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INSURANCE REGULATORY AND
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www.irda.gov.in www, Solicyholder,gov.in

3rd Floor, Parisrama Bhavan, BasheerBagh

HYDERABAD500 004, Telangana(INDIA)
www.irda.gov.in www.policyholder.gov.in
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FOREWORD

Aninvestmentin knowledge pays the best interest—Benjamin Franklin

Education in schools has been traditionally focused on enhancing knowledge in

conventional sub- jects like Science, Mathematics, Social Studies and different
languages. The focus on aspects which are of paramount importanceinlife like risk,
finance and insurance have been left out for higher secondary and under-graduate
education only. However, the importance of awareness in these areas from early
stagesof life cannot be overemphasizedas they help in making the youngfinancially
literate and taking an informed decision in respect of the above as and when required.

Insurance is a specialized field of study. However, to make it easy and simple to

comprehend, we chose to bring out a basic book on insurance education. This book
gives information in a very simple and easily understandable language about the
basic aspects of insurance like risk, peril, law of large numbers, insurable interest,
principles of indemnity, contribution, subrogation, etc., and importance of insurance
in one's life; need for Life insurance, General/Non-life Insurance (cover- ing Motor
insurance, Householders insurance etc), Health insurance and an outline of
insurance sectorin India.

Astudent having awareness of these aspects can assessthe risks that his family and
the assets of his family are exposed to. He can impress upon his parents and elders of
the need for insurance to help the family in protecting the life and assets so that the
impact of sudden contingencies does not lead to problems, loss and inconvenience.
This would create a positive outlook which will ultimately lead to insurance
inclusion.

It gives me immensepleasurein bringing out this book aimed at enhancing insurance

awareness for the younger generation of our country. The book is also a part of
IRDAI's continued effort for promoting financial literacy under the National Financial
Literacy Mission.

| acknowledge the efforts of Insurance Institute of India, an academic body for

promoting insurance professionalism in India and abroad, for their inputs in bringing
out this book. If the book can help a student in understanding about insurance,
identifying risks in one's life and help him look for possible solutions through
insurance, the purposeof this book would be morethan served.

With best wishes,

T.S. VIJAYAN
Chairman, IRDAI
Key learning objectives
After reading this booklet, the reader will be able to understandthe following:-

1. The concept of insurance

2. Principles on the basis ofwhich insurance works

3. Needofinsurance

4. Overview of Indian Insurance Sector

TABLE OF CONTENTS

1 INTRODUCTION TO INSURANCE r

2 PRINCIPLES OF INSURANCE 14

3 PERSONAL NEEDS 24

= INSURANCEAND INDUSTRIES / BUSINESSES 33

5 INSURANCE SECTORIN INDIA 37

 CHAPTER1

INTRODUCTION TO INSURANCE

Learning outcomes
A. Understanding risks and perils

B. Learning about savings and investment

C. Knowing about conceptof insurance

A. Riskand perils

Every day, we hear stories about accidents and other misfortunes that someone
has suffered.
Some of these include:

I. All of a sudden, peoplefall seriouslyill.

ii. Motor vehicles are stolen and people die or get injured in accidents involving
motor vehicles.

iii. House and belongings are destroyed by fire.

iv. Large scale lossof lives and destruction of property in cyclones and tsunamis.

Life is full of uncertainties and surprises. Protecting oneself, one's families and society
from these uncertain events has been oneof the biggest concerns of man for centuries.

‘Risk’ is a term that we use to refer to the chance of suffering a loss as a result of uncertain
events like the above.

The events that give rise to such risks are knownas perils.

Some examplesof perils

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We face many suchrisks in our day-to-daylife including risks to ourlife, health, property
and soon.

We don't know whether and when something unfortunate will happento us or our family
members or property. It may not always be possible for us to prevent such a happening.
For instance, we cannot prevent a storm or somebody's death from occurring.

B. Savings and investment

It is possible for us to take measures to reduce the financial consequencesthatarise due to

the above mentioned risks and protect ourselvesfinancially. One of the ways by whichthis
is normally doneis with the help of savings and investment.

Example

We would have seen or learnt from our parents or elders about the need to save for the
future. By saving or investing money, the money so accumulated can be used to cope with
the loss. However, such savings can only give back our own money plus somereturns.

What would happen if a human life is lost or a person is disabled permanently or

temporarily?

Example

Aperson dies suddenly. Where would the person's family get the money from to support
itself? How would the person's family meet the variousliving expensesafter his death?

A person suffers a paralytic stroke that leaves him permanently bed- ridden. Such an
event would result in loss of income to the household and put the family in a lot of hardship.

The loss suffered Is so large in all such situations that one’s savings may not be sufficient
to take care of the financial burden.

Cc. insurance
Luckily for us, there is something called 'Insurance’. It is founded on a simple idea. Even
though an eventlike death or a fire can come as a terrible economic blow to someone,
when we take the society as a whole, during any given year, only a few would suffer in such
manner. Ifa small contribution is collected from everyone in the community and pooled to
create a common fund, the amount so pooled can be used to pay money to the few
unfortunate members who have been subject to the loss.

Dentition

Insurance is a mechanism of risk transfer and sharing by pooling of risks and funds among
a group of individuals who are exposedto similar kindsof risks for the benefit of those who
suffer loss on accountofthe risk.
 hes

Insurance is, thus, a financial tool

specially created to reduce the financial
impact of unforeseen events and to create
financial security. Indeed, everyone who
wants to protect himself against financial
hardship should considerinsurance.

Traditionally, “the joint family” has been an

informal social security in India. In modern
society, social security is available only to
those who are employed in the organized
sector. Insurance is considered one of the
tools of social security for formal and
Informal sectors and is largely carried out in two ways.

i. The first way is known as Social Insurance. Here, the State or government takes care
of those who are subjected to losses due to some risk event. Examples are, providing a
pension when one grows old or providing free medical treatment, meeting the cost of
hospitalization etc. The fund for this purpose comes from a pool made up from taxes or
mandatory social security contributions required to be made byall those who work and
earn an income. The Employees’ State Insurance scheme (ESI) that provides medical
care and other benefits to employees and Employees’ Provident Fund Organization
(EPFO) that provides pensions and survivors' benefits in the event of an employee's
death are the popular schemes underthis head.

ii. The second way is through voluntary Private Insurance. Here, individuals and groups
can buy insurance from an insurance companyby entering into a contract of insurance with
the company. The insurance company enters into a contract (an insurance policy) whereby
it (insurer) undertakes, in exchange for a small amount of money (premium), to provide
financial protection by agreeing to pay the insuring person (insured) a fixed amount of
money (sum assured) on the happening of a certain event(insured peril).

Insurance companies collect premiums to provide for this protection and losses are paid
out of the premiums so collected from the insuring public. In other words, an insurance
contract promises to make good to the insured a certain sum in consideration for the
premium received from the insured.

Example

Thefollowing two examples explain the concept of insurance

10
Example1

Ina village, there are 400 houses, each valued at Rs.20,000. Every year, on an average, 4
houses get burnt, resulting into atotal loss of Rs.80,000.

Number of houses 400

Value of each house Rs. 20,000
Housesthat get burnt every year (average) 4
Total loss (4 houses X Rs. 20,000) Rs. 80,000
Contribution to be made by 400 house owners to compensate
for loss of Rs. 80,000 = Rs, 80,000 / 400 Rs. 200

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If all the 400 owners come together and contribute Rs.200 each, the common fund would
be Rs.80,000. This is enough to pay Rs.20,000 to each of the 4 owners whose houses got
burnt. Thus, the risk of 4 owners is spread over 400 houses/ house-owners of the village.

Example 2

There are 1000 persons, whoareall aged 50 and are healthy.It is expected that of these,
10 persons may probably die during the year. If the economic value of the loss suffered by
ne hga each dying person is taken to be Rs.20,000, the total loss would work out to
s.2,00,000.

Number of persons 1000

Economic value of each person Rs. 20,000
Persons that may die during the year (probable) 10
Total loss (10 persons X Rs. 20,000) Rs. 2,00,000
Contribution to be made by 1000 people to compensate
for loss of Rs. 2,00,000 = Rs. 2,00,000 / 1000 Rs. 200
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lf each person of the group contributes Rs.200 a year, the common fund would be
Rs.2,00,000. This would be enough to pay Rs.20,000 to the family of each of the ten
persons who may die. Thus, 1000 persons sharetherisk of loss due to death suffered by
10 persons.

From the above,it can be seen that insurance is a very useful financial tool for pooling,
sharing and transfer of the risk so that the financial loss caused to a person whosuffers
due to aperil is compensated.

Case study: Risk and protection

Sheetal and Simran are friends from the same class and regularly go home together.
Sheetal always carries an umbrella and Simran makes fun of her. Sheetal simply smiles
and says that as the umbrella protects her from sun and rain, she does notfeel it to be an
additional burden to carry along with text books in her school bag.

One day, it suddenly started raining. Simran did not get either raincoat or umbrella
because of which she got wet as did her bag and books. Sheetal used her umbrella to
protect her and her bag from rain. Sheetal offered to share her umbrella and asked
Simran to come to her house. After reaching Sheetal's home, Simran found that Sheetal's
father was carefully sorting out a bunch of papers and making notes. Sheetal's mother
had refreshments arrangedforall of them, without making much noise.
When Simran asked Sheetal's mother why uncleji was so serious, she said, “Actually, your
uncleis finalising papers for purchase of an insurance policy’.

“Whatis an insurance policy,” Simran enquired.

Sheetal's mother explained, “Insurance offers protection against unforeseenrisks,justlike

a raincoat or umbrella protects against rain”.

"Whatis arisk?", Simran asked.

‘12
Sheetal's mother said, “See Simran, we face manyrisks in ourlives. For example, if you
drench yourself in rain, you mayfall sick. There is a risk ofillness. Due to rain, there could
be a short circuit of electricity. There is a risk of electronic breakdown of this TV as well as
other domestic appliances. There is a risk of theft of our car which is parked in the garage
andthere is alsothe risk of an accident while crossing the road.

So risk is an inherent part of ourlife. Whether and when loss would be caused because of
risk and how much loss is caused cannot be foreseen, knownor controlled at all times.
While we cannot avoid most of these risks, by purchasing insurance, we can transfer the
riskto the insurance company.”

Simran asked, “How doesthis happen”?

Sheetal's mother explained, “Suppose the downpouris heavy resulting in a! lood, our car
could get immersed in water. It could damage a few vital parts necessitating repairs. Since
we have insured our car, the insurance company will reimburse the expenses of repairs,
thereby reducing the impact of loss because of damageto the car."
Simran asked innocently, “But aunty, why cannot the rain be stopped” and then, she
sneezed. Sheetal’s mother exclaimed, ‘Bless you!’ and told her, “Had you taken an
umbrella you could have
protected yourself from getting wet. See, now since you got wet, can we stop you from
sneezing"?

Everyone laughed.
 CHAPTER 2
PRINCIPLES OF INSURANCE

Learning outcomes

To know that insurancefollows law of large numbers

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Knowing whatis Insurable interest

Knowing that Utmost good faith operates in Insurance Contracts

Understanding Indemnity

Learning about Subrogation and Contribution

Understanding Proximate cause
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The principles of insurance are:

i. Law of large numbers

ii. Insurable interest
iii. Utmost good faith iv. Indemnity
V. Subrogation and contribution
vi. Proximate cause

A. Lawoflarge numbers

Imagine thatin a village there are 1000 persons whoare all aged 50 and are healthy. Based
on previous experience,it is expected that of these, 10 persons may die during the year.If
the economic value of the loss suffered by the family of each dying person Is taken to be
Rs.20,000, the total loss would work out to Rs.2, 00,000. If each member contributes
Rs.200 a year, this would be enough to pay Rs.20, 000 to the family of each of the ten
persons who dies. You would have wondered whetherthe prediction of numberof actual
deaths of ten is accurate. What would be the impact if the insurance company's predictions
aboutthe risk turned out to be wrongor inaccurate and the numberof deaths turns out to be
15 or 5? If the actual number of persons whodie during a year were to be higher than ten,
the amount collected would not be sufficient to compensate those who suffer the loss.

You need not worry too much about the accuracy of estimates. What saves the insureris a
wonderful principle of nature known asthe law of large numbers. Simply put, it states that
the more the number of members whoare insured, the morelikelyit is that the actual result
would be closerto the expected.

Example

Try this simple experiment. Toss one rupee coin. We all know that the theoretical
probability that the outcome will be 'heads' is equal to /2 Does this meanthat if you toss a
coin four times you will always get two heads and two tails? When can you be hundred
percent sure that you will get heads exactly half the time? The answeris, you would have to
toss it a very large numberof times. You would also notice that the more numberof times
you toss the coin, the more you would find that the result is coming closer to half.

Law of large numbers -Number of tosses of a coin

Insurance works on this law of large numbers.) ''

Insurance companies are able to make near| '
of
accurate predictions about their risks because
theytypically spread that risk amongst thousands,|
even millions, of members who have signed) ,,
contracts with them and who are their policy| ,.
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15
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This is the reason why when you purchase an insurance policy, the insurance companyis
able to give you an assurance that your losses would be compensatedif they occur due to
the insured event.

B. insurable Interest

Another important principle is insurable interest. Let us understandit with the help of a few
examples.

Example 1

Shri Manoj was staying with his wife and son. An insurance agent visited him offering
health insurance. Manoj indicated that he wanted to take health insurance for all the
members of his family. He also wanted to take a policy for his good neighbour. The insurer
said that Manoj can take a policy for his family but cannot take a policy for his neighbour.

The reasons why the insurer refused to issue insurance policy to Manoj's neighbour was
because
Manoj did not have an insurable interest in his neighbour's health.

Insurable interest is the term we use to describe the relationship betweenthe insured and
the subject matter of insurance (in the above caseit is the health of Manoj and his family on
one hand and Manoj's neighbour). This relationship gives Manoj a particular type of
interest in the health of himself, his wife and child, whereby he benefits from the good
health and suffers a financial loss by way of hospital expensesif one of the members of his
family falls ill. We buy insurance to ensure that the loss suffered is compensated for in
some way. The position is not so in case of Manoj's
neighbour as Manoj does not suffer any financial loss due
to his neighbourfallingill.

Insurable interest exists when an insured person derives

a financial benefit from the continued existence of the
insured object or suffers a financial loss from the loss of
the insured object. A person has an insurable interest in
something when loss-of or damage-to that thing would
cause the personto suffera financial loss.

Example 2

If the house you own is damaged byfire, you suffer a financial loss resulting from the fire.
By contrast, if your neighbor's house, which you do not own,is damaged byfire, you may
feel sympathy for your neighbor but you have not suffered a financial loss from the fire. You
have an insurable interest in your own house, but notin your neighbor's house.
Imagine that you had insured your house. Later you sold the house to buy a bigger house.
There was fire in the house after you sold the house. Since you do not own the house
anymore, you will not suffer any loss. Therefore, now you do not have any insurable
interest in the house. Insurable interest should be there at the time the lossis suffered.
People have an insurable interest intheir property to the extent of loss suffered, butnot

16
 esl

more. The principle ofindemnity dictates that the insured is compensated for a loss of
property, but is not compensated for more than what the property was worth.
A lender, who gives loan against the security of house, has an insurable interest on the
property becauseif there is a loss to the house, he would suffer a loss by not getting back
the money. However, the insurable interest of the lender is not in excess of the value of the
loan.

C. Utmost goodfaith

While ordinary commercial contracts are good faith

contracts, insurance contracts are contracts of utmost
good faith. Let us distinguish between good faith and
utmost good faith with the help of example.

Example

Example 1: You have accompanied your parents to a ° \

car showroom where they sell cars. Your father asks
the salesman certain details about the car being considered. The salesman is bound to
give correct answers to the questions. Similarly, the brochures about the particular car
model cannot make a mis-representation (tell a lie) about the model. This obligation to
disclose only the truth applies when we speak of contracts of goodfaith.

Is the car salesman obliged to disclose (tell) everything he may know about the car? The
answeris No. The buyer has to be aware of whathe is buying.

Example 2: Shri Kishore aged 45 years applied for insurance onhis life with policy term of
15 years. The insurer promises to pay the sum assuredto the legal heirs of Kishore in case
Kishore dies during the policy term. The insurer has to predict the chances of Kishore's
survival over term of the insurance i.e., the next fifteen years. Can the insurer make an
accurate prediction without knowing complete details about Kishore like his state of
health, past diseases, family health history, habits etc. The insurer would not be in a
position to know these facts unless they were completely disclosed by Kishore. Any
problem in health would adversely impact the chances of survivaltill the policy term, which
in turn would result in insurer paying the sum assured to the claimants of Kishore. Thus,the
cost of insurance is more for insurer in case theill-health of insured is not disclosed.
Imagine the policy sold has special features and conditionslisted in the policy document.
Can Kishore know about these features and conditions unless the same are disclosed to
Kishore by the insurer?

In Example 1 above, while the buyer of the car can see, touch and test-drive the car, the
purchaserof insurance gets only a promise that he or claimants on his behalf would be paid
an amount when something happens.

Onthe other hand, the seller of the car clearly knows whatheis selling and whathis costs
are in manufacturing the car. In the case of the insurer (Example 2), when heis entering
into acontract, he is able to quess (estimate) the chance of the loss and the amountof the
loss that may happen

17
 A)
(which would be huge compared to the premium collected) based on his knowledgeof the
‘risk’ that he is accepting. Here, we should note that when an insurance contract is
entered into, the insured person knows everything about the risk insured but the insurer
knows nothing. The insurer can assess the probability of loss (depending on which he
decides to accept the risk and charge the premium) only based on whatthe insuredtells
him about the risk. Similarly, the insured would not understand what the benefits are in
relation to the cost paid (premium paid) unless the same are made known to him to enable
him to make an informed choice.

Insurance contracts thus stand on a different footing as compared to other kinds of

commercial contracts. Disclosure of all material information has to be made by both the
parties to the contract. Hence the contracts of insurance are referred to as contracts of
utmost good faith. Since these contracts are based on prediction of an event (Known as a
contingency), they are called as contingent contracts. The prediction depends on
complete disclosure being madeofall facts that would impact the risk.

The proposerin insurance thus has a legal obligation (legal duty) to disclose everything
and all material facts that are relevant to the subject-matter of insurance.

Definition

Amaterial fact is one which would affect the judgment of a prudent insurer in deciding
whether to acceptthe risk and if so, at what rate or premium and subject to what terms and
conditions.

Example

I. In respect of insuring a factory, one must disclose the type of construction of the
building and the nature of goods stored;

ii. In the case of goodsin transit (Marine Cargo insurance), the method of packing and
the mode of transportation has to be disclosed.

iii. Inthecaseoflife insurance,the state of the health of those proposed for insurance,
details of past ailments and the treatments done haveto be disclosed.

D. Principle of indemnity

Let us understand the principle of indemnity with the help of an example.

Example

Jayesh had a shop which caughtfire and as a result, a part of the goods that were stored
was destroyed. The shop was insuredforits full value of Rs.5,00,000. Jayesh claimed Rs.
5,00,000 since he had insured his shop for Rs. 5,00,000. The insurance company's
surveyor examined the damage and estimated that the loss was only Rs. 64,000. The
insurance company paid Rs.64,000 as compensation, even though Jayesh had a policy of
Rs. 5,00,000 and claimed for more. The insurer was applying a law knownasthe “Principle
of Indemnity”.

18
You get compensated for what you lose - no more, no less.

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individual has taken Motor insurance

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inserance Company Indemmifies individual

The principle of indemnity meansthat the loss, and only the loss, is compensated. Insurer
has to indemnify (ie. pay for the financial loss suffered by) the insured. At the same time,
the insured should not be paid anything more than the financial loss suffered by him. In
other words,the insured should not be able to make a profit out of the loss suffered.

The insurance contract is for compensating the person who experiencesa loss so that he
is brought back to the samefinancial position as before the loss. The insurance policy
indemnifies or guarantees compensation only for the amountof loss and for nothing more.

One should note that insurance policies have a sum insured, which indicates the total
value of the risk that is taken over by the insurer through the policy.

Sum insured should be understood dependingon the type of insurance as:

i. Thevalue of acar,

ii. The value of ahouse,

iii. The estimated medical expenditure or

iv. The amount that would take care of a family's financial needs in case of the
breadwinner's death.

a
Paymentof any higher amount would normally mean a profit forthe insured.

Payments for loss or damage under insurance contracts are limited to the actual amount
of the loss or damage or the sum insured, which would be the maximum liability of the
insurer. The purpose here is to ensure that one should not expect to make profit out of a
loss through insurance.

Consider this situation

Consider a case where Mrs. X takes insurance on herlife. Suppose she were to die.
Wouldit be possible to exactly estimate the actual amount of loss or damage suffered? You
would find that the above questions cannot be answered easily. The value of a person'slife
cannot be measuredprecisely.

Life insurance contracts hence follow different principle. Thelife insurer pays an amount
thatis fixed at the beginning of the contract. Such amountis known as sum assured. Thus,
life insurance contracts are known as contracts of assurance rather than contracts of
indemnity.

E. Subrogation and Contribution

What are subrogation and contribution?

Both principles of subrogation and contribution arise from the principle of indemnity.

a) Subrogation

Consider this situation

On his transfer from Kolkata to Mumbai, Mr.Rajan sends his household goods worth
Rs.1,00,000 through M/s. Jayant Transports. During the transit, part of the goods got
damaged dueto the truck driver's negligence.

The insurer assessed the loss and found that the value of the damage was Rs. 30,000 and
paid this amount to Mr.Rajan as indemnity. However Mr.Rajan took up the matter against
M/s Jayant Transports with the Court of Law and the Court ordered M/s. Jayant Transports
to pay Rs.30,000 to Mr.Rajan. Having already received Rs.30,000 from the insurer,
Mr.Rajan would be making a profit out of the loss if he gets Rs.30,000/- from the
transporter also.

From this situation, one should observe thefollowing:

i. The insurance company has to compensate Mr.Rajan as per the insurance contract at
the earliest without making him wait for the Court's judgement.

ii. Mr.Rajan should not get two compensations and make a profit out of his loss.
In such situations, the insured’s right to claim from anywhere else is taken over by the
insurer when he pays a claim. Since the insurer has paid the amountof loss to the insured,
the insurer would be the one who has bomethe loss. Hence, the name of the insurer
should be substituted for the insured and the right to recover the amount of loss from the
person causing loss has to be transferred to the insurer who paid for the loss and
compensated the insured. This taking over of the insured's right by the insureris called
‘subrogation’ in insurance parlance. In other words, on paymentof the claim, the insured's
right to claim from anywhere else gets 'subrogated' to the insurer.

In the matter of subrogation, one should be clear that the insurer's rights of subrogation are
limited to the amount he has paid towardsclaims.If, in the case cited above, the Court had
ordered M/s. Jayant Transports to pay Rs.50,000 (instead of Rs.30,000) to Mr.Rajan, the
insurer would have subrogation rights only up to Rs.30,000 that it paid and the balance
Rs.20,000 would go to Mr.Rajan.

How subrogation works

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Individual motor car owner buys insurance

Car damaged by careless driving of a truck

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b) Contribution

Considerthis situation

Mr. Kishore had a car worth Rs.5,00,000 and hetookfull insurance for this car from two
insurance companies. The car was totally damaged in an accident and total loss was
Rs.5,00,000. Mr. Kishore filed a claim with the 1st company and got paid Rs.5,00,000. He
goes to the 2nd insurance company and makes a claim for Rs.5,00,000. The second
company informed Mr.Kishore that he was noteligible for getting any more sum because
he was already indemnified by the 1st Company.If the 2nd company had also paid him, he
would have made a profit out of his loss, to the disadvantageof all the other members who
had contributed premiums.

This situation is against the principle of indemnity in insurance as Mr. Kishore would be
making a profit out of his loss.

The principle of contribution refers to the right of an insurer who haspaid a loss under a
policy to recover a proportionate amount from other insurers who are alsoliable for the
loss.

Example

If a property is insured under two fire policies each for Rs. 300,000,in the event of a partial
loss of Rs.1,00,000, the insured is entitled to recoverhis full loss from any one of the
insurers who, thereafter is entitled to recover from the other insurer his proportionate
share i.e. Rs. 50,000. So, the different insurers under different policies contribute in
indemnifying and paying for the loss caused by an insured peril.

F. Principle of proximate cause

Let us understand the principle of proximate cause with the help of an example.

Example

Mr. Prathamesh had taken an accident insurancepolicy which covered death by accident.
While walking on the road one day, he was hit by a car. He was rushed to the hospital.
Being a person with a weak heart, he could not stand the shock of the event and died after a
few hours from heart failure. The insurance company disputed the claim saying it was the
heart attack rather than the accident which had caused his death. The court ruled that even
though the immediate cause of death may have been collapse of the heart, the proximate
cause of death was the accident and ordered the companyto pay the claim.

The above example is a case of a key principle in insurance, known as proximate cause.
The word 'proximate' means ‘nearness’or 'closeness’. The concept is that the cause that
is 'closest' (in its effect) to the loss, is considered to decide whethera claim is payable or
not.
If loss to an insured property is the result of two or more causes acting simultaneously or in
succession (one after another), it becomes necessary to choose the most important, the
most effective or the most powerful cause which has brought about the loss.It is the active
efficient cause that setsinto motion atrain of events which brings about a result, without
the intervention of any other force. This cause is termed as “proximate cause’, all other
causes being considered as “remote”. If the proximate cause of loss is covered under the
policy, the claim becomes payable.
 CHAPTER 3
PERSONAL NEEDS

Learning outcomes

Having a brief idea about

Life insurance
nm mog @ >

Health insurance
Property insurance

Travelinsurance

Pensions

Group insurance
 ()
A. Life Insurance

Humanlife is perhaps the most important and invaluable asset. This asset is subject to
risks of death and disability due to natural and accidental causes. When human life is lost
or a person is disabled permanently or temporarily, there is a loss of income to the
household.

Though humanlife cannot be valued, itis possible to estimate the loss of income that would
be suffered in future years in the event of a risklike death or disability. Life insurers try to
place a monetary value on such loss and provide insurance cover for such loss. Life
insuranceis a financial coverfor a contingency linked with humanlife, like death, disability,
accident and retirement. Life insurance products provide a definite amount of moneyin
casethelife insured dies during the term of the policy or becomes disabled on account of
an accident.

Who needslife insurance?

I. Primarily, anyone who has afamily to support and is an income eamerneeds life
insurance.

ii. In view of the economic value of their contribution to the family, housewives too
need risk cover.

iii. Even children can be considered forlife insurance in view of their future income
potential thatis at risk.

Basic types of life Insurance policies

|. Term insurance: Underthis plan, the sum assured Is paid only on the death of the
insured during the period specified. There is no maturity value in term insurance.

ii. Endowment assurance: Underthis type of plans, the sum assuredis paid at the end
of the term as maturity or on the death of the insured during the term ofthe policy.
This is available as With Profits (Bonus) or Without Profits type. Money-back
plans are endowmentpolicies with the provision for return of a part of the sum
assuredin periodic installments during the term and balance of sum assured at the
end ofthe term.

iii. Wholelife insurance: It offers to pay the sum assured whenthelife assured dies, no
matter when the death occurs. There is no fixed term for cover of death. The
premiumscan be paid throughoutone’slife or for a specified limited period.

iv. Unit Linked Insurance Plans: These are essentially life insurance plans where the
premiumsare invested in the capital markets and the returns are therefore linked to
the performanceof the specific fund and the overall market. The fund choice is made
 esl

by the customer and therefore the investmentrisk is borne by the customer. There
is also specified life insurance risk cover available for which premium will be
deducted before investment. There are also various charges applicable in this type
of policies.

Vv: There are other varieties among life insurance policies such as Variable Insurance
Policies, Joint Life Policies and children's policies.

B. Health insurance

Health insurance covers expenses towards treatment of diseases and / orinjury. A health
insurance policy could be either on an indemnity basis which involves reimbursement of
expensesup to a specified limit or on a fixed benefit basis where the insurer paysa fixed
amount of benefit Irrespective of what the expensesare.

Ahealth insurance policy (on indemnity basis) would normally cover expenses reasonably
and necessarily incurred underthe following heads in respect of insured person subject to
overall ceiling of sum insured (for all claims during one policy period):

i. Room, boarding expenses

ii. Nursing expenses
iii. Feesofsurgeon, anesthetist, physician, consultants, specialists,

Anesthesia, blood, oxygen, operation theatre charges, surgical appliances, medicines,

drugs, diagnostic materials, X-ray, dialysis, chemotherapy, radio therapy, cost of pace
maker, artificial limbs, cost of organs and similar expenses.

Normally, health insurance policies are not issued for less than one year period.

A Personal Accident coveris also available for protection. In the event of death or disability,
permanentor temporary, of the insured, arising as a result of an accident, it provides for
compensation, whichis either the whole or a percentage of the sum insured depending on
the kind of loss.
 i.
Cc. Property insurance

In respect of insurancerelating to property, there are many products available.

a) Householder insurance is one of the most

important insurance policies to buy as homeis
one of the largest financial investments made
because of whichitis very important to protect it.

b) Loss of or damage to property and assets may be covered againstfire and perils of
nature including flood, earthquake etc. Machinery of industries may be insured
against breakdown. Goods in transit can be insured under a Marine Cargo
insurance cover. Insurance coverageis available for loss or damage to ships and
aircrafts as well. The indirect loss caused dueto inability to use the property or
assets as a result of peril, called consequential loss, can also be insured.

c) A Motor Insurance policy covers damage to the ~~

vehicle. Motor insurance covers your vehicle, be :
it a motorcycle, a car or a lorry, in case of
accidents or theft. Further, while driving a
vehicle, it is possible that the vehicle hits
someone and causes death/ injury or damage to
someone's property. As per the law, the ownerof
the vehicle is legally liable to pay compensation
for any injury or damage to any person'slife or
property caused by the use of the vehicle in a public place. As insurance is a
contract, where the insurer and the insured are the two parties involved, this
liability can be to any other person, or in other words, to any ‘third party’ to the
contract. Hence, suchliabilities are generally called ‘third-party liabilities'. Driving a
motor vehicle without third-party insurance in a public place is a punishable offence
in terms of the Motor Vehicles Act, 1988. A motor third party insurance policy is
mandatory according to Motor Vehicles Act, 1988.

Property insuranceis based on the principle of indemnity. The ideais to bring the insured to
the samefinancial position as he /she was before the event occurred. It safeguards the
investmentin the property. Where there is no insurance, losses can destroy a project or an
industry. Thus, general insurance offers stability to the economy andto the society.

27
D. Travel Insurance

Travel insurance is called by different names by insurance

companies, but offers insurance protection while one
travels. Travel insurance protects the insured person and
his family from domestic and international travel related
perils and losses like accidents, unexpected medical
expenditure during travel, baggage loss, interruption or
delays in fights etc.

The following covers are usually available undertravel

insurance though the combination mayvary.

I. Medical expenses with or without cashlessfacility (most travel insurance products

offer cashless facility)
ii. Personal accident
ii. Lossofbaggage
iv. Delayin baggagearrival
Vv. Loss of passport
vi. Traveldelay
vil. Repatriation
vill. Transportation of dead body etc.

The list, however, is not exhaustive.

E. Pensions

Consider this scenario

Anil was working as Senior Managerin a private company

and was earning comfortably. He was living a luxurious
life. After retirement, he received only provident fund
amount which he invested in fixed deposits presuming that
the interest would be sufficient for his needs after
retirement. However,Anil fell seriousty ill immediately after
retiring. He was admitted to hospital and most of his
deposits had to be closed for making paymentto the
hospital for treatment. The interest on remaining deposits
was not sufficient to meet the expenses of Anil and his
family. He had to depend onhis children and relatives for
his household expenses and health costs. Would it not be
a good idea for Anil to create a mechanism by which his
savings get accumulated when he was young so as to give
a regular source of income to meet his old age expenses?
 ()
Financial independence during old age is a must for everybody. Many people provide for
their old age, by setting aside a portion out of their regular income during their earning
period, to take care of post-retirement days. Howeverthere is a risk that one maylive too
long after one’s retirement. In such a situation, one’s savings may run out and may not be
sufficient to meet one's income needs. We should appreciate that when an employee
retires, he no longergets his salary, but his need for a regular income continues. We should
understand pension as a method of getting a regular incomeafter one's retirement.

A pension or an annuity is a fixed sum paid regularly to a person, typically following

retirement from workinglife. Many countries create funds for their citizens and residents
to provide income when they retire (or become disabled). Insurance companies allow
people to create funds from their savings from which they can get pension when they are
old.

Pension becomes an ideal method of meeting this risk of surviving for long period after
retirement because the pensioner can get definite Income which is guaranteed throughout
his lifetime.

There are two types of annuities (pension plans):

a) Immediate Annulty

In case of an immediate annuity, the annuity payment from the insurance company
starts immediately. Purchase price (premium)for the immediate annuity is to be paid
inlump sum in one installment only.

Example

Mira's grandfatherretired from a private school at the age of 60 and received a sum of Rs.
15 lakhs as his provident fund. He invested Rs. 12 lakhs out of this for purchasing an
immediate annuity from a life insurance company. Mira's grandfather would start
getting his annuity payment every month from the next month itself.

b) Deferred Annulty

Under deferred annuity policy, the person pays regular contributions to the insurance
companytill the vesting age/vesting date. He has the option to pay as single premium also.
The insurance company will take care of the investment of funds. The fund will
accumulate with interest and the total amount will be available on the vesting date. The
policyholder has the option to purchase an annuity for the entire amount or encash upto
say 1/3rd of this corpus fund on the vesting date and purchase an annuity for the balance
amount. This partial encashment is called commutation and the amount so received is
tax-free.
 ()
Example

Shreyas saw a pension policy lying on his father’s table. When he asked about it, his
father, who is 45 years old, said that he would be paying a regular contribution of Rs.
50,000 per year forfifteen years, so that when heretires at the age of 60, he will have a
sizeable fund with which he would purchase an annuity so that pension would be paid to
him till the end ofhislife.

This is a deferred annuity. The vesting date would be the date when Shreyas's father would
attain 60 years. On that day he would have an option to either purchase an annuity forfull
amount or commute a portion of the amount and purchase annuity for the balance amount.

While term insurance policies offer protection against the risk of early death, annuities are
insurance policies that offer protection against the risk of surviving for too long.

F. Group Insurance

Anotherkind of insurance is group insurance. In group insurance, schemes are offered by

insurance companies to provide certain classes of individuals, the benefit of insurance
coverage at moderate cost.

Example

Shri Kishore, an account holder of X Bank, has taken a credit card of the bank. He is
exposed to the risk of loss of card andits fraudulent usage by another person. He has to
approach an insurance company for this purpose. Similarly the bank has issued credit
cards to thousands of other account holders. In this case, the risk to which all the card
holders are exposed Is similar. Issuing of individual policy for each card holder would be
cumbersome and involving huge cost for the insurer. Similarly, the ability of Kishore to
bargain with the insurer for a better rate for insurance for his credit card would be much
less than that of the bank negotiating for its thousands of card holders. The bank can
secure a cheaper insurance cover from the insurer. The insurer would be willing to offer
cheaperrate because of reduced cost of acquiring business and better administration of
the policies through the bank.

From the example,it can be seen that Kishore as a memberof the groupof credit card
holders of X Bank can secure an insurance policy from the insurer on better terms. The
policy taken by the bankis called a Group Policy. X bankis called Master policyholder or
Group administrator. The cardholders like Kishore and others are called members or
beneficiaries. A certificate will be issued to Kishore and other group members as an
evidence of insurance.

Groups should consist of persons who assemble together with a commonality of purpose
or engaging in acommonactivity. Examples of groups are employees of an organization,
depositors, account holders or borrowers of a bank, members of a professional group or
associationetc.
Group policies can be issued for the above groups. Group policies could be grouplife
insurance policies, group health policies or group non-life policies. However, the group
should not be formedsolely for the purposeof obtaining group insurancepolicy.

Group insurance taken by a bankforits customers

Case study: Group Insurance

All villagers of Rudrapur assembled near the Chabutara. While villagers weresitting on
their haunches, the Mukhia was sitting on a makeshift stage. The farmers of the village
were there to discuss the serious problems faced by them yearafter year. One year it was
loss of entire crop due to sudden downpour of rain at the time of harvest. The second yearit
was inundation as the river ~owing nearby suddenly swelled, resulting in submerging of
crops and many households, killing cattle, damaging tractors, agriculture pump setsetc.
Mostrecently, last year there was a severe droughtin thevillage.

There was a distraught look on everyone's face to find a solution for mitigating such losses
atleast this year.

The only graduate of the village had come today from the city and all of them gathered to
hear from him if he could provide any solution. “Certainly”, said Mr. Graduate. “We can
protect ourselves through insurance. For protection from the losses to crops, agricultural
machinery and cattle, each farmer can take agricultural insurance and other general
insurance policies."

The Mukhia enquired “Is protection only for our agricultural activity? What about loss of
life, tteatmentin case of diseases etc.?”
Mr. Graduate answered “For protection of life and health all you need is to have a group
insurance,

31
covering all householdsof this village".

“Why is group insurance better than individual insurance"? One gentleman asked.

“Group insurance is offered to a homogenous group whose members are similar. For e.g.
we are all part of this Gram Panchayat and the Gram Panchayat can take a group
insurance covering all the villagers. Further, as it saves lot of administration work of
issuing multiple insurance policies for the same risk, it is cheaper in comparison to
individual insurance".

“Itis a very good idea” everyone nodded in agreement.

“Can we get health treatment under insurance for our families"? asked one lady sitting in
one corner.
“Of course", said Mr. Graduate. “But you have to purchase a group health insurance for
availing such facility. One more thing you may be interested to know is about cashless
facility under health insurance. Nowadays, mostof the insurance companies have tie-ups
with a network of hospitals and the claim amounts are directly paid to them in case of
hospitalization so that hospitals do not charge money from you.It means, you just have to
walk in with your proof of insurance to the network hospital to have free access to
healthcare as per the policy under cashlessfacility”.

The Mukhia then rose from his chair and told. “Now we are going to take agricultural
insurance for our crops and live stock and insure the entire village under Group insurance
for our health and life”. Everyone applauded the decision.
 CHAPTER4

INSURANCE AND INDUSTRIES/ BUSINESSES

Learning outcomes

A. Risks faced by business enterprises

B. Shopkeepers’ Package Policy

 ns
A. Risks faced by business enterprises

a) Businessenterprises

In the previous chapter we have seen that|

insurance protects against misfortunesthat affect wet
a person and his assets. Insurance can also help
out in protecting large and small industries, ships, wee~
aero planes,factories, hotels or even small shops.

In the world around us, we see a lot of small,

medium and large enterprises. The word i"
‘enterprise’ usually means a complex company,
business or project. Some enterprises
are worth crores of rupees operating across the country and are run by the Governmentor
by large business houses while somearelocally run small businesses. Enterprises may do
various activities like producing things like medicines, furniture, manufacturing equipment
like vehicles, televisions, processing like making jam out of fruits, pickles or marketing
goods and services etc. Mostof the enterprises that we see around us are usually ‘small
enterprises’ which dotheir businesses in a small waylocally.

b) Risks faced by business enterprises

Let us look at the enterprises that we see nearus. A hotel, a bakery or a provision shop is
set up by an entrepreneur/businessman by investing his moneyfor the purpose of earning
money. However,in this process, he has to face various risks.

i. Business related risks: Itis possible that the food prepared does not taste good and no
one comesto eat in the hotel; or customers may developa liking for some othertype of
food and may not come to the bakery to buy cakes or biscuits: or nobodyvisits the
provision store when there is a weekly market nearby and provisions are available at
low prices. These are businessrelated risks that an entrepreneur can expect and take
caution against as part of building his business. He can always try to compete with
others in the market by making better food, reducing prices, making new varieties of
cakes etc., so thathe attracts more customers for his products. Such risks are normal
business risks and are generally not insurable.

Now,let us look at othertypesof risks that he is facing.

ii. Risks from natural calamities: The hotel may be destroyed by an earthquake, the
bakery could be washed awaybyfloods and a fire can destroy the provision shop.
Thoughhe is all along exposed to such risks which can ruin him completely, the
entrepreneur can do practically nothing about these asall these are events beyond
his control. Insurance can take care of such risks that are chance events beyond
human control.
 ()
The interesting part about these events is that though these can happen anytime, these
may not happen to one enterprise all the time. Rather, though all shops are always
exposed to the risk of an accidental fire, in the normal case,thefire will actually strike only a
very few shopsin a small town and that too only once in a long period of time. Such risks are
always there but their occurrence would be unexpected or accidental; and if the event
happens,the loss can be defined and measured.

Insurance takes care of the secondset of risks that are unpredictable or chance events. In
the context of a shop, insurance works when the risks are shared by a large numberof
shopkeepers. By the system of insurance, the risks of a large number of similar
shopkeepers exposed to same type of risks get pooled together. All of them contribute
small amounts towards insurance. If any of the shopkeepers are affected by the insured
risk, their loss is compensated from the pooled contribution. In operation, an insurance
company takes over the specific risks of a large number of shopkeepers and collects
premiums from all of them. The insurance company takes care of the fund and when the
loss occurs, pays the value of the loss to the shopkeeper.

By their own studies, insurers know the kind ofrisks different categories of enterprises are
exposed to. They have accordingly devised certain package policies for the ready use of
certain groups— there are package policies for industries, factories, commercial
premises,farmers, householders and shopkeepers etc.

B. Shopkeepers' Package Policy

Shopkeepers' Package Policy is designed to insure all

the insurable risks of a large number of shopkeepers.It fie a

provides wide coverage against various accidental

happenings like fire, earthquake, lightning, | lood,
burglary etc. The policy gives coverfor the building, its
contents, money kept in the shop etc. Based on the &
specific requirements of shopkeepers and on payment §
of additional premium, they can take additional
coverage for others risks like the following:

I. Losses dueto dishonesty by employees

ii. Losses due to incapacity to do normal businessactivity soon after aloss/ damage to
the shop /building due to fire, burglary etc.

lil. Damageto the neonsign and glow sign boardsof the shops

iv. Legalliability to any third party arising out of insured’s business.

The cost of policy or the premium is determined on the basis of the type of insurance policy
and cover selected. It broadly depends uponthe:

i. Perils (specific events that can cause a loss) covered

 .
ii. The coverage opted

iii. §Thevalue of the items covered

iv. Thedeductibles (the part of the loss that the insured agrees to bear himself) opted

Vv. Construction of building, nature of occupancy

vi. Thelocation of property and contents of the shop etc. Case

Study: Industrial disaster and Insurance protection AStory

of Industrial Disaster vis-a-vis Insurance Protection

Union Carbide India Ltd (UCIL) established a pesticide manufacturing plant in Bhopal
during 1970s. Pesticides are chemicals to protect crops from getting damaged by pests.
These chemicals are highly poisonous. On the night of December, 3, 1984, a poisonous
gas, namely, Methyl Isocyanate (MIC) started leaking from a tank at UCIL Bhopal plant.
Leakage of this gas claimed approximately 3800 lives as per official records and
thousandsof people becamesick and suffered from several health related problems.

As we know, humanlife is invaluable and the true price ofa life cannot be compensated.
But the company was legally bound to pay compensation to the kith and kin/dependents of
the victims who died dueto this major event. UCIL was made to compensate the damages
and they had to spend a huge amount of money on account of the legal battle for the
damages payable due to happeningofthis event.

As apart of risk management, having insurance helps to make good the losses. Insurance
also helps to assess the risk which indirectly ensures adequate preventive measures
needed as precautions for avoidance of such accidents. In case of the unfortunate
happening of the event, by having insurance, losses can be minimized as consequent
financialliabilities could be transferred to the insurer.

Eventually, the chain of events led to the introduction of Public Liability Insurance Act in
India. The main objective of the Public Liability Insurance Act, 1991 is to provide for
damages to victims of an accident which occurs as a result of handling of any hazardous
substances. The Act applies to all owners associated with the production or handling of
any hazardous chemicals.

In such a situation, the company's Workmen's Compensation Policy takes care of the
liabilities of the company to its employees. Under liability insurance, the insurance
company would similarly take care of the company’sliability to the public.

Further, if the 3800 people who died hadlife insurance policies, their families would have
received somefinancial benefit to tide over the financial loss due to their sudden death.
Personal accident policies would have given compensations for death and disabilities as
well. If the thousandsof sick people had health policies, their treatment costs would have
been met by insurers.
 CHAPTE 5
INSURANCE SECTOR IN INDIA

Learning outcomes

A. Understanding regulatoryframework

B. Knowing about IRDAI's role and functions

C. Learning about insurers, intermediaries and otherinstitutions

 -L }

Understanding Insurance sectorin India

Insurance regulation In India

The Government began to exercise somesort of control on insurance business by

passing the Life Insurance Companies Act and the Provident Fund Act in the year
1912.

Thereafter, based on the changing requirements of the industry, a comprehensive

legislation, The Insurance Act, 1938, was passed followed by subordinate
legislation including Insurance Rules, 1939.

This Act was further extensively amended in 1950 and thereafter in 1999 when the
IRDAI Act, 1999 wasintroduced.

Someother existing legislations in the field are — the Life Insurance Corporation
(LIC) Act, 1956, the Marine Insurance Act, 1963, General Insurance Business
(Nationalization) Act, 1973, Motor Vehicles Act, 1988, the Redressal of Public
Grievances Rules, 1998 framed by Central Government with regard to Insurance
Ombudsman etc. Provisions of the Indian Contract Act, 1872 are applicable to the
contracts of insurance and some of the provisions of the Companies Act, 2013
(previously Companies Act, 1956), are applicable to the companies carrying on
insurance business.

Some of these Acts are underthe processof revision as well.

Vv. Insurance Regulatory and Development Authority of India (IRDAI)

On 6th January 2000, the President of India gave his assent to the Insurance
Regulatory and Development Authority Bill, which enabled opening up of the
insurance sector to private players. The Insurance Regulatory and Development
Authority of India (IRDAI*) Act, 1999 facilitates the establishment of Insurance
Regulatory and Development Authority as an autonomous regulatory body for
the Indian insurance industry. Accordingly, on 19th April, 2000, Insurance
Regulatory and DevelopmentAuthority of India (IRDAI"), was created under the
IRDAI* Act, 1999 to regulate, promote and ensure orderly growth of the insurance
industry and to protect the interests of policyholders.

Composition of IRDAI

The Authority consists of a

AChairperson

Five whole-time members and

Four part-time members

“Now renamedas Insurance Regulatory and DevelopmentAuthority of India (IRDA)

a
ee

38°
Functions of IRDAI

IRDAIhas been set up mainly

+ Toprotect the interests of holders of insurance policies;

* Toregulate, promote and ensure orderly growth of the insurance business and re-
insurance business.

IRDAI issues certificate of registration to insurance companies and licenses to all

intermediaries who are engaged In insurance related activities. IRDAl makes regulations
for the various institutions’ entities operating in the insurance industry and supervises
compliance with these regulations through returns and inspection. IRDAIalso facilitates
resolution of complaints against insurance companies.

As apart of its developmental role, IRDAI emphasizes on empowering public through

policyholders’ education, which helps to increase the insurance reach for the benefit of
common man. It has adopted multipronged approach for educating consumers and
organizes Insurance Awareness campaigns directly and through industry promoting
insurance education across the country.

b) Indian insurance market

After opening up of the insurance sector in 2000, a number of private players entered
Indian insurance market increasing the competition among Insurers for the benefit of
consumers.

I. By 2014, the insurance industry of India consisted of 52 insurance companies of

which 24 are in Life insurance business and 28 are Non-life insurers.

ii. Among Life insurers, Life Insurance Corporation of India (LIC) is the sole public
sector company.

iii. Out of 28 Non-life insurance companies, there are six public sector insurers of
which two are specialized insurers namely, Export Credit Guarantee Corporation of
India for export credit insurance and Agriculture Insurance Company of India Ltd.
for crop insurance. Four private sector insurers are registered to exclusively
underwrite policies in Health, Personal Accident and Travel insurance segments.

iv. In addition to these, there is a sole national re-insurer, namely, General Insurance
Corporation (GIC)of India
 ()
B. Other institutions in Indian Insurance Market

In addition to the insurers, there are other institutions which are operating in the Indian
insurance market.

a) Distribution channels and other Intermediaries

@ Intermediaries involved in distribution of insurance products are agents

(individual, corporate and micro-insurance), brokers, web aggregators,
Common Service Centers.

@ Intermediaries like surveyors and loss assessors are involved in claim

assessment of general insurance.

@ Specialized intermediaries for health services called Third Party

Administrators (TPAs) operate in Health insurance for issuance of policy cards,
for organizing cash less treatment facility through network of hospitals, handling
and settlement of claims.

@ Insurance Repositories are intermediaries introduced recently to electronically

maintain data of insurance policies for ease in storage, retrieval and servicing of
insurance policies.

b) Insurance Ombudsman

In case a grievanceof a policyholder is not redressed by the insurer, alternate grievance

redressal mechanism is provided for in the insurance sector through the institution of
Insurance Ombudsman set up under the Redressal of Public Grievance Rules, 1998.

Subject matter of complaints that can be taken up before Insurance Ombudsmen are
partial or complete repudiation of claims and delay in settlement, non-issuanceofpolicy,
dispute relating to premium and interpretation of clauses in relation to claim. There is no
provision for appeal against the order of Ombudsman under the Redressal of Public
Grievances Rules. If not satisfied, the policyholder or claimant may ignore the award and
go to the court, consumer forum etc., and if the customer consents, the insurer is has to
implement the award unless it chooses to approach Court.

c) Self-Regulatory Institutions

Self-regulation in insurance is through the Life insurance council and the General
insurance council. These Councils include all registered life and general insurance
companies as their members respectively and are statutory bodies constituted under the
Insurance Act, 1938.
6
d) TrainingInstitutions

As the various intermediaries in insurance sector have to fulfill specific requirements of

eligibility like training and passing of examinations,training institutions form an important
part of the Insurance Sector. Institutions like Insurance Institute of India, National
Insurance Academy, Indian Institute of Insurance and Risk Management, Institute of
Actuaries of India, Agent Training Institutes, etc. provide training, conduct examinations
and provide professional manpower forthe insurance sector.
 Chart 1
Indian Insurance market
 7 ad

Chart 2
Total premium of life insurers in India-Last five years

350000

_ eo
250000
2
2 200000 ~
w
150000

=—_—_*—_—_»——_s =
100000

50000

0 T T T T T
2009-10 2010-11 2011-12 2012-13 2013-14

—@— Lc Be Private —a— Industry

Source : IRDA! Annual Report

Chart 3
Total Premium of General Insurance sector-Last 5 years
= crore

qt q i ' t
2009-10 2010-11 2011-12 2012-13 2013-14

Source : IRDAI Annual Report

"a
 Chart 4
Insurance Penetration in India
.
in Percent
w

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Life WNon-Life Total

Chart 5
Insurance Density In India

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Life Non-Life Total

* Insurance penetration is measured as ratio ofpremium (in USD) to GOP (in USD).
* Insurance density is measured as ratio ofpremium (in USD) to fotal population.
* The data of Insurance penetration is available with rounding off fo ane digit affar decimal fram 2006.
Source: Swiss Re, Sigma, Various Issues. (IRDA! Annual Report

44
Disclaimer:

This handbook is intended to provide you general information only

and is not exhaustive. It is an education initiative and does not
seek to give you any legal advice.
 eo

INSURANCE REGULATORY AND

teclesi DEVELOPMENT AUTHORITY OF INDIA
Promoting insurance. Protecting ineured.

www.irda.gov.in www. policyholder.gov.in

3rd Floor, Parisrama Bhavan, Seeneet

HYDERABAD 500 004, Telangana (INDIA)
www.irda.gov.in, www-.policyholder.gov.in