226 billion penetration in India, which surged consistently till
in 2010. The earthquake in Japan, the country’s worst on 2009-10, has slipped since 2010-11 on account of
record in terms of magnitude, alone accounted for 57 per slowdown in life insurance premium as compared to the
cent of global economic losses. The insured losses from growth rate of the Indian economy. Life insurance
natural catastrophes appeared to be to the tune of penetration had consistently gone up from 2.15 per cent
USD 110 billion. in 2001 to 4.60 in 2009, before slipping to 4.40 per cent
2

29. ANNUAL REPORT 2011-12
in 2010 and further slipping to 3.40 per cent in 2011. insurance agents vide its circular dated 13th March, 2008,
However, penetration of the non-life insurance sector in in addition to NGOs registered as societies that were
the country has remained near constant in the range of already permitted to act as agents under the Micro
0.55-0.75 per cent over the last 10 years (0.71 per cent Insurance Regulations.
in 2010 and 0.70 in 2011).
16. With a view to giving a further fillip to micro insurance
13. Insurance density is defined as the ratio of premium business, the Authority has reviewed comprehensively
underwritten in a given year to the total population the extant regulatory architecture of the micro insurance
(measured in USD for convenience of comparison). India business and issued an exposure draft on 26th July, 2012
has reported consistent increase in insurance density proposing modifications to the existing IRDA (Micro
every year since the sector was opened up for private Insurance) Regulations, 2005. The intent of the review is
competition in the year 2000. However, for the first time to create an encouraging regulatory environment for
in 2011, there was a fall in insurance density. The life promoting micro insurance business in the country.
insurance density in India has gone up from USD 9.1 in Towards this end, the existing standalone delivery
2001 to USD 49.0 in 2011 though it reached the peak of channel is proposed to be strengthened; encourage
USD 55.7 in 2010. The insurance density of non-life sector diversity in the products offered by insurance companies
reached the peak of USD 10.0 in 2011 from its level of under this stream; customize products to meet the needs
USD 2.4 in 2001. of the targeted sections of society; expand the coverage
Micro insurance: to include micro, small and medium enterprises; and
strengthen regulatory oversight.
14. In an effort to ensure a balanced and speedy
expansion of insurance coverage in the country, the 17. In the life insurance business of the micro insurance,
Authority has put in place the regulatory framework laying the Individual New Business premium in the year stood
down the obligations of insurers to the rural and social at `115.68 crore for 46.20 lakh new policies, the group
sectors. These regulations impose obligations on insurers business premium amounted to `109.82 crore covering
towards the rural population - to sell a specified 1.02 crore of lives. LIC contributed most of the business
percentage of policies and underwrite specified procured in this portfolio by garnering `106.03 crore of
percentage of gross premium underwritten for life and individual premium from 38.26 lakh lives and `98.32 crore
non-life insurance companies respectively; and cover a of group premium underwriting 94.44 lakh lives.
specified number of lives/assets belonging to people Revision in Motor Third Party Premium Rates:
below poverty line or those pursuing certain traditional
occupations. These obligations have been linked to the 18. Till the end of year 2006, the general insurance
number of years of having been in operations of the business in India was tariff-based which was being
respective insurer. The Government of India had set up administered by the erstwhile Tariff Advisory Committee
a consulting group in 2003 to examine the existing (TAC). The TAC vide its circular no TAC/7/06 dated 4th
insurance schemes for the rural poor; and on the basis December 2006 decided that the rates, terms, conditions
of the group’s recommendations, the Authority issued & regulations applicable to fire, engineering, motor,
IRDA (Micro insurance) Regulations, 2005. workmen’s compensation and other classes of business
which were under tariffs would be withdrawn from
15. Since notification of the Micro Insurance Regulations
1st January 2007. Subsequently, by virtue of power vested
in November, 2005, the Authority has been monitoring
in the Authority under Section 14(2)(i) of the IRDA Act,
the progress of micro insurance business and examining
1999, the Authority notified that the Tariff general
the possibilities of offering a facilitative approach to the
regulations (other than those relating to rating), terms,
industry so that the micro insurance business could take
conditions, clauses, warranties, policy and endorsement
off as a class of business to further extend insurance
wordings applicable to respective policies would continue
penetration amongst various sections of the society.
to be followed.
Towards this direction, the Authority permitted Non-
Governmental Organizations (NGOs) registered as Non 19. With effect from 1 st January, 2007, tariffs were
Profit Companies, including NGOs registered under withdrawn from the non-life insurance market. However,
Section 25 of the Companies Act, 1956 to act as micro keeping in mind the mandatory nature of the Third Party
3

30. ANNUAL REPORT 2011-12
Motor Insurance, the Authority decided to regulate the pegged to the cost inflation index, average claim amounts,
premium rates in this segment with effect from 1st January, frequency and expenses involved in servicing the motor
2007 vide circular no.034/IRDA/De-tariff/Dec-06 dated TP business.
4th December, 2006 which was later modified vide circular
Provisioning for Third Party Liability:
dated 23rd January, 2007. The premium rates for motor
TP were revised for the first time since 2002 after a 21. Authority during the financial year undertook Actuarial
detailed analysis of Motor TP rates and discussions with valuation of the Indian Motor Third Party Insurance Pool
various apex associations of transporters. Further, to (IMTPIP) in order to assess adequacy of the reserves
redress grievances of non-availability of Motor Third Party which are to be calculated as per the IRDA Regulations.
Insurance, especially for commercial vehicles, the The actuarial report established that the ultimate loss
Authority in consultation with the Consultative Committee ratios are 172.3 per cent, 181.81 per cent and 194.15 per
constituted under Section 110G of the Insurance Act, cent for the years 2007-08, 2008-09 and 2009-10
1938 issued direction under Section 34 of the Insurance respectively. Against this estimate, the pool had
Act, 1938 vide circular no.035/Motor-TP/Dec-06 dated maintained reserves at 126 per cent for all these years
4th December, 2006 and constituted the Indian Motor Third which was considered to be insufficient. Hence, the
Party Insurance Pool (IMTPIP). Authority, under Section 14 of the IRDA Act, 1999 issued
directions to the non-life insurers to maintain a solvency
20. The motor TP premium rates which were set effective
ratio of not less than 130 per cent for all lines of business
from 1st January, 2007 were not revised by the Authority
as on 31st March, 2012 for the IMTPIP losses being valued
till the end of year 2010-11. Due to the huge operating
at an ultimate loss ratio of not less than 159 per cent for
losses in this segment over the years, all non-life
all the years the pool was underwriting business. It also
insurance companies through the General Insurance
directed the insurers not to declare dividends to the
Council approached the Authority for upward revision of
shareholders without the prior specific approval of the
premium rates for motor third party insurance cover. After
Authority for any year wherein the solvency ratio is
several rounds of deliberations with all stakeholders, and
reported below 150 per cent. It also directed the
considerable actuarial analysis, the IRDA issued an
companies to submit a financial plan as approved by the
Exposure Draft in January 2011 with the proposed revised
Board of Directors, to the Authority within a period of two
premium rates. The Authority also invited all the
months, indicating a course of action proposed to correct
stakeholders to provide their comments on the draft
the deficiency for the said three year period up to March
proposal. After receiving responses, the Authority then
2014.
held a series of discussions with the Transporters’
Associations and Insurers. Subsequently, the Authority 22. During the year, one of the significant measures taken
notified the revised premium rates for motor third party by IRDA was to dismantle the IMTPIP. The Authority
insurance cover vide notification dated 15th April, 2011. chose to prescribe the clean-cut method which is a well-
The revised rates came into operation with effect from accepted principle of settling long-tail outstanding
25th April, 2011. Though the insurance companies had liabilities. By this method the motor third party pool
requested for 85 per cent hike in the premium rates across liabilities could be determined and settled for all times on
all segments of vehicles, after considering the concerns/ 31st March, 2012. This would thereby de-risk the general
requests/suggestions of various stakeholders, the insurance industry. The long-tail outstanding liabilities
Authority decided to hike the premium rates only to the could be determined on actuarial principles. This is a
tune of 10 per cent in respect of two wheelers and private quick and efficient way of settling liabilities. On the other
cars; and 68.5 per cent in respect of the commercial hand, the run-off method of settling claim would have
vehicles. It was also notified that long intervals between meant that the actual and true liability would be
rate revision puts an avoidable strain on policyholders as ascertained and shared amongst all the players in the
well as on the insurance companies and therefore the proportion agreed at the beginning. However this would
rates would be reviewed and adjusted annually in line have meant that the companies would have to keep their
with the formula notified by the Authority. As per the books open till the settlement of last claim and so the
prescriptions, the revision in the premium rates has been process could run through many years.
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31. ANNUAL REPORT 2011-12
Formation of Indian Motor Third Party Declined Risk worthiness of the policyholder, which shall have no conflict
Insurance Pool: of interest with the policyholder.
23. The Authority issued an Order in December 2011 and 26. No specific trade credit insurance policy can be sold
created a declined risk pool for Liability Only Commercial to a single prospect. Trade credit insurance shall not offer
Vehicle Third Party Insurance with effect from 1st April, indemnity which is more than 80 per cent of the trade
2012. The purpose of creating the Indian Motor Third receivables of the buyer or 90 per cent of the cost incurred
Party Declined Risk Insurance Pool for Commercial by seller for previous year, whichever is lower. The
vehicles (Act only Insurance) is (a) Equitable and fair prerequisites for an insurance company to underwrite
sharing by all insurers; (b) No supply side constraints; (c) credit insurance include defined internal underwriting,
Simple to administer; and (d) To bring claims management risk management and claims settlement guidelines
efficiency. The Pool shall apply to the commercial vehicles approved by the Board of Directors for writing this class
for standalone third party liability insurance. No of business. The regulatory guidelines also specify
comprehensive motor insurance policy or part thereof creation of premium, claims, Incurred But Not Reported
shall be ceded to the Pool. All existing general insurers (IBNR) and Incurred But Not Enough Reported (IBNER)
and every newly registered general insurer shall reserves on actuarial basis. The guidelines also specify
automatically be admitted as member of the Indian Motor that the insurer should have qualified, experienced and
Third Party Declined Risk Insurance Pool (Declined Risk trained employees for dealing with trade credit insurance.
Pool) and specialist insurers not licensed for motor The Authority has also specified additional reporting
insurance business shall not be members of the declined requirements to monitor the performance of this line of
risk pool. GIC shall act as the pool administrator of the business. In this connection, the Authority has also
Declined Risk Pool. devised the reporting formats for capturing the credit
24. The premium for declined risk pool shall be insurance business figures so as to have the information
determined in accordance with the actuarial principles at hand for further analysis of the business. These
which shall be used by all the insurers and shall be notified reporting formats will help in taking further steps to ensure
by the Authority from time to time. that the trade credit insurance serves its purpose in a
more effective manner and its ambit is expanded to
Trade Credit Insurance: ensure that credit insurance is accessible by a wider set
25. The Authority issued trade credit insurance guidelines of buyers and sellers in the market.
during 2010-11 in order to ensure orderly growth of this Reinsurance:
sector on sound insurance principles. The salient features
of the guidelines include definition of various terms 27. The Authority framed the General Insurance-
associated with trade credit insurance and the scope of Reinsurance Regulations, 2000 and Life Insurance-
cover under trade credit insurance policy. The guidelines Reinsurance Regulations, 2000 under powers granted to
specify basic requirements of a trade credit insurance it under Section 114A of the Insurance Act, 1938 and
product which include that the policyholder should Sections 14 and 26 of the IRDA Act, 1999 on matters
necessarily be a supplier of goods and services; and the pertaining to reinsurance. In view of the emerging market
cover should provide for indemnity for loss suffered due practices and trends, the Authority decided to review the
to non-receipt of trade receivables. The guidelines also regulations. Accordingly, a Committee was constituted in
specify conditions on trade credit insurance from insurer’s February 2011 under the Chairmanship of Shri Yogesh
perspective and policyholder perspective which include Lohia to formulate / amend the said regulations. The
that this policy cannot be issued to banks/financiers/ Committee was also mandated to make recommendations
lenders or where they are a beneficiary of the claim or in the light of the proposed amendments to the Insurance
where the proceeds of the claim are assigned to them. A Act, 1938. The proposed amendments to the regulations
Trade Credit Insurance policy can be sold to a seller on include incorporating additional definitions / modifying
a whole turnover basis. There shall be pre-credit limits existing definitions, retentions being linked to quality of
for each buyer fixed by the insurer and also an overall risk, expanding the scope of reinsurance programs to
limit under the policy. An insurer is required to appoint a include Alternative Risk transfer (ART) techniques, pools
credit management agency for assessing credit etc., prescribing additional disclosures, prescribing
5

32. ANNUAL REPORT 2011-12
changes to the retention levels of 1999-2000, and 30. Section 35 of the Insurance Act, 1938 lays down the
prescribing additional returns, to be filed with the Authority, prescriptions for amalgamation and transfer of life
filing of insurer’s reinsurance treaty duly approved by the insurance business. The said section stipulates that no
Board, amongst others. life insurance business of an insurer shall be transferred
or amalgamated with the life insurance business of any
Health Insurance Regulations: other insurer except in accordance with a scheme
28. Health Insurance continues to be one of the most prepared under the said section and approved by the
rapidly growing sectors in the Indian insurance industry. Authority. The Authority is working on laying down the
The growth of health insurance industry lies mainly in regulations for amalgamation and transfer of life insurance
better customer orientation in terms of servicing the companies. The regulations propose to lay down the
customers, standardization of procedures and definitions procedural framework for the same. The regulatory
across the industry. Standardization provides simple yet framework for amalgamation and transfer of life insurance
companies would be broadly on the same lines as in the
innovative products, better understanding of the terms
case of non-life insurance companies already notified by
by the public, less complaints and easy penetration in the
the Authority. However, provisions of Sections 35 to 37
market. Increased awareness about the benefits of Health
of the Insurance Act, 1938 have been duly incorporated
insurance, particularly in urban areas has occurred due
in the proposed regulations. The Regulations propose a
to rise in medical costs and also as a result of popular
three stage process whereunder subsequent to the grant
Government schemes. Simultaneously, this has led to of ‘in-principle’ approval, the applicant companies shall
increase in both number of complaints and queries under ensure compliance with various regulatory provisions as
the Right to Information Act (RTI) from the general public may be applicable to them. Thereafter, the Authority shall
on Health insurance. This in turn has steered the regulator grant its final approval to the proposed scheme of
to take a number of corrective measures for strengthening Amalgamation upon confirmation that all regulatory
protection of health insurance policyholders and for the compliances are in place.
orderly growth of the sector. The Authority has also taken
Issuance of Capital by Insurance Companies:
up key initiatives including constitution of the Health
Insurance Forum, standardizing of claims formats and 31. The section 6AA of the Insurance Act, 1938 requires
other documents. With the objective to track the business that no promoter shall at any time hold more than twenty-
progress of health insurance industry as also to regulate six per cent or such other percentage as may be
the health insurance industry in India, IRDA has prescribed, of the paid-up equity capital in an Indian
formulated IRDA (Health Insurance) Regulations, 2012, insurance company after a period of ten years from the
date of the commencement of the said business by such
which are presently in the advanced stage of discussions
Indian insurance company or within such period as may
for notification.
be prescribed by the Central Government. The section
Amalgamation of insurance companies: further provides that any excess over and above this
percentage shall be divested by the promoters in a
29. The Insurance Act, 1938 lays down the framework
phased manner. Further, the manner and procedure for
for amalgamation of life insurance companies. Given that
divesting the excess share capital is required to be
a similar provisions are not available in case of non-life
specified in the regulations made by the Authority. To
insurance companies, this anomaly is proposed to be
facilitate the process of divestment and laying down the
rectified in the Insurance Amendment Bill, 2008, to
manner and procedure of such divestment, the Authority
address the statutory/regulatory gap with respect to the has notified the regulations on issuance of capital by life
non-life insurance companies. Pending the amendment, insurance companies. The regulations lay down the
the Authority has laid down the framework for amalgamation manner and procedure for divestment of such excess
of non-life insurance companies through notification of stake by the life insurance companies and the framework
the necessary regulations in this regard. While laying for eligibility of the applicant companies to raise funds
down the regulatory framework, the Authority has been through public issues. The regulations also lay down the
guided by the need for protection of the policyholders’ disclosures specific to the life insurance companies that
interests. shall form part of the offer document.
6

33. ANNUAL REPORT 2011-12
32. The regulations have been prepared based on a as the starting point to sensitise all insurers of the need
consultative process with the Securities and Exchange for moving towards the risk based capital regime from
Board of India (SEBI). The sub-group of the SEBI the current fixed factor based formula approach.
Committee on Disclosures and Accounting Standards
Initiatives on Implementation of IFRS:
(SCODA) had finalized the disclosure requirements with
respect to insurance companies based on the international 36. The Ministry of Corporate Affairs in its road map for
best practices. The report of the sub-group was adopted convergence of Indian Accounting Standards to
by SCODA and then the Board of SEBI. These International Financial Reporting Standards (IFRS) had
recommendations now form the basis for the disclosure specified that all insurance companies shall convert their
requirements which have been stipulated in the opening balance sheet as at 1st April, 2012 in compliance
regulations. with the standards (IFRS). This commitment was made
by the Ministry of Corporate Affairs in consultation with
33. The IRDA had notified the regulations for issuance
the Authority for convergence to IFRS by the said date.
of capital by life insurance companies on 14th November,
The recommendation of the Authority was based on the
2011. It is now proposed to issue similar regulations for
premise that various standards issued by International
issuance of capital by non-life insurance companies laying
Accounting Standard Board (IASB) particularly on
down the eligibility criteria for the applicant non-life
insurance contracts and valuation of financial assets
insurance company and minimum disclosure requirements
(IFRS-9) would be finalised by IASB and would be in place
to be complied with in the offer document while going for
well before the start of the financial year 2012-13.
public listing. These requirements are in addition to those
stipulated by SEBI under the Issue of Capital and 37. The Authority is of the view that in the absence of a
Disclosure Regulations, 2009. proper understanding of the implication of various issues,
in the short and long run, it would be too premature to
Economic Capital:
migrate to the IFRS standards as committed on an earlier
34. The framework for assessment of Economic Capital occasion. IASB has not been able to adhere to the time
plays an important role in the entire risk management line of June, 2011 for finalisation of the Exposure Draft
mechanism of insurance companies, which enables on Insurance Contracts. IASB is further going to come
insurers to determine the right amount of capital to be out with a limited revised Exposure Draft on Insurance
allocated to each and every risk encountered by individual Contracts. Even after its eventual finalisation, IASB
insurers in carrying out the insurance business. Economic provides a time period of 18 months for its implementation.
Capital reflects the individual company’s specific risk This means, the standard on Insurance Contracts will not
profile; and provides the framework for quantification of be implemented before March, 2014.
optimum capital to be allocated against each risk based
38. In view of the above circumstances, the Authority has
on company specific internal models.
written to Ministry of Corporate Affairs to revisit the 2012
35. Keeping in view the importance and necessity of date of compliance with IFRS standards for the insurance
assessment of ‘Economic Capital’ in the insurance sector, sector, and defer it till such date as IASB comes out with
the Authority has mandated both life and non-life the revised standard on insurance contracts and valuation
insurance companies to submit the Economic Capital of financial assets. In the meantime, the Ministry of
report annually. The computation is based on a one year Corporate Affairs in consultation with National Advisory
time horizon calibrated on a Value at Risk (VaR) level of Committee on Accounting Standards (NACAS) has
99.50 per cent with risks categorized as Insurance, notified Converged Standards (IND-AS). However, the
Operational, Market, Liquidity and Credit risks for life date of implementation of these standards is yet to be
insurers; and Underwriting, Market, Expense, Operational notified.
and Liquidity risks, for non life insurers. Insurers are
Insurance Information Bureau:
allowed to reduce the total economic capital requirement
to the extent of diversification effect which has been 39. Insurance Information Bureau (IIB) was formed in
capped at 30 per cent of the Economic Capital for life October 2009 with the objective of providing efficient
insurers. This move of the Authority can be considered functioning of the insurance sector as well as the
7

34. ANNUAL REPORT 2011-12
protection of the interests of the policyholders by providing industry and this facilitates both IRDA as well as the
reliable, timely and accurate information. IIB aims to act insurance companies to carry out “root-cause” analysis
as a single point of official reference for the entire of grievances to identify systemic and policy related
insurance industry data and also to ensure that data is issues. This has also enabled the Authority to identify the
available to various shareholders including insurance concerns of policyholders and to initiate corrective action.
companies, intermediaries, market players, researchers, The Authority is visiting/revisiting areas such as group
policyholders and general public for real time decision insurance, tying and bundling insurance with various
making. IIB collects transactional data (Motor, Health, goods and services, and the need to use plain language
Fire, Marine and Engineering) from all insurers in online in insurance policies.
mode. IIB publishes periodical reports on Motor, Health
Initiatives towards policyholder protection:
and other lines of business. The industry “aggregates”
data published by IIB enables companies to set internal 41. With a view to protecting the interests of policyholders,
benchmarks. In addition to periodical reports, IIB the Authority has taken a number of initiatives. Guidelines
publishes many ad-hoc reports from time to time. relating to distance marketing have been issued by IRDA
which address challenges relating to mis-selling using
Grievance Redressal:
distance marketing mode, a fallout of the advancement
40. The Consumer Affairs Department of IRDA handles in technology. While the benefits of having new and faster
policyholder grievances, apart from carrying out channels need to be reaped, the loopholes created by
awareness campaigns on insurance. The department them need plugging and this is precisely what the
looks into complaints from policyholders against life and guidelines are aimed at. IRDA has issued guidelines to
non-life insurance companies. Prospects and policyholders agents for ensuring persistency of life insurance policies
are advised to first file their complaints with the respective to ensure that servicing of policies by agents is sustained.
insurance companies. If the insurance companies do not
42. Carrying forward its discussion paper on the proposed
attend to the complaints received within the stipulated
Guidelines on Prospect Product Matrix for the Life
turnaround time of 15 days or in case the complainants
Insurance industry, the Authority has put up the draft of
are not satisfied with the resolution, they may escalate
the guidelines and the inputs received from the
the complaint to IRDA. The Authority facilitates the
stakeholders are under the active examination of the
process of resolution by taking up the matter with the
Authority.
insurance companies to strengthen the redressal
framework. IRDA also examines the complaints from a 43. IRDA has taken several initiatives to protect the
regulatory perspective and takes steps as deemed fit. interests of policyholders. Policyholders have the right to
The IRDA Grievance Call Centre (IGCC) receives and expect insurance companies to keep the promises they
registers complaints through a toll free number. The IGCC make. When there is an error of omission or commission
interfaces with the Integrated Grievance Management not consistent with expected or defined service levels,
System (IGMS), the online system for grievance there is a deficiency, in service which results in giving
management that not only offers a gateway for scope for a grievance. Apart from providing a tool for
complainants to register and track grievances but is also monitoring disposal of grievances by insurance
a tool for the Authority to monitor disposal of grievances companies, the Integrated Grievance Management
by insurance companies. Further, the requirement of System (IGMS), enables IRDA to monitor market conduct
insurance companies to have Board approved grievance issues and take necessary steps to ensure better
redressal policies; compliance requirements relating to protection of policyholders. The Authority has been
IRDA guidelines for grievance redressal and the carrying out a sustained campaign to create awareness
requirement under the corporate governance guidelines about insurance grievance redressal systems, rights and
to have a policyholder protection committee as a duties of policyholders, etc., through various media. In
mandatory committee have gone a long way in protecting an attempt to improve general public’s understanding of
the interests of policyholders. In addition, the IGMS insurance which helps them in making informed choices
provides a central repository of complaints across the about the use of insurance services, the Authority has
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