Objectives of Regulation of Insurance Business

Insurance sector is a widely recognized sector in India. When a person or a company gets involved in a contract with a company to get the compensation in case of any loss or damage, this company which agrees to pay the compensation is known as the ‘insurance provider’. These insurance provider companies charge some amount of money from the person or company that seeks the protection from this insurance company. This sector is called the insurance sector. In 2020, the contribution of the insurance sector in India was 3.7% of GDP. The purposes of regulation of insurance in India are to control and manage this large sector efficiently.

With the growing risk of COVID-19, people started taking more and more insurance as the uncertainty was prevalent in the market. The objectives of regulation of insurance business are to keep an eye on the welfare of people, so that insurance companies do not deceive them and also this sector generates revenue for the government. The Indian government has allowed the FDI limit to 74% in the insurance sector. Hence, these are the purposes of regulation of insurance in India.

Insurance Regulatory and Development Authority Act, 1999- 

India has an act to manage the insurance sector which is known as the Insurance Regulatory and Development Authority Act, 1999. This act was formulated because the purposes of regulation of insurance in India can be met through a proper act only.

This act gives the provisions of establishing a body which is statutory in nature called the ‘IRDAI’ or Insurance Regulatory and Development Authority. This body consists of a chairman which is chosen by the Indian government and some other members are also appointed to assist the chairman. The act contains section 4 which mentions appointing 4 permanent and 4 temporary members in the IRDA. Its goal is to protect the interests and rights of the policy holders. From time to time, it keeps a check on the companies which provide insurance to assure if each and every company is complying with the rules or not. 

This act also suggests creating a committee known as ‘Insurance Advisory Committee’ which is constituted by experts from various fields like – agriculture, transportation, trade and commerce and many more to suggest reforms and better rules for betterment of the insurance sector and fulfills the objectives of regulation of insurance business in India.

Some schemes like Sampoorna Gram Bima Yojna of 2017, Rashtriya Swasthya Bima Yojna, LIC – Aam Aadmi Bima Yojna, PM Fasal Bima Yojna for crops and many more were initiated for the insurance of poor section of the society. 

LIC (Life Insurance Corporation of India) is fully owned by the Indian Government and boosts the confidence of people in LIC as the best option for insurance policies. It means that if someone takes any product of insurance from LIC, the money is guaranteed by the Government of India itself. So, the security of money builds the confidence of people in LIC. But recently the government has started the process of selling its 5% stake of LIC, on the recommendation of R N Malhotra committee which was constituted by the government of India to create the plan and mechanism of disinvestment of LIC. 

The purposes of regulation of insurance in India are managed by IRDA. IRDA is authorized to give licenses to the insurance company and it also makes the rules which these companies need to follow. Currently the chairmanship of IRDA is held by Subhash Chandra Khuntia. 

Conclusion

The purposes of regulation of insurance in India include high revenue and secured profits. The insurance sector in India is one of the most profitable sectors in India. Unlike other countries where insurance companies are often deceptive towards the interest of people, Indian insurance companies especially, the LIC, have been one of the most trusted insurance companies for people in India. Insurance sector not only gives high revenue to the government of India but also helps people at the time of uncertainty in their lives.