New Delhi, April 8: The government plans to amend the Insurance Regulatory and Development Authority (IRDA) Act, 1999, to prevent the regulator from charging a percentage of the premium of insurance companies as fees. The amendment will also enlarge IRDA’s powers and place the insurance ombudsman under its jurisdiction as an extended arm of the regulator.
Currently, this levy is IRDA’s principal source of income. However, according to the law ministry, if anything is charged from the premium, it is “a form of tax and should not be part of the IRDA fund”.
Officials said since taxation was a sovereign function, IRDA cannot be allowed to charge this particular fee. The changes have already been forwarded to the group of ministers on insurance.
IRDA will be funded by other charges paid by insurance companies, but not by the percentage of the premium. The finance ministry will frame separate guidelines for these charges.
Last year, the Union government advised the insurance regulator to transfer the IRDA fund to the Public Account of India because of this legal gap. The finance ministry had said this move would not undermine the authority’s independence as the regulator of the insurance sector.
Unlike the money in the Consolidated Fund of India, that deposited by IRDA in the Public Account can be withdrawn without appropriation to meet the administrative expenses of the authority.
The IRDA act requires all grants, fees and charges received by the regulator, the percentage of prescribed premium income received from insurers and all sums received from such other source as may be decided by the Centre to be credited to the IRDA fund. This fund is used to meet the administrative expenses of the regulator.
Top officials said the idea of placing the ombudsman under IRDA’s jurisdiction stems from the undesirability of having multiple authorities. The ombudsman is appointed by and draws support from the insurance council.
The government had set up an ombudsman, a quasi-judicial body, specifically for the insurance sector under section 114(1) of the Insurance Act, 1938.
The insurance ombudsman redresses and settles disputes arising between the insured and insurers. However, the ombudsman is allowed to take up cases of less than Rs 20 lakh. The government has set up 12 such offices for speedy settlement of disputes. The proceedings are summary ones. They do not involve any cost and takes place quickly.