By Dr.

Jivan Kumar Chowdhury

 The Indian Insurance Industry is as old as it is in any other part
of the world.
 The first insurance company in India was started in 1818 in
Kolkata.
 We had a number of foreign and Indian insurers operating in the
Indian market till the nationalisation of the industry took place.
 The reason for the nationalisation of the industry are concerned
mostly with the unethical practices adopted by some of the
players against the interests of the insurance consumers.
 Nationalisation has lent the industry solidity, growth and
outreach, which is unparalleled.
 Players in the Indian Insurance Market:
 The insurance industry, till the year 1999-2000, comprised
mainly of two players. In the life insurance segment, Life
Insurance Corporation(LIC) of India Ltd. was the sole player and
in the
 Insurance segment, General Insurance Corporation of India(GIC) was
the player with its four subsidiaries, namely:
 A) The Oriental Insurance Company Limited
 B) The New India Assurance Company Limited
 C) National Insurance Company Limited
 D) United India Insurance Company Limited
 General Insurance Corporation of India (GIC) has been converted into
a National reinsurer and these four subsidiaries have been delinked
from the parent company and made into an independent insurance
company (with effect from December 2000).
 Insurance is a federal subject in India. The new environment has
facilitated competitive conditions and the industry has exhibited a
healthy growth trend, in both the life and non-life segments. The
new players not only succeeded in establishing themselves, but also
captured a healthy market share. The existing insurers have also
been able to show growth in the premium underwritten by them.
 Regulatory Requirements of the Industry:
 In the year 2000, the IRDA was constituted as an autonomous
body to regulate and develop the business of insurance and
reinsurance in the country in terms of the Insurance Regulatory &
Development Authority Act, 1999.
 The Authority has been entrusted with the requisite regulations
in the areas of registration of insurers, their conduct of business,
solvency, margins, conduct of reinsurance business, licensing
and code of conduct of intermediaries, etc.
 The Indian insurance market is thus run and regulated on
globally acceptable standards.
 Legislation: Insurance is a federal subject in India. The primary
legislations that deal with the insurance business in India are:
 Insurance Act, 1938 and
 Insurance Regulatory & Development Authority Act, 1999.
 Government of India in August 2000 issued notification specifying
„Insurance‟ as a permissible form of business that could be
undertaking by banks under the year 2000-2001 announced its
intention to allow banks entry into insurance business and issued
detailed guidelines in August 2000.
 The insurance sector is a major contributor to the financial savings
of the household sector in the country, which are further
channelized into various investment avenues.
 Global players have exhibited an interest in the huge market that
India offers.
 The growth in the life segment is expected to be faster, as against
the non-life segment.
 It has been created subsequent to the opening up of the insurance
sector, the players in the industry are expected to create additional
markets by enhancing the level of risk awareness amongst the
uninsured public; thereby spreading both the message and the
associated benefits of insurance across a wider cross-section.
 The liberalised environment is also expected to improve the levels of
customer satisfaction.
 Insurance Regulatory Framework:
 1. Insurance Regulatory and Development Authority of India
(IRDAI), is a statutory body formed under an Act of
Parliament, i.e., Insurance Regulatory and Development
Authority Act, 1999 (IRDAI Act 1999) for overall supervision
and development of the Insurance sector in India.
 2. The powers and functions of the Authority are laid down in
the IRDAI Act, 1999 and Insurance Act, 1938. The key
objectives of the IRDAI include promotion of competition so
as to enhance customer satisfaction through increased
consumer choice and fair premiums, while ensuring the
financial security of the Insurance market.
 3. The Insurance Act, 1938 is the principal Act governing the
Insurance sector in India. It provides the powers to IRDAI to
frame regulations which lay down the regulatory framework
for supervision of the entities operating in the sector. Further,
there are certain other Acts which govern specific lines of
Insurance business and functions such as Marine Insurance
Act, 1963 and Public Liability Insurance Act, 1991.
 IRDAI adopted a Mission for itself which is as
follows:
 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.
 The purpose of prudential regulation and supervision is to
ensure that financial institution operating within the financial
system are inherently safe and sound, from a financial
perspective.
 Entities regulated by IRDAI:
 a. Life Insurance Companies - Both public and private sector
Companies
 b. General Insurance Companies - Both public and private
sector Companies. Among them, there are some standalone
Health Insurance Companies which offer health Insurance
policies.
 c. Re-Insurance Companies
 d. Agency Channel
 e. Intermediaries which include the following:
 Corporate Agents
 Brokers
 Third Party Administrators
 Surveyors and Loss Assessors.
 Regulation making process:
 Section 26 (1) of IRDAI Act, 1999 and 114A of Insurance Act,
1938 vests power in the Authority to frame regulations, by
notification.
 Section 25 of IRDAI Act, 1999 lays down for establishment of
Insurance Advisory Committee consisting of not more than
twenty five members excluding the ex-officio members. The
Chairperson and the members of the Authority shall be the
ex-officio members of the Insurance Advisory Committee.
 The objects of the Insurance Advisory Committee shall be to
advise the Authority on matters relating to making of
regulations under Section 26.
 Accordingly the draft regulations are first placed in the
meeting of Insurance Advisory Committee and after obtaining
the comments/recommendations of IAC, the draft regulations
are placed before the Authority for its approval.
 Every Regulation approved by the Authority is notified in the
Gazette of India.
 Every Regulation so made is submitted to the Ministry for
placing the same before the Parliament.
 The Authority has issued regulations and circulars on various
aspects of operations of the Insurance companies and other entities
covering:
 Protection of policyholders‟ interest
 Procedures for registration of insurers or licensing of intermediaries,
agents, surveyors and Third Party Administrators;
 Fit and proper assessment of the promoters and the management
 Clearance /filing of products before being introduced in the market
 Preparation of accounts and submission of accounts returns to the
Authority.
 Actuarial valuation of the liabilities of life Insurance business and
forms for filing of the actuarial report;
 Provisioning for liabilities in case of non-life Insurance companies
 Manner of investment of funds and periodic reports on investments
 Maintenance of solvency
 Market conduct issues
 The objective of supervision as stated in the preamble to the
IRDAI Act is “to protect the interests of holders of Insurance
policies, to regulate, promote and ensure orderly growth of
the Insurance industry”, both Insurance and Reinsurance
business. The powers and functions of the Authority are laid
down in the IRDAI Act, 1999 and Insurance Act, 1938 to
enable the Authority to achieve its objectives.
 2. Section 25 of IRDAI Act 1999 provides for establishment of
Insurance Advisory Committee which has Representatives
from commerce, industry, transport, agriculture, consumer,
surveyors agents, intermediaries, organizations engaged in
safety and loss prevention, research bodies and employees‟
association in the Insurance sector are represented. All the
rules, regulations, guidelines that are applicable to the
industry are hosted on the website of the supervisor and are
available in the public domain.
 Bancassurance: Bancassurance is an arrangement whereby
branches of commercial banks act as corporate agents and
distribute insurance products developed by insurance companies
to their customers. It is nothing but a convergence of banking
and insurance.
 Bancassurance in India: the banking industry in India has been
experiencing, since the early nineties, shrinkage in their interest
income subsequent to migrating to the adoption of international
best practices and standards of accounting.
 With the opening up of the banking sector to private and
international players due to liberalisation, competition has
become much severe and intense, resulting in a further
shrinkage of margins in the industry.
 In order to augment their income from other sources, the banks
were keenly waiting for an specifying. „ Insurance‟ as a
permissible form of business that could be undertaken by banks
under Section 6(1)(o) of the Banking Regulation Act. RBI allowed
banks‟ entry into insurance business.
 Section 14 of the IRDAI Act,1999 specifies the Duties, Powers
and functions of the Authority. These include the following:
 To grant licenses to (re) Insurance companies and Insurance
intermediaries
 To protect interests of policyholders,
 To regulate investment of funds by Insurance companies,
professional organisations connected with the (re)Insurance
business; maintenance of margin of solvency;
 To call for information from, undertaking inspection of,
conducting enquiries and investigations of the entities
connected with the Insurance business;
 To specify requisite qualifications, code of conduct and
practical training for intermediary or Insurance
intermediaries, agents and surveyors and loss assessors
 To prescribe form and manner in which books of account
shall be maintained and statement of accounts shall be
rendered by insurers and other Insurance intermediaries;
 Marine insurance is an important component of international
trade and commerce and subject to international regulations
in every stage of operations. It is governed by the Marine
Insurance Act 1963 in India and guided by the various clauses
formulated by the Institute of London Underwriters (ILU) and
the international commercial terms known as „Incoterms‟.
This paper analyses the legal aspects the marine insurance in
India and provides an overview and analysis of the Marine
Insurance Act, 1963.
 In the context of globalization, maritime transport is the
backbone of international trade with over 80 per cent of
world merchandise trade by volume being carried by sea.
Marine transport involves risks related with the “perils of the
sea”. In this respect, marine insurance is a mechanism that
helps to mitigate the risks of financial loss to the property
such as ship, goods or other movables, in maritime transport.
 Insurance is, thus, a necessary component of doing
business on an international basis and plays an
important role in the international trade. Its
purpose is to enable ship-owner, the buyer and
seller of the goods to operate their businesses,
while relieving themselves, at least partly, of the
burdensome financial consequences of their
property‟s being lost or damaged as a result of
various risks of the high seas.
 Marine insurance adds the necessary element of
financial security so that the risk of an accident
happening during the transport is not an inhibiting
factor in the conduct of international trade. In this
sense, marine insurance is an aid to the conduct of
seaborne international trade. Therefore, developing
an efficient and competitive insurance market is of
key importance for developing countries like India
as they integrate into the world economy.
 A contract or policy of marine insurance is an arrangement whereby
one person called insurer or underwriter, agrees, according to
specific terms of contract, to indemnify another person, called
assured, for the losses incurred in connection with property, such as
ship, goods or other movables, in maritime transport ( Sections 25).
 Section 3 of the Marine Insurance Act, 1963, defines „marine
insurance‟ as follows: A contract of marine insurance is an
agreement whereby the insurer undertakes to indemnify the
assured, in the manner and to the extent thereby agreed, against
marine losses, that is to say, the losses incidental to marine
adventure.
 “Marine adventure” includes any adventure where any insurable
property is exposed to maritime perils i.e. perils consequent to
navigation of the sea. It also includes the earnings or acquisition of
any freight, passage money, commission, profit or other pecuniary
benefit, or the security for any advances, loans, or disbursements is
endangered by the exposure of insurable property to maritime
perils, Sections 2(e), Marine adventure also includes any liability to a
third party may be incurred by the owner of, or other person
interested in or responsible for, insurable property by reason of
maritime perils.
 A contract of marine insurance may, by its express terms, or
by usage of trade, be extended so as to protect the assured
against losses on inland waters or on any land risk which may
be incidental to any sea voyage(Section 4[1]).
 Salient Features: 1) The striking features of Marine Insurance
policies is that they are issued on „agreed value basis‟.
 2) The values agreed may include all expenses incurred or to
be incurred and some amount of profit margins as well. As
such, the valuation of the consignment is important and it
should be based on supporting evidence.
 Types of Marine Insurance
 Some of the important types of marine insurance are as
follows:
 Hull Insurance
 Cargo Insurance
 Freight Insurance
 Liability Insurance
 Marine Insurance Policy
 A marine insurance policy is a document which embodies all
the particulars and the terms and conditions for the
construction of the policy. Contract must be embodied in
policy. A contract of marine insurance shall not be admitted
in evidence unless it is embodied in a marine policy in
accordance with section 25 of the Marine Insurance Act. The
policy may be executed and issued either at the time when
the contract is concluded, or afterwards. The policy must be
signed by or on behalf of the insurer.
 the name of the assured;
 the subject-matter insured and the risk insured against;
 the voyage, or period of time, or both, as the case may be,
covered by the insurance;
 the sum or sums insured;
 the name or names of the insurer or insurers.
 In India, the practice is to issue „cover notes‟ which are similar to
slips. As the practice is not to stamp a „cover note‟ it is
admissible only to prove the agreement. It cannot be used for
any purpose except to compel the delivery of a policy in
accordance with its terms.
 Marine insurance is a mechanism that helps to mitigate the risks
of financial loss to the property such as ship, goods or other
movables, in maritime transport, on the payment of premium by
the assured to the insurer. Insurer provides risk cover to the
ship-owners or the cargo-owners against loss or damage that
the ship or cargo may suffer in transit due to accidents and
mishaps in the nature of a financial indemnity. The insurance
company undertakes to make good the loss to the maximum
value as agreed with the insured perils or risks or calamity.
 Loss is payable only when it has been proximately caused by the
insured peril. The marine insurance is governed by the national
legal regimes. In India, Marine Insurance Act, 1963, regulates
various aspects of marine insurance.
 Fire accidents are unexpected and cause enormous
destruction not only in terms of finance but it becomes
tougher to deal with the aftermath.
 Owning a business, one is always prone to risk and a fire
eruption can instantly bring a flourishing business to a
stalemate.
 A fire insurance policy comes with a broad range of scope,
which includes:
 A fire insurance policy provides comprehensive protection
against any damage caused due to pre – explosion caused
due to either movable or immovable property.
 A fire insurance policy encompasses damage to the
properties, for instance, damage caused to an office building,
furniture, machinery, stock etc. due to a fire – outbreak.
 Besides, fire – related perils, a fire insurance policy also
encompasses damages caused due to any national calamity,
explosion, the bursting of the water tank etc.
 Type of the Fire Insurance in India:
 1. Specific policy
 2. Comprehensive
 3. Valued
 4. Floating
 5. Consequential loss policy
 6. Replacement Policy
 Characteristic of Fire Insurance:
 A) Covenant of Good Faith
 B) Covenant of Indemnity
 C) One – year Policy D) Insurable Interest E) Direct Loss
F) Personal Right G) Personal Insurance Contract H)
Property Description
 Standard Fire Policy: The fire insurance policy has been
nomenclature Section II of the All India Fire Tariff as Standard
Fire and Special Perils Policy. The standard risks covered, add
– on covers, exclusions, conditions as prescribed by the tariff
are described as follows:
 Standard Risks:
 Fire: Destruction or damage to the property insured by its
own fermentation, natural heating or spontaneous
combustion or its undergoing any heating or drying process
cannot be treated as damage due to fire. For example, paints
or chemicals in a factory undergoing heat treatment and
consequently damaged by fire is not covered. Further, breach
of property insured by order of any Public Authority is
excluded from the scope of cover. Lightening: Lightning may
result in fire damage or other types of damage, such as a roof
broken by a falling chimney struck by lightning or cracks in a
building die to a lightning strike. Both fire and other types of
damages caused by lightning are covered by the policy.
 Standard Policy Coverages: The Tariff Advisory
Committee has prescribed three types of fire coverages viz.,
Policy A, Policy B and Policy C.
 Policy A: Fire Policy A covers the following perils – i) fire ii)
lightning iii) explosion / implosion, iv) impact damage, v) aircraft
damage, vi) riot, strike, and malicious and terrorist damage, vii)
storm, cyclone, tempest, hurricane, tornado, flood and
inundation viii) earthquake, ix) sub-sidence and landslide (
including rockslide).
 Only Policy A can be issued to cover artisans‟ workshops, biogas
plants, village and cottage industries, tiny sector or small scale
industries.
 Policy B: Fire Policy B covers the perils – i) fire, ii) lightning iii)
explosion / implosion, iv) impact damage v) aircraft damage, vi)
riot, strike and malicious and terrorist damage.
 The tariff permits exclusion of riot, strike and malicious and
terrorist damage perils, with specified reduction in the
premium rate under the policy.
 Policy C: Fire Policy ( Policy C) is issued to cover industrial /
manufacturing risks and storage risk and covers – i) fire, ii)
lightning iii) explosion / implosion, iv) impact damage v) riot,
strike and malicious and terrorist damage.
 The riot, strike and malicious and terrorist damage perils can
be excluded on specific request with an agreed reduction in
the premium rate.
 The fire Policy C may be extended to cover special perils on
payment of extra premium. These special perils are:
 a) spontaneous combustion
 b) Earthquake ( shock and fire)
 c) Storm tempest, flood
 d) Subsidence and landslide

 e) Accident leakage or contamination of oil
 f) Spoilage of stock / machinery due to interruption of
process of manufacture by insured perils
 g) Deterioration of stocks due to power failure following
damage to premises of public power stations
 h) Bursting/overflowing of water tanks, apparatus and pipes
 i) Sprinkler leakage
 j) Bush or forest fire
 k) Subterranean fire
 l) Missile testing operations cover.
 Fire Policy A and B (Simple Risks): fire Policy A and B are
issued in respect of dwellings offices, hotels and shops,
educational institutions, etc
 'Miscellaneous Insurance' refers to contracts of insurance other than
these of Life, Fire and Marine insurance. This branch of insurance is
of recent origin and it covers a variety of risks.
 1. Personal Accident Insurance - This means insurance for
individuals or groups of person against any personal accident or
illness. In India this type of insurance is done by the General
Insurance Corporation. The risk insured in personal accident
insurance is the bodily injury resulting solely and directly from
accident caused by violent, external and visible means.
 2. Property Insurance - Property risks relate to burglary, house
breaking, theft, crop insurance, etc. Any property, movable or
immovable, present or future, vested or contingent can be insured
from my losses by accidents other than fire and marine adventure.
The most popular in this branch is burglary insurance.
 3. Liability Insurance - Just as a person can insure himself against
the risk of death and personal injury, or damage, determination or
destruction of property, there can also be an insurance against the
risk of incurring liability to third parties. The risk of liability arising
out of the use of property, comes under the category commonly
called "liability insurance".
 Liability Insurance includes:
 Public Liability Insurance: That is, insurance against a liability
imposed by law. For example, a house owner may obtain an
insurance against his liability to invitees or licensees, arising
from body injury or damage to property.
 Professional Negligence Insurance: These policies give
professional indemnity cover to accountants, solicitors,
lawyers, from any loss or injury due to any negligence in the
conduct of their professional duties.
 Compulsory Insurance: The ESI Act makes it compulsory for
the employers (covered under that Act) to insure their
workmen by providing certain benefits to them in the event of
their sickness, maternity and employment insurance. The
employees insured are entitled to (a) Sickness benefit, (b)
Maternity benefit, (c) Disablement Benefit, and (d)
Dependent's benefit.
 Employer's Liability Insurance: The liability of an employer
under the modern labour laws, has considerably extended
and the employers are tempted to take out insurances against
such liabilities. For examples, when the employees retire,
substantial amount become immediately
 payable by way of gratuity, commuted pension, leave salary,
compensation in future and also the uncommuted pension
becomes payable in future.
 Employers often take insurance policies which assure
payment of such amounts, as and when these becomes
payable.
 Guarantee Insurance: The main types of policies included in
guarantee insurance are a) insurance for performance of
contract, policies, the guarantor / underwriter insures the
promisee or employer against the loss arising by non-
performance by the promisor or the dishonesty of the
employee.
 Fidelity policies are the most common type of guarantee
policies, taken under contracts of employment where the
employee are to be dishonest. Such policies cover the risk of
losses arising by theft or embezzlement of money or
securities, or by fraud, on the part of employees.
 4. Motor Vehicle Insurance - A policy for motor vehicle
insurance is, ordinarily, a combined insurance against the
damage to the motor vehicle and its accessories, death of or
injury to the, occupant of the vehicle and also against the risk
of liability for injury to, or the death of, third parties caused
by the driver's negligence.

 The General Insurance Business Nationalization Act was
passed in 1972 to set up the general insurance business.
 It was the nationalization of 107 insurance companies into
one main company called General Insurance Corporation of
India and its four subsidiary companies with exclusive
privilege for transacting general insurance business.
 This act has been amended and the exclusive privilege
ceased on and from the commencement of the insurance
regulatory and development authority act 1999.
 General Insurance Corporation has been working as a
reinsurer in India.
 Their subsidiaries are working as a separate entity and plays
significant role in the public sector of general insurance.
 General Insurance Corporation of India (GIC)
 General insurance industry in India was nationalised and a
government company known as General Insurance
Corporation of India was formed by the central government in
November, 1972. General insurance companies have willingly
catered to these increasing demands and have offered a
plethora of insurance covers that almost cover anything under
the sun.
 Objective of the GIC: To carry on the general insurance
business other than life, such as accident, fire etc.
 To aid and achieve the subsidiaries to conduct the insurance
business and
 To help the conduct of investment strategies of the
subsidiaries in an efficient and productive manner.
 Role and Functions of GIC Carrying on of any part of the
general insurance, if it thinks it is desirable to do so.
 Aiding, assisting and advising the acquiring companies in the
matter of setting up of standards of conduct and sound
practice in general insurance business.
 Rendering efficient services to policy holders of general insurance.
 Advising the acquiring companies in the matter of controlling their
expenses including the payment of commission and other expenses.
 Advising the acquiring companies in the matter of investing their
fund.
 Issuing directives to the acquiring companies in relation to the
conduct of general insurance business.
 Issuing directions and encouraging competition among the acquiring
companies in order to render their services more efficiently.
 Classification of Indian General Insurance Industry: General
Insurance is also known as Non-Life Insurance in India. There are
totally 16 General Insurance (Non-Life) Companies in India. These
16 General Insurance companies have been classified into two broad
categories namely:
 PSUs (Public Sector Undertakings)
 Private Insurance Companies
 PSUs (Public Sector Undertakings)
 These insurance companies are wholly owned by the
Government of India(subsidiaries of GIC). There are totally 4
PSUs in India namely:
 National Insurance Company Ltd-Head Office-Kolkata
 Oriental Insurance Company Ltd- Head Office- New Delhi
 The New India Assurance Company Ltd- Head Office-Mumbai
 United India Insurance Company Ltd- Head Office-Chennai
 Private Insurance Companies
 There are mainly 12 private General Insurance companies in
India . A few companies are as:
 Apollo DKV Health Insurance Ltd; Bajaj Allianz General
Insurance Co. Ltd
 Future General Insurance Company Ltd; HDFC Ergo General
Insurance Co Ltd; ICICI Lombard General Insurance Ltd
 Iffco Tokio General Insurance Pvt Ltd; Reliance General
Insurance Ltd
 Royal Sundaram General Insurance Co Ltd; Tata AIG Gen.
Insurance Co Ltd