Insurance Law - An Indian Perspective

Insurance Law - An Indian Perspective


"You should buy insurance to protect you from an otherwise financially devastating disaster."

In simple terms, insurance makes it possible to compensate someone who suffers a loss or accident for the effects of their misfortune. This allows you to protect yourself from the daily risks of your health, your home, and your financial situation.

Insurance in India began in the 19th century without any regulation. It was a typical story of a colonial-era: some British insurance companies dominated the market, serving mainly in large urban centers. After independence, it took a dramatic turn. Insurance was nationalized. First, life insurance companies were nationalized in 1956, and then in 1972, the general insurance business was nationalized. Only in 1999 private insurance companies were allowed to return to the insurance business with a maximum of 26% foreign participation.

"The insurance industry is huge and it can be quite intimidating. Insurance sells for just about anything and everything you can think of. Determining what's right for you is a difficult task. It is possible."

The concept of insurance has expanded beyond the coverage of tangible assets. The risk of sudden changes in currency exchange rates, political unrest, liability for damages, and losses due to liability can also now be covered.

But if a person invests carefully in insurance for his property before an unexpected contingency, he will be adequately compensated for the loss as soon as the extent of the damage is determined.

The entry of the State Bank of India with its bank underwriting offer adds new momentum to the game. The collective experience of other Asian countries has already neutralized their markets and allowed the participation of foreign companies. If the experience of other countries is a guide, the dominance of Life Insurance Corporation and General Insurance Corporation is not going to disappear anytime soon.

The goal of all insurance is to compensate the owner against losses from various types of risks, which he estimates for his life, property, and business. There are mainly two types of insurance: life insurance and general insurance. General insurance means fire, marine, and miscellaneous insurance including theft or theft, a guarantee of insurance, employers' liability insurance, and insurance against motor vehicles, livestock, and crop insurance.

Life insurance in India

"Life insurance is the most honest love letter ever.

Calm the cry of a hungry child at night. Relieve the heart of a grieving widow.

It is a relaxing whisper in the dark and silent hours of the night. "

Life insurance made its debut in India more than 100 years ago. Its most outstanding features are not as widely known in our country as they should be. There is no legal definition of life insurance, but it is defined as an insurance contract whereby the insured agrees to pay certain amounts called premiums at a certain time, and in return, the insurer pays certain amounts. Agrees to pay under certain conditions. Sand in a specific way when a particular event occurs depends on the duration of human life.

Life insurance is better than other forms of savings!

"There is no death. Life insurance prolongs life and defeats death."

This is the premium we pay for the freedom to live after death. "

Savings through life insurance guarantee total protection against the risk of death for the saver. In life insurance, in the event of death, the total sum assured is paid (along with bonus where applicable), while in other savings schemes only the amount saved (including interest) is paid.

The essential features of life insurance are a) it is a contract related to human life, which b) provides for lump sum payment, and c) the amount is paid after the expiry of a certain period or upon death. Insured. The purpose and purpose of the insured while taking the policy from life insurance companies is to protect the interests of their dependents, that is, the wife and children, as the case may be, even in the event of the insured's premature death. Of the incident. In any contingency. A life insurance policy is also generally accepted as collateral for business loans.

Non-life insurance

"Every property has a value and the business of general insurance is concerned with protecting the economic value of assets."

Non-life insurance is non-life insurance, such as fire, marine, accident, medical, motor vehicle, and home insurance. The property would have been built through the efforts of the owner, which could take the form of buildings, vehicles, machinery, and other tangible assets. Since tangible property has a physical form and stability, it is subject to many risks ranging from fire and related hazards to theft and theft.
Some of the common insurance policies are:

Property Insurance: The home is the most prized. The policy is designed to cover various risks under a single policy. Protects the property and interests of the insured and family.

Medical Insurance: Provides coverage, which takes care of medical expenses after hospitalization due to sudden illness or accident.
Personal Accident Insurance: This insurance policy covers the loss of life or injuries (partial or permanent) caused by an accident. This includes reimbursement for the cost of treatment and the use of hospital facilities for treatment.

Travel Insurance: The policy covers the insured against various incidents during his travel abroad. Covers insurance holder against personal accidents, medical expenses and repatriation, loss of checked baggage, passport, etc.

Civil Liability Insurance: This policy refers to the loss to directors or officers or other professionals in their capacity as officers from claims made against them due to any unlawful act.

Motor insurance: Motor vehicle law establishes that every motor vehicle that roams the road must have insurance, which has at least one civil liability policy. There are two types of policies, one that covers the act of liability, while another covers insurers for all liability and damage caused by vehicles.

Ranging from jaundice to a toddler!

Ethnic Thinking

The history of life insurance in India dates back to 1818 when it was conceived as a means of supporting English widows. Interestingly, in those days a higher premium was taken for the lives of Indians than for the lives of non-Indians, as Indians' lives were considered risky for coverage.

The Mutual Life Insurance Society of Bombay started its activity in 1870. It was the first company to charge the same premium for Indian and non-Indian lives. The Oriental Assurance Company was established in 1880. The general insurance business in India, on the other hand, has its roots in Triton (Tittle) Insurance Company Limited, which was the first general insurance company established by the British in 1850 in Calcutta. . By the end of the 19th century, the insurance business was almost entirely in the hands of foreign companies.

Insurance formally began in India with the passage of the Life Insurance Companies Act of 1912 and the Provident Fund Act of 1912. Various frauds disrupted the insurance business in India during the 1920s and 1930s. In 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 which provided strict state control over the insurance business. The insurance business grew rapidly after independence. Indian companies tightened their grip on this business, but despite the growth, insurance became an urban phenomenon.

In 1956, the Government of India brought together more than 240 private life insurers and future societies under a Nationalized Monopoly Corporation and Life Insurance Corporation of India (LIC). Nationalization was justified on the basis that it would generate much-needed funds for rapid industrialization. This was in accordance with the government's plan and the chosen path of state leadership development.

The insurance business (other than life) flourished with the private sector until 1972. Its operations were limited to organized commerce and industry in large cities. The general insurance industry was nationalized in 1972. With this, around 107 insurers were merged into four companies: National Insurance Company, New India Assurance Company, Oriental Insurance Company, and United India Insurance Company. They were subsidiaries of General Insurance Company (GIC).

The Indian life insurance industry was nationalized under the Life Insurance Corporation of India Act (LIC). In some ways, LIC has been very prosperous. Despite being a monopoly, it has 60 to 70 million policyholders. Since the Indian middle class is around 250–300 million, low-income countries occupy about 30% of it. About 48% of LIC's customers are from rural and semi-urban areas. This might not have happened if the LIC statute had not specifically stated the purpose of serving the rural areas. A high savings rate in India is one of the exogenous factors that have helped low-income countries grow rapidly in recent years. Despite the high savings rate in India (compared to other countries with similar levels of development), Indians show a high level of risk-taking ability. Therefore, about half of the investments are in physical assets (such as property and gold). About twenty-three percent are in bank deposits (low yields but safe). In addition, about 1.3 percent of GDP is life insurance-related savings in vehicles. This figure doubled between 1985 and 1995.

A World View: Life Insurance in India

In many countries, insurance is a form of savings. In many developed countries, a significant portion of household savings is in the form of gift insurance schemes. it is not surprising. The prominence of some developing countries is more striking. For example, South Africa ranks second. India lies between Chile and Italy. This is even more surprising given the level of economic development in Chile and Italy. Therefore, we can conclude that India has an insurance culture despite low per capita income. It promises good future development. In particular, when income levels improve, insurance (especially life) is likely to increase rapidly.

Insurance Sector Reference:

Committee Report: One Known, One Anonymous!

Although the Indian markets were privatized in 1991 and opened to different sectors for foreign companies, insurance was limited in both cases. The government wanted to proceed with caution. Under pressure from the opposition, the government (at the time of the supremacy of the Congress Party) had taken over Mr. R.N. It was decided to set up a committee headed by Malhotra (the then Governor of Reserve Bank of India).

Malhotra Committee

A report published by the Malhotra Committee in 1994 suggested liberalization of the Indian insurance market, which suggests that the market should be opened to competition from the private sector and, ultimately, to compete with the foreign private sector. They also examined LIC customer satisfaction levels. Interestingly, the level of customer satisfaction seemed high.

In 1993, former Finance Secretary and RBI Governor, Shri R.N. The Malhotra Committee, headed by Malhotra, was formed to evaluate the Indian insurance industry and recommend its future course. The Malhotra committee was formed with the objective of complementing the reforms initiated in the financial sector. The reforms aim to create a more efficient and competitive financial system suited to the needs of the economy, taking into account the structural changes currently taking place and recognizing that insurance is an important part of the general financial system, where it is necessary Note the need for similar reforms. In 1994, the committee presented the report and some key recommendations included:

1. Structure

The government is betting that insurance companies will cut by up to 50%. The government should handle the interests of the GIC and its subsidiaries so that these subsidiaries function as independent corporations. All insurance companies should have more freedom to work.

Private companies with a minimum paid-up capital of 1 billion should be allowed in this sector. No company should negotiate life and general insurance through a single entity. Foreign companies may be allowed to enter the industry in association with domestic companies. Postal life insurance should be allowed to function in the rural market. Only one statewide life insurance company should be allowed to operate in each state.

2. Regulatory bodies

The insurance law should be revised. An insurance regulatory body should be created. The Controller of Insurance, which is part of the Ministry of Finance, should be independent.

3. Investment

LIC Life Fund's mandatory investment in government securities will be reduced from 75% to 50%. GIC and its subsidiaries should no longer have

4. Customer Service

LIC will have to pay interest for late payment beyond 30 days. Insurance companies should be encouraged to establish unit-linked pension schemes. Computerization of operation and updating of technology to be carried out in the insurance industry. The committee emphasized that to improve customer service and increase coverage of insurance policies, the industry would have to be open to competition. But at the same time, the committee felt the need to exercise caution as any failure by new entrants could ruin public confidence in the industry. Therefore, it was decided to allow competition to be limited by limiting the minimum capital requirement to Rs 100 million.

The committee felt the need to give greater autonomy to insurance companies to improve their performance and allowed them to function as financially motivated companies. To that end, it had proposed to create an independent regulatory body: the Insurance Development and Regulatory Authority.

The reform of the insurance sector began in December 1999 with the passage of the IRDA Bill in Parliament. After its incorporation as a statutory body in April 2000, IRDA carefully followed its regulatory and regulatory development program. Registration of private sector insurance companies.

Since it was established as an independent statutory body, the IRDA has established a globally compatible regulatory framework. Another decision was taken at the same time to provide a support system to the insurance sector and especially life insurance companies was the launch of the IRDA online service for issuing and renewing licenses to agents. Institutional approval for agent training has also ensured that insurance companies have a trained workforce of insurance agents to sell their products.

The Indian government liberalized the insurance sector in March 2000 with the passage of the Insurance Development and Regulatory Authority (IRDA) bill, which removed all entry restrictions for private agents and allowed foreign agents to market with some limits on direct foreign ownership Permission to enter. Under current guidelines, there is a 26 percent share capital limit for foreign partners in an insurance company. It is proposed to increase this limit to 49 percent.

The opening of this sector is likely to further intensify the spread of insurance in India and may also include restructuring and revival of public sector companies. 12 life insurance companies and 8 general insurance companies have been registered in the private sector. A large number of private insurance companies dealing in life and non-life segments have started selling their insurance policies since 2001.

Mukherjee Committee

Soon after the publication of the Malhotra Committee Report, a new committee, the Mukherjee Committee, was set up to form a concrete plan for the needs of the newly formed insurance companies. The Mukherjee Committee recommendations were never known to the public. But, from the leaked information, it was clear that the committee recommended the inclusion of certain indices in the balance sheets of insurance companies to ensure transparency in accounting. But the finance minister objected, and he argued, perhaps on the advice of some potential competitors, that it could affect prospects for a developing insurance company.

India Law Commission on Review of Law Act of 1938 - Report of 190 Law Commission

On June 16, 2003, the Legal Commission published a consultation document on the amendment of the 1938 Insurance Law. The previous practice of amending the Insurance Act of 1938 was done in 1999 when the Insurance Law was enacted. Insurance Regulatory Development of 1999 (IRDA Act).

The commission made this change in the context of a policy change that has allowed private insurance companies in both the life and non-life sectors. Recent changes have resulted in the need to tighten the regulatory system even while streamlining the existing legislation with a view to eliminating over-used parts.

In the main areas of change, the consultation document made the following suggestions:

Service. Merger of provisions of IRDA law with insurance law to avoid plurality of laws;

Second. Abolishing the null and void provisions of the Insurance Act of 1938;

C. The amendments reflect a revised policy to allow private insurance companies and strengthen regulatory mechanisms;

again. Establish strict rules about the maintenance of "solvency margin" and investment of public sector and private sector insurance companies;

me. Provide a comprehensive grievance redressal mechanism which includes:

1. Constitution of the Claims Repair Authority (GRA) composed of a judicial member and two technicians to deal with the complaints / claims of the insured against the insurance companies (expected to change the current Lokpal system specified by the insurance carrier);

2. Appointment of assistant officers by IRDA to determine and impose restrictions on insurers, insurance intermediaries and insurance agents;

3. An appeal against the judgments of IRDA, GRA and adjoining authorities as the President / Chief Justice of an Appellate Court (IAT) made up of a Judge (acting or retired) of the Supreme Court / Chief Justice. And the other two members have enough experience. Insurance matters;

4. A statutory appeal before the Supreme Court against the decisions of the IAT.

Life and Non-Life Insurance - Growth and Development!

2006 became an important year for the insurance industry, as the regulator, the Insurance Regulatory Development Authority Act, laid the basis for free-price general insurance since 2007, while several companies announced plans to attack the sector.

Both domestic and foreign players followed their long overdue demand to raise the FDI limit from 26 per cent to 49 per cent and by the end of the year, the government sent a group of ministers for mass reservation for collective reservation. Left parties. The bill is likely to be considered in the budget session of Parliament.

The infiltration rate of health and non-life insurance in India is far below the international level. These facts indicate the growth potential of the insurance sector. Last year, the government proposed raising the FDI limit to 49 percent. It was not implemented because legislative changes are necessary for such an increase. Since the opening of the insurance sector in 1999, Rs. Foreign investment of. 8.7 billion have been introduced in the Indian market and 21 private companies have been licensed.

The involvement of private insurers in various industry sectors has increased due to occupation of a portion of the business written by public sector insurers and the creation of additional commercial boulevards. For this, public sector insurers have been unable to take advantage of their inherent powers to capture additional premiums. Despite the 20.2 percent market share of premium growth in 2004-05, 66.27 percent has been captured by private insurers.

The life insurance industry registered a premium income of Rs 82854.80 crore during the 2004–05 financial year registering an increase of 24.31 per cent as compared to Rs 66653.75 crore in the previous financial year. Contribution of first year premium, lump sum premium and renewal of total premium was Rs 15,881.33 crore (19.16 per cent); 10,336.30 crore (12.47 percent); And 56,637.16 crore (68.36 percent) respectively. In the year 2000-01, when the industry was opened to private players, the life insurance premium was Rs. 34,898.48 crore. 6,996.95 crore of the first year premium. 25,191.07 crore renewal premium and Rs. 2,740.45 crore single premium. After opening, the lump sum premium was reduced from Rs 9,194.07 crore in 2001-02 to Rs 5674.14 crore with the return of guaranteed return policies in 2002-03. Although it increased marginally to Rs 5936.50 crore (an increase of 4.62 per cent) in 2003-04, in 2004-05 still single premium income increased to Rs. Significant changes were seen from. 10,336.30 crore showing an increase of 74.11 percent in 2003-04.

The size of the life insurance market increased due to the strong growth of the economy and the concomitant increase in per capita income. This resulted in a total premium increase for both LIC (18.25 percent) and new insurers (147.65 percent) in 2004–05. The high growth of new insurers should be seen in terms of low base in 2003-04. However, new insurers have improved their market share from 4.68 in 2003-04 to 9.33 in 2004-05.

For public sector insurers, the breakdown in the segment of fire, marine and miscellaneous segments represented an increase of Rs 2,411.38 million, Rs 982.99 million and Rs 10,578.59 million, an increase of (-) 1.43%, 1.81% and 6.58 percent. Public sector insurers reported growth in the auto and health sectors (9 and 24 percent). These segments represent 45 and 10 percent of business written by public sector insurers. Fire and "others" represented 17.26 and 11 percent of the written premium. Aviation, civil liability, "others" and fire recorded negative growth of 29, 21, 3.58 and 1.43 percent. In any other country which has opened as foreign companies of India, it can achieve market share of 22 percent in the life segment and about 20 percent in the general insurance segment. The share of foreign insurers in other competing Asian markets is not more than 5 to 10 percent.

The life insurance sector increased new premiums at a rate never seen before, while the general insurance sector grew at a faster rate. Two new players entered life insurance, Sriram Life and Bharti Aksa Life, with the total number of life players being 16. There was a new entry into the non-life sector as an independent health insurance company: Star Health and Alliance Segros, bringing non-life players to 14.

A large number of companies, mostly nationalized banks (around 14) such as Bank of India and Punjab National Bank have announced plans to enter the insurance sector and some of them have also formed joint ventures.

The proposed changes to the ceiling on FDI are part of a broader amendment to insurance laws: the Insurance Act of 1999, the LIC Act of 1956 and the IRDA Act of 1999. After the proposed amendments to the insurance laws, LIC can keep it safe. Whereas it can raise resources other than equity.

Around 14 banks have been queued to enter the insurance sector and in 2006 saw several advertisements for joint ventures, while others were looking for partners. Bank of India has partnered with Union Bank and Japanese insurance company Dai-ichi Mutual Life, while PNB has partnered with Vijaya Bank and Principal to venture into life insurance. Allahabad Bank, Karnataka Bank, Indian Overseas Bank, Dabur Investment Corporation and Sompo Japan Insurance Inc. have partnered to form a non-life insurance company, while Bank of Maharashtra has floated the Sri Ram Group and South Africa for a non-life insurance company Has partnered with the Sanlam Group.

The conclusion

It seems cynical that LIC and GIC will wither and die in the next two decades. IRDA has adopted the "snail speed" approach. He has been very cautious in granting licenses. It has set fairly strict standards for all aspects of the insurance business (with the possible exception of disclosure requirements). Regulators always walk a fine line. Many rules kill the motivation of new people; Overall lax rules can induce failures and fraud that led to nationalization in the first place. India is not the only developing country where the insurance business is open to foreign competitors.

The insurance business is at an important level in India. Over the next two decades, we are expected to witness high growth in the insurance industry for two reasons; Financial diversification always speeds up the growth of the insurance sector and the growth of GDP per capita also helps in the development of the insurance business.

Published on: 1/26/21, 3:55 PM