Insurance is a way to manage your risk.

When you buy insurance, you

purchase protection against unexpected financial losses. The insurance
company pays you or someone you choose if something bad happens to you.
If you have no insurance and an accident happens, you may be responsible for
all related costs.
 Basic concept of risk

People express risk in different ways. To some, it is the chance or possibility of loss; to others, it
may be uncertain situations or deviations or what statisticians call dispersions from the
expectations.
The indeterminateness of outcome is one of the basic criteria to define a risk situation. Also,
when the outcome is indeterminate, there is a possibility that some of them may be adverse and
therefore need special emphasis.
Risk is a condition in which there is a possibility of an adverse deviation from a desired outcome
that is expected or hoped for.
In most of the risky situations, two elements are commonly found: The outcome is uncertain,
i.e., there is a possibility that one or other(s) may occur. Therefore, logically, there are at least
two possible outcomes for a given situation. Out of the possible outcomes, one is unfavorable or
not liked by the individual or the analyst.
 Risk vs. Uncertainty
Uncertainty refers to a situation where the outcome is not certain or unknown. Uncertainty refers
to a state of mind characterized by doubt, based on the lack of knowledge about what will or what
will not happen in the future. Uncertainty is said to exist in situations where decisionmakers lack
complete knowledge, information or understanding concerning the proposed decision and its
possible consequences.
Risk is a situation of winning or losing something worthy. Uncertainty means there is no
knowledge about the future events.
Risk can be measured and quantified. Uncertainty cannot be measure due to the unpredictability
of future.
Potential outcome is known in the case of risk whereas outcomes is unknown for uncertainty.
Risk can be controlled with proper measures. Uncertainty is beyond the control of the person.
Minimization of risk can be done. Uncertainty cannot be minimized.
Types of Risks

Financial and Non-financial Risks Financial risk involves the

simultaneous existence of three important elements in a risky situation–
(a) that someone is adversely affected by the happening of an event, (b)
the assets or income is likely to be exposed to a financial loss from the
occurrence (c) the peril can cause the loss. When the possibility of a
financial loss does not exist, the situation can be referred to as
non-financial in nature. Financial risks are more particular in nature. For
example, risk in the selection of career, risk in the choice of course of
study, etc. They may or may not have any financial implications. These
types of risk are difficult to measure.
As far as insurance is concerned, risk is involved with an element of
financial loss.
Individual and Group Risks

A risk is said to be a group risk or fundamental risk if it affects the economy or its
participants on a macro basis. These are impersonal in origin and consequence. Eg
earthquakes, floods, wars, unemployment
Individual or particular risks are confined to individual identities or small groups.
Thefts, robbery, fire, etc. are risks that are particular in nature. Some of these are
insurable.
The methods of handling fundamental and particular risks differ by their very
nature, e.g., social insurance programs may be undertaken by the government to
handle fundamental risks. Similarly, fire insurance policy may be bought by an
individual to prevent against the adverse consequences of fire.
Pure and Speculative Risks

Pure risk situations are those where there is a possibility of loss or no loss. There
is no gain to the individual or the organization.eg fire taking place in a factory.
Speculative risks are those where there is possibility of gain as well as loss. The
element of gain is inherent or structured in such a situation.eg: purchase of shares.
The distinguishing characteristics of the pure and speculative risks are: (a) Pure
risks are generally insurable while the speculative ones are not. (b) The conceptual
framework of the risk pooling can be applied to pure risks (Law of large
numbers), while in most of the cases of speculative risks it is not possible. (c)
Speculative risk carry some inherent advantages to the economy or the society at
large while pure risks like uninsured catastrophes may be highly damaging.
Static and Dynamic Risk

Dynamic risks are those resulting from the changes in the economy or the environment. For
example economic variables like inflation, income level, price level, technology changes
etc. are dynamic risks.
On the other hand, static risks are more or less predictable and are not affected by the
economic conditions. Static risk involves losses resulting from the destruction of an asset
or changes in its possession as a result of dishonesty or human failure.
Quantifiable and Non-quantifiable Risks

The risk which can be measured like financial risks are known to be quantifiable while the
situations which may result in repercussions like tension or loss of peace are called as
non-quantifiable.
Systematic and Unsystematic Risk

Systematic/Undiversifiable/fundamental Systematic risk refers to the risk inherent

to the entire market or market segment.
Unsystematic/Diversifiable/particular : Unsystematic risk is a risk specific to a
company or industry.
Business Risk

Business risk is the exposure a company or organization has to factor(s) that will lower its
profits or lead it to fail. Anything that threatens a company's ability to achieve its financial
goals is considered a business risk. There are many factors that can converge to create
business risk. Sometimes it is a company's top leadership or management that creates
situations where a business may be exposed to a greater degree of risk.
The sources of business risk are varied but can range from changes in consumer taste and
demand, the state of the overall economy, and government rules and regulations.
While companies may not be able to completely avoid business risk, they can take steps to
mitigate its impact, including the development of a strategic risk plan.
 Business risk is influenced by a number of different factors including:
• Consumer preferences, demand, and sales volumes
• Per-unit price and input costs
• Competition
• The overall economic climate
• Government regulations
Types of Business Risk
Strategic Risk: Strategic risk arises when a business does not operate according to
its business model or plan. When a company does not operate according to its
business model, its strategy becomes less effective over time and it may struggle
to reach its defined goals.
Compliance Risk: Compliance risk primarily arises in industries and sectors that
are highly regulated.
Operational Risk: The third type of business risk is operational risk. This risk
arises from within the corporation, especially when the day-to-day operations of a
company fail to perform.
Reputational Risk: Any time a company's reputation is ruined, either by an event
that was the result of a previous business risk or by a different occurrence, it runs
the risk of losing customers and its brand loyalty suffering.
Financial Risk : This includes the risk of not having enough money to pay for
goods or services needed by your company. The amount of money you need to
cover any given period of time depends on many factors, including the size of
your company, how much revenue it generates, what expenses it incurs, and
whether or not there are unexpected costs associated with a particular project.
What is insurance
Insurance is a legal agreement between two parties – the insurer and the
insured, also known as insurance coverage or insurance policy. The
insurer provides financial coverage for the losses of the insured that s/he
may bear under certain circumstances.
Insurance coverage can be defined as a contract in the form of a
financial protection policy. This policy covers the monetary risks of an
individual due to unpredictable contingencies. The insured is the
policyholder whereas the insurer is the insurance-providing company/the
insurance carrier/the underwriter. The insurers provide financial
coverage or reimbursement in many cases to the policyholder.
The policyholder pays a certain amount called ‘premium’ to the
insurance company against which the latter provides insurance cover.
The insurer assures that it shall cover the policyholder’s losses subject to
certain terms and conditions. Premium payment decides the assured sum
for insurance coverage or ‘policy limit’
 Risk and Return Relationship
Insurance companies are in the business to accept risk
In insurance , returns means the amount of money received from incurring a
certain level of risk. It is called premium.
Premium is based on the risk
There is direct correlation between the risk and return .
For higher level of risk (having high probability of occurring of loss) there
would be higher premium and vice versa.
UNDERLYING CONCEPTS
OF INSURANCE

Degree of risk :- The degree of risk depends not only on the probability of loss,
but also on the magnitude of the loss. Hence, if 2 loss events have the same
probability of occurrence, but one of the losses exceeds the other, then the greater
potential loss is the greater risk. So, if there was an equal probability of losing $1
or $100, then the risk of losing $100 exceeds the risk of losing $1. Because
insurance companies compensate for losses by paying money to the insured, it
must calculate both the magnitude and probability of potential losses to set a
premium that will cover those losses and earn the insurance company a profit.
Value of risk : Risk depends in value upon the possibility of loss. The loss will
cause more hardships to the person with small margin than the person with large
margin.
Expectation of loss: This is the foundation of insurance. Example: if Rs 10 at the
stake (one party baiting on head and other party for tail of a coin) expectation of
loss is rupees is 5.
 Risk Assessment /Underwriting
Risk assessment is the process in which the insurance companies evaluate the risk to cover any individual.
In this process, various data points and possible risks to the policyholder are taken into account to
determine the insurance premium. Risk assessment is done for every individual that applies for an
insurance policy.
Risk assessment is used by the actuaries and underwriters in insurance. The process helps to determine the
premium amount after evaluating the probability of loss. The idea of assessing the risk is to find a
profitable business. Then, the insurers use risk assessment to quote the premium to the policyholders.
Insurance companies assess risk by analyzing the proposal form duly filled and submitted by the proposer.
The coverage, terms and conditions will be based on the risk assessment. Only after this, a premium is
quoted.
One must fill in the factual information to avoid rejection of a proposal after risk assessment. Buying an
insurance policy earlier in life is always beneficial as the risk associated, or probability of loss with young
individuals, is less. Apart from the proposal form, under risk assessment, insurers also consider past
insurance records, claim history, sum assured, etc.
This helps in calculating the right premium amount for the insured individual.
There are several risks linked to insurance including morbidity and mortality rate
fluctuations, disasters, etc.
Hence, the insurance risk assessment process goes through several methodologies
including stress testing, parametric, simulation,, benchmarking, and many others.
The risk level also influences the premiums on these policies. Insurance
companies also collect massive data on prospective policy holders and the objects
that are being insured.
 When it comes to underwriting, the following steps are usually covered:
1. Gathering information on policyholders. This includes medical history, vehicle
identification numbers and history, personal details, credit history, etc.
2. Analysis of this data for allocating risk scores to policyholders.
3. Choosing or rejecting policy applications on the basis of these scores and
determining the premium amount accordingly.
 What Is Transfer of Risk?

A transfer of risk is a business agreement in which one party pays another to take responsibility for
mitigating specific losses that may or may not occur. This is the underlying tenet of the insurance
industry.
Risks may be transferred between individuals, from individuals to insurance companies, or from
insurers to reinsurers. When homeowners purchase property insurance, they are paying an insurance
company to assume various specific risks associated with homeownership.
The basic business model of the insurance industry is the acceptance and management of risk.
Some risks are too big for insurance companies to bear alone. That's where reinsurance comes in.

When insurance companies don't want to assume too much risk, they transfer the excess risk to
reinsurance companies. For example, an insurance company may routinely write policies that limit
its maximum liability to $10 million. But it may take on policies that require higher maximum
amounts and then transfer the remainder of the risk in excess of $10 million to a reinsurer. This
subcontract comes into play only if a major loss occurs.
Principle of Insurable interest

Contract of insurance is valid if the insured possess insurable interest.

Insurable interest means that insured should have actual pecuniary interest in the
subject matter of the insurance
Insurable interest (Property insurance) – insured financially benefited from the
existence of the property and affected financially by its damage
Insured should provide the proof that loss will have genuine economic impact in
the event if loss occurs.
In case of property insurance insurable interest must exist during the underwriting
process and at the time of loss
In case of life insurance , insurable interest should be present at the time of
purchase.
 Insurable interest conditions under 7(2) of Marine Insurance Act 1963
❖ Subject matter of insurance must be definite. Various property, interest right, life
or possible liability must exist at the time of insurance,
❖ Insured should have a legal relationship with the subject matter or he must be the
owner.
Principle of utmost good faith

It is essential that there should be good faith and mutual confidence between the
insured and insurer.
In the contract of insurance the insured knows more about the subject matter of
the contract than the insurer. Consequently his duty is to disclose accurately all
the material facts and nothing should be with held or conceived.
It is only when the insurer knows whole truth that he is in a position to judge
whether he should accept the risk and what premium should be charged.
There should be no concealment , misrepresentation , mistake or fraud about the
material fact
 Following facts are disclosed by insured
❖ Facts that may tend to reduce risk
❖ Facts which insurer knew already
❖ Facts of public knowledge
❖ Facts waived by the insurer
❖ Facts governed by the conditions of policy
Principle of Indemnity

Contract of insurance contained in fire , marine or any other policy except life ,
personal , accident and sickness insurance is the contract of indemnity
This means that when the loss happens, insured will be paid the actual amount of
loss that will not exceed the amount of policy
The maximum amount of compensation does not exceed the amount of actual loss
or the value of the policy whichever is less
Object of every insurance contract is to place the insured in the same financial
position as nearly as possible after the loss, as if the loss has not taken place
Amount of indemnity = Actual amount of loss* Value of policy /value of subject
matter.
Principle of Subrogation
It is also known as doctrine of rights substitution
It applies to fire or marine insurance not to life insurance
It is a corollary to principle of indemnity
When an insured have received full indemnity in respect of his loss , all rights and remedies
which he has against the third party will pass on to Insurance company and will be
exercised by him until he recovers the amount paid
It must be clarified here that the insured rights of subrogation arises only when he has paid
for loss for which he is liable under the policy and his rights extend only to rights and
remedies available to insured in respect of the thing to which the insurance contract
applies.
It is the transfer of rights and remedies of insured in the subject matter to the insurer after
indemnity
Insurer steps into the shoes of insured after settling claims
Further the insured is entitled to all the rights of action against the third party to cover the
loss from responsible person regarding the subject matter of insurance after the claim of
insured have been fully settled
Principle of Causa Proxima

Causa Proxima means nearest or proximate or immediate cause. It

means the direct, most dominant , most effective and efficient cause
which is responsible for the loss.
If loss is brought by any other cause that is attributable to the
misconduct of insured , then insurer is not liable.
This principle is mainly applicable to marine insurance.
According to sec 55 of Marine Insurance Act 1963, Insurance
company indemnify only those losses which has been caused by
proximate and nearest cause covered by insurance policy and not for
remote reasons.
Principle of Mitigation of loss

In the event of some misshaped to insured property , the insured must take all the
necessary steps to mitigate or minimize the loss just as any prudent man would do
in those circumstances.
If he does not do , insurer can avoid the payment of loss attributable to his
negligence
It must be remembered that though the insured is bound to do his best for his
insurer, he is not bound to do so at the risk of his life
Main aim of this principle is to minimize the severity of the loss.
 Principle of Contribution

This is another outcome of principle of indemnity

When there are two or more insurance on one risk , principle of contribution comes into
picture
Aim of contribution is to distribute all the actual amount of loss among different insurer
who are liable for some risk under different policy in respect of same subject matter
Anyone insurer may pay to insured , full amount of loss covered by the policy and then
become entitled to the contribution from co insurers in proportion to the amount which
each has undertaken to pay incase of loss of same subject matter.
Equitable distribution of losses among different insurance company.
Sources of Revenue of Insurance
Companies
There are two basic ways that an insurance company can make money. They can earn
by underwriting income, investment income, or both. The majority of an insurer's assets
are financial investments, typically government bonds, corporate bonds, listed shares and
commercial property.
Expense management, pricing premiums and robust claims handling will also help to
control costs. However, insurers must take certain risks of inflation, devaluation etc. when
they seek profits. Thus, the business model of insurance companies is different from other
conventional businesses in the market while having much recompense over other
businesses in the trading.
Online Insurance

Buying insurance online is convenient, fast and will cost you comparatively less.
Gone are the days when you would have to personally visit an insurer’s office or fix
an appointment with an agent to buy a plan. Today you can avail the entire range
of insurance services or products online. In fact, all insurance companies in India
allow customers to buy insurance plans online only.
Apart from the insurers’ websites, you can also use online insurance broker
websites like Policybazaar.com to search for policies from different insurers and
buy the best plan after comparing similar plans. Comparison helps you to know the
various options available in the market and make an informed decision. With so
many perks, it is definitely a wise idea to buy an insurance policy online.
Advantages of Buying Insurance Online
Affordable Premiums : When buying online insurance, customers directly deal with an insurance company. Hence, the
agents’ and the distributors’ commission is saved. Besides, the entire process requires less paperwork as it is done via
the internet.
Make an Informed Deal: Buying online insurance enables a customer to get an informed deal. whenever you decide to
buy a plan online, you always have an option to compare different plans in terms of benefits, coverage, features,
premiums, claim process, renewal, etc. This way you can easily weigh the pros & cons and finally can choose the right
insurance plan that meets your needs and your budget.
Time Saving: With less paperwork and a hassle-free process, the online insurance process is more time effective.
More Convenient: Online insurance purchase is more convenient than buying it offline. This is because you can make a
purchase in the comfort of your home sitting on your couch. Moreover, you can apply for a policy at any time that is
convenient for you. You do not have to visit the insurance company’s office or check the office hours to get yourself an
insurance plan.
Online Reviews: While buying an insurance plan online, you can check the reviews of existing customers to get an overall
idea about the product as well as the services offered by the insurance company.
Online Services: The policyholder can avail online services like downloading the policy document or brochure, getting
prompt insurance quotes, renewing the policy, paying the annual premium, making a claim whenever required, etc. if the
policy has been bought online.
Easily Accessible Customer Support: Most insurance companies have a live chat feature on their websites so that
customers can directly talk to the customer support team about any doubts or grievances and get verbal assistance. You
can also speak to a customer executive on the company’s toll-free number to register a complaint or to collect
Reinsurance

Reinsurance, often referred to as “insurance for insurance companies,” is a contract between a

reinsurer and an insurer. In this contract, the insurance company—the cedent—transfers risk to the
reinsurance company, and the latter assumes all or part of one or more insurance policies issued by
the cedent.
Reinsurance contracts may be negotiated with a reinsurer or arranged through a third party; i.e., a
reinsurance broker or intermediary.
Reinsurers may also buy reinsurance protection, which is called “retrocession.” This is done to
reduce any further spread risk and the impact of catastrophic loss events.
Insurers may use reinsurance to achieve an optimal targeted risk profile
In the reinsurance agreement, the reinsurer's obligation arises only when the company's liability
under its original insurance policy or reinsurance agreement has been incurred.
 The extent of that obligation is defined by the terms and conditions of the applicable reinsurance
agreement.
reasons for reinsurance include:
1)expanding the insurance company's capacity; 2) stabilizing underwriting results; 3) financing; 4)
providing catastrophe protection; 5) withdrawing from a line or class of business; 6) spreading risk; and 7)
acquiring expertise
 Types of Reinsurance
Treaty : Covers all specified class of risk. Insurance company agrees to cede all the risks to the
reinsurance company. Reinsurer covers the specified share in claim settlement of all the
insurance policies issued by the ceding company as per the insurance contract. In this insurer
doesn’t perform underwriting for each policy.
Facultative : Under this reinsurance contract is negotiated separately for each policy that is
reinsured. It is single risk or specified package of risk cover. Reinsurance company perform its
own underwriting for each risk reinsured.
proportional reinsurance: the reinsurer receives a prorated share of all policy premiums sold by
the insurer. For a claim, the reinsurer bears a portion of the losses based on a pre-negotiated
percentage. The reinsurer also reimburses the insurer for processing, business acquisition, and
writing costs
non-proportional reinsurance: the reinsurer is liable if the insurer's losses exceed a specified
amount, known as the priority or retention limit. As a result, the reinsurer does not have a
proportional share in the insurer's premiums and losses. The priority or retention limit is based
on one type of risk or an entire risk category.
Excess-of-loss reinsurance is a type of non-proportional coverage in which the reinsurer covers
the losses exceeding the insurer's retained limit. This contract is typically applied to catastrophic
events and covers the insurer either on a per-occurrence basis or for the cumulative losses
Benefits of Reinsurance

It helps decrease of insurance companies

It protects loss due to natural calamities where damages are huge
It increases the goodwill of the insurer and limits the liability
It offers valuable advices from its expertise of working in global scenario
It stabilize the financial loss of insurance companies
It allows insurance companies to take more insurance policies and thus helps in expansion.
REINSURANCE TERMINOLOGIES

Ceding company/reinsured: The insurer (original insurer) who seeks to again to reinsure a
part of the risk insured is the ceding company
Reinsurer : The insurer who provides reinsurance cover to the ceding company
Retention: This is the amount that is retained by the ceding company for its own account,
or the maximum it is prepared to lose on any one loss. This is also called net limit , net
holding or net line
Cession: This is the amount reinsured with the reinsurer
Surplus : This refers to the difference between the sum insured under the policy issued by
the ceding company and its retention.
Insurance intermediary

Insurance intermediaries serve as a bridge between consumers and insurance

companies. An Insurance Intermediary means individual agents, corporate agents
including banks and brokers, insurance marketing firm. Insurance Intermediary also
includes Surveyors and Third Party Administrators but these intermediaries are not
involved in the procurement of business. Surveyors assess losses on behalf of the
insurance companies. Third Party Administrators provide services related to health
insurance for insurance companies.
 Types Of Intermediaries
INSURANCE AGENT: An agent is a person who is licensed by the Authority (IRDA) to solicit and procure
insurance business including business relating to continuance, renewal or revival of policies of insurance.
An agent is an individual who is an intermediary representing an insurance company. A Composite
Insurance Agent means an insurance agent who holds a license to act as an insurance agent for a life
insurer and a general insurer.
An insurance agent is a representative who sells the policy on behalf of an insurance company. The
agent helps consumers select the right insurance based on their needs, but represents an insurance
company. Insurance agents will sell and negotiate different insurance policies.
Independent agents represent many insurance companies and receive commission for their service.
On the contrary, the exclusive agents(captive) are one who are exclusively deployed for the sales of
insurance policies of one company. Their commission can be in the form of salary.
Both captive and independent agents work on commission and can execute an insurance transaction
from start to finish, on a variety of insurance plans.
Insurance agents need to be above 18 years of age and should have completed education up to at
least class 10. An insurance agent has to undertake the mandatory training of 15 hours provided by
IRDA.
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.
 CORPORATE AGENT:
A corporate agent is an intermediary other than an individual, may be a firm, company or a
registered society, representing an insurance company.
Corporate Agent" means any entity or person specified in Regulation 2 (b) of the IRDAI
(Registration of Corporate Agents) Regulations, 2015 holding a valid certificate of
registration issued by the Authority, for solicitation and servicing of insurance business for
any of the specified category of life, general and health.
Examples
❑ STATE BANK OF INDIA –
❑ BANK OF BARODA –
❑ HDFC BANK
❑ CHOLA INSURANCE DISTRIBUTION SERVICES PRIVATE LIMITED
❑ THE KALYAN JANATA SAHAKARI BANK LTD
❑ SAURASHTRA GRAMIN BANK
Who can become a Corporate Agent
A company formed under the Companies Act, 2013 (18 of 2013) or any enactment thereof or under
any previous company law which was in force; or
A limited liability partnership formed and registered under the Limited Liability Partnership Act, 2008;
or
A Co-operative Society registered under Co-operative Societies Act, 1912 or under any law for
registration of co-operative societies or
A banking company as defined in clause (4A) of section 2 of the Act; or
A corresponding new bank as defined under clause (da) of sub-section (1) of section 5 of the Banking
Companies Act, 1949 (10 of 1949); or
A regional rural bank established under section 3 of the Regional Rural Banks Act, 1976 (21 of 1976):
or
A Non-Governmental organization or a micro lending finance organization covered under the
Co-operative Societies Act, 1912 or a Non-Banking Financial Company registered with the Reserve
Bank of India; or
Any other person as may be recognized by the Authority to act as a corporate agent
INSURANCE BROKER:
An Insurance Broker means a person licensed by IRDAI who arranges insurance contracts with
insurance companies on behalf of his clients. Acting as “agent” for the buyer, brokers usually
work with multiple companies to place coverage for their clients .
An insurance broker represents consumers in their search for coverage and can sell policies
from several different insurance companies for a commission. Unlike captive and independent
agents, who represent one or more insurance companies, a broker’s primary duty is to the
client.
Brokers obtain quotes from various insurers and guide clients in determining the adequate
policy from a range of products.
A retail broker examines a client’s needs and searches from several providers to find their client
the right policy at the right price. They make their money through broker fees, which are a
percentage commission on the policies being sold.
Since brokers don’t represent insurance companies, they can’t bind coverage on behalf of an
insurer when purchasing insurance. They must hand over the account to an insurer or
insurance agent to complete the transaction.
A direct broker is simply an Insurance Broker who has been registered with the
Insurance Regulatory and Development Authority of India (IRDAI[1]). The direct
broker asks for remuneration or charges a fee for soliciting and arranging
insurance business for his clients with insurance located in India. He also provides
claim consultancy, Risk Management services or other similar services which have
been permitted under IRDAI (Insurance Brokers) Regulations, 2018.
Among the different categories of Insurance Brokers, Reinsurance broker is also
an insurance broker. A reinsurance broker is simply an Insurance Broker who has
been registered with the Insurance Regulatory and Development Authority of India
(IRDAI). The reinsurance broker asks for remuneration or charges a fee for
soliciting and arranging re-insurance business for his clients with insurers or
reinsurers with reinsurers who are located either in India and/or abroad. He also
provides claim consultancy, Risk Management services or other similar services
which have been permitted under IRDAI (Insurance Brokers) Regulations, 2018.
 A composite broker is simply an Insurance Broker who has been registered with
the Insurance Regulatory and Development Authority of India (IRDAI). The
composite broker asks for remuneration or charges a fee for soliciting and
arranging insurance and/or reinsurance business for his clients with insurers
and/or reinsurers who are located either in India and/or abroad. He also provides
claim consultancy, Risk Management services or other similar services which have
been permitted under IRDAI (Insurance Brokers) Regulations, 2018.
What are the functions of Composite Brokers?
Following are the functions that a composite broker needs to perform:
1. All the functions performed by both the direct brokers and reinsurance brokers
2. If the insurer follows a due and transparent process, then he can appoint the
composite broker as a reinsurance broker for arranging the reinsurance on the
same risk on which the composite broker acted as a direct broker. In order to
ensure that the interests of the clients and insurers are not harmed, the composite
will see to it that proper systems and controls are in place.
 Surveyors and Third Party Administrators
Insurance Intermediary also includes Surveyors and Third Party Administrators.

SURVEYORS
A surveyor and loss assessor is an insurance intermediary licensed by IRDAI to
investigate, manage, quantify, validate and deal with losses (whether insured or not)
arising from any contingency, on behalf of insurer or insured and report thereon and
carry out the work with competence, objectivity and professional integrity by strictly
adhering to the code of conduct stipulated under the Law/Regulations.
 General services provided by a Surveyor and Loss Assessor:
• Investigate, manage, quantify, validate and deal with losses (whether insured or not) arising
from any contingency
• Estimate, measure and determine the quantum and description of the subject under loss
• Conduct inspection and re-inspection of the property in question suffering a loss,
• Advise insurer and insured about loss minimization, loss control, security and safety
measures
Third party administrator

TPA or Third Party Administrator (TPA) is a company/agency/organization

holding license from Insurance Regulatory Development Authority (IRDA) to
process claims in addition to providing cashless facilities as an outsourcing entity
of an insurance company.
TPAs function as an intermediary between the insurance provider and the insured.
A Third Party Administer is an entity that helps in the processing of claims aspect
of the insurance between the insurer and the policyholder along with providing
cashless facilities
Health insurance companies often outsource their claims operations to third-party
administrators.
Introduced by the IRDA in 2001, TPAs handle various pertinent aspects of insurance as listed
below:

Processing of claims and settlement includes the following:

Accepting intimations
Approving cashless claims
Disbursing the claims
Utilization review
Provider network
Enrolment
Premium collection
Cashless processing
Database maintenance
TERMS USED IN INSURANCE

INSURER: The party who agrees to pay money on the happening of a contingency is known as insurer.
Usually it is the insurance company
INSURED: this person faces a particular risk and is a part to insurance agreement.
PREMIUM: It is the amount which is paid by the insured to the insurer for which the insurer gives
protection to insured.
POLICY: It is the stamped document which contains the terms and conditions of the insurance contract. It
is issued by the insurer.
INSURED AMOUNT: It is the money value of the risk. Maximum amount that insured would receive.
PERIL : It is the event that causes a personal or property loss
Insurance and Assurance :The term "insurance" refers to the process of compensating for a loss, for
instance, losses sustained due to an accident, fire, theft, flood, and so on. Providing monetary support for a
particular scenario is referred to as assurance. A severe disease, death, or disability, for example.
Insurance :Insurance is a legal agreement between two parties – the insurer and the insured, also
known as insurance coverage or insurance policy. The insurer provides financial coverage for the
losses of the insured that s/he may bear under certain circumstances.
Risk: It refers to the uncertainty about loss.
Contingency: This is the actual happening of an event or not happening of an event on which the
loss depends.
Loss : The unintentional fall in the value or disappearance of value in property.
Double insurance: When a subject matter is insured twice either with two different companies or
with the same company under two policies. In case of life insurance a person can take as many
policies as he wishes. This does not apply to marine and fire insurance.
RURAL AND SOCIAL SECTOR
OBLIGATION OF INSURANCE
Insurance companies’ rural and social sector obligations will depend on how long they
have been in business, according to the Insurance Regulatory and Development Authority
of India (Irdai)’s draft regulations.
According to Irdai (Obligations of Insurers to Rural and Social Sectors) Regulations (draft),
the rural sector obligations for life insurers would vary between seven and 25 per cent of
the total policies. For general insurers, it is in the two to seven per cent range.
Rural sector means the areas classified as 'rural' in the latest census data. Social sector
includes the unorganised sector, informal sector, economically vulnerable or backward
classes and other categories of persons, both in rural and urban areas.
Cont..

Irdai proposes every insurer must undertake social, rural sector obligations. In the first financial
year, life insurers have to ensure at least seven per cent of the total policies are sold in the rural
sector. This is nine per cent in the second financial year, which goes up to 20 per cent in the 10-15
financial years and 25 per cent from the 16th financial year onwards.
For general insurers, it is two per cent in the first financial year, three per cent in the second
financial year, and seven per cent in the ninth financial year.
For stand-alone health insurers, it is 50 per cent of the obligations prescribed for general insurers.
In the social sectors, for all insurers (life, non-life, health), it starts with 0.5 per cent of total
business procured in the preceding financial year to five per cent for the 10th year.
The total business for the purpose of these regulations is the total policies issued for
individual insurance and the number of lives covered in case of group insurance.
Cont..

If an insurance company commences operations in the second half of the financial year and
is in operations for less than six months as on March 31 of the relevant financial year, no
rural and social sector obligations shall be applicable for the said period
Every insurer has to submit their returns in the end of financial year.
TYPES OF INSURANCE

LIFE INSURANCE
NON LIFE INSURANCE
LIFE INSURANCE

Life Insurance can be defined as a contract between an insurance policy holder

and an insurance company, where the insurer promises to pay a sum of money in
exchange for a premium, upon the death of an insured person or after a set period.
 Factors that affect life insurance premium
Age: One of the prime factors that affect the premium for a life insurance plan is your age. The life insurance
premium is lower for younger people and gradually increases with age
Gender: Studies have shown women live longer than men1. Therefore, the life insurance premium is lower for
women as compared to men
Health conditions: Your present and past health conditions can determine the premium for your life insurance plan.
If you have any pre-existing illnesses or have suffered from an illness in the past that may resurface or affect your
present health, you would be charged a higher premium
Family health history: The chances of suffering from a disease that runs in your family are considerably high. So, if
any hereditary illnesses run in your family, you may have to pay a higher premium
Smoking and drinking alcohol: Lifestyle habits like smoking and drinking alcohol can impact your health and lead to
multiple health issues. Therefore, insurance companies charge a high premium for individuals who smoke or drink
alcohol
Type of coverage: The type of coverage you opt for can increase or decrease the life insurance plan’s premium. If you
add any riders to your plan, the premium would increase. A longer policy term can also result in a higher premium
compared to a shorter term. In addition to this, the type of life insurance plan you select also impacts the premium.
For instance, term life insurance is the most affordable form of life insurance
Amount of coverage: A higher sum assured would result in a higher premium and vice versa
Occupation: If you work in a high-risk job, the premium for your life insurance plan would be higher than others.
For example, if you work in construction or if your job puts you at any kind of risk, such as regular exposure to
chemicals, the insurance company will charge a higher premium
Mr. Kumar (Life Assured) pays ICICI Prudential Life Insurance (Insurer) an
annual amount (Premium) over 5 years (Premium Payment Term) to make sure
that his wife (Nominee) gets a certain assured sum of money (Life Cover) in case of
an unfortunate event during the 10 years or Lumpsum amount at maturity on
survival at the end of policy term.

Life insurance not only covers the risk arising due to an unfortunate event, but also
gives you additional benefits like tax benefits, savings and wealth creation over a
period of time. The right life insurance plan from a trusted company can help one
get long-term risk cover plus savings, i.e. dual benefits from one solution.
FEATURES

GENERAL FEATURES
❑ Offer and Acceptance
❑ Lawful object
❑ Good faith
❑ Free consent
❑ Capacity to enter into contract
SPECIAL FEATURES
❑ Principle of utmost good faith
❑ Principle of insurable interest : Should be present at the time of taking policy. Need
not be there when you receive the amount. Insurable interest can be on own life or
others life.
❑ Not a contract of indemnity: Insured will receive full amount specified as sum
assured.
TYPES

TERM INSURANCE : It is the purest form of life insurance. Premium is very cheap. Pays the amount to nominee only if the
death occurs. If the insured survive the term period, he will not receive any amount.
E.g.: Ram takes a policy for 40 years. If he dies in between the term period , nominee will receive the amount or else he will not receive
With very less premium, people get a huge amount as sum assured. There is no maturity benefit.
Whole life insurance
Insured pays the premium throughout their lifetime till the time he is alive.
E.g.: Ram is 40 years. He take whole life insurance and pays the premium for the entire life. When Ram dies then the amount is paid to
family.
Endowment plan: Whole life policy + term insurance
Sum assured or insured under both circumstances (death / survival after term period) is received.
E.g. Ram takes a endowment policy for 40 years. If he dies in that term period, his family gets the amount. If he survive after the term
period , he will receive the amount.
Endowment policy is taken by people to meet financial goals like education , marriage , housing etc. This policy is comparatively
expensive. More premium has to be paid
 Unit linked Insurance plan
Insurance + Investment
A unit linked insurance plan is a product that offers a combination of insurance and
investment payout. ULIP policyholders must make regular premium payments, which cover
both the insurance coverage and the investment. ULIPs are frequently used to provide a range
of payouts to their beneficiaries following their death.
Investment in equities or debentures. Companies will be chosen by the insurance firms.
ULIP has tax benefit upto 1.5 lakhs under sec 80C of Income tax Act
At the end of policy term , you receive lump sum amount called maturity benefit.
Incase of death family receives sum assured which less than maturity benefit.
There is a lock in period for 5 years. Withdrawal of policy not possible before that
It was first introduced by Unit trust of India
 Money Back Policy
A money back insurance policy is a financial instrument that offers periodic payouts
(known as survival benefits) at specified intervals, along with a payout in the event of
the death of the policyholder (known as the sum assured). These survival benefits
amount to a certain percentage of the sum assured.
For Example: Rohan has opted for a Money Back Life Insurance policy and has a plan
with a sum assured of Rs. 5 lakhs for a term of 20 years. He would need to pay a
premium for 20 years and get back a part of sum assured at regular intervals. He
would get 15% of sum assured after 5th, 10th and 15th year of the policy.
 Pension Plan
A pension plan is the retirement amount, which an individual gets from their
insurance companies on a. There are various types of such plans available in the
country offered by various companies. A pension plan is the retirement amount, which
an individual gets from their insurance companies on a regular basis or in the form of
a lump sum.
GENERAL INSURANCE/NON LIFE
INSURANCE
General insurance typically means an insurance which is not life insurance. It is known as
property insurance in USA. Provides payment based on the amount of actual financial loss
to subject matter.
The different forms of general insurance are fire, marine, motor, accident and other
miscellaneous non-life insurance.
The tangible assets are susceptible to damages and a need to protect the economic value
of the assets is needed. For this purpose, general insurance products are bought as they
provide protection against unforeseeable contingencies like damage and loss of the asset.
Like life insurance, general insurance products come at a price in the form of premium
Perils means the reason for damage or the cause of damage
Named peril Actual causes of that is included in the policy
Open perils : Causes that are not specifically excluded from the policy.
If owner is involved or has created the damage intentionally , no amount shall be paid.
Property Insurance

Property insurance gives you financial coverage against the damages caused to
your private or commercial property due to fire, earthquake, theft, and burglary,
among other causalities.
Its types: Marine , Fire , Miscellaneous
MARINE INSURANCE

Oldest form of insurance

Supports trade overseas , export and imports
It covers the perils of the seas which are likely to occur during the sea transport.
Marine insurance covers the following risk
1. Sinking
2. Burning of ship
3. Accident
4. Coercion of ship
5. Jectison: To throw goods out of the ship to make it lighter
6. Piracy
7. Explosion
8. Sea Dacoits
9. Stormy wind
 Subject matter of marine insurance
1. Hull : Body and framework of ship
2. Cargo: goods /merchandise
3. Freight : Money that is paid by the owners of cargos
4. Liability: Money that has to be paid to third part for any damage caused.
Within the context of marine insurance, Institute Cargo Clauses serve a specific purpose.
This is to specify what is and is not covered when there is damage or loss to the shipment.
Institute Cargo Clause A: Clause A covers maximum risks. It can cover the
cargo, container, and transportation, and any exclusions can be found in the
General Exclusion Clauses.
Institute Cargo Clause B: In the case of this clause, you might only request for
the more valuable items in your cargo to be covered or for partial cargo
coverage. This clause is a more restrictive kind of coverage. For this reason,
you should expect to pay a moderate premium.
Institute Cargo Clause C: This clause, of course, is the most restrictive of the
three. It covers only very limited risks. Furthermore, most of the situations
covered must happen during carriage. Fire / explosion , Vessel grounding /
capsizing, Collision
 Marine insurance could be categorized into two
Marine Hull insurance : Marine hull insurance is an insurance policy specifically designed
to provide coverage to water vehicles like a boat, ship, yacht, fishing boat, steamer, etc. A
hull means the body of the vessel and that is exactly what is covered by this insurance
policy. The insurance provides financial protection in case of any damage to the vessel’s
body (hull) and or the machinery due to risks covered by the policy. People eligible for
marine hull insurance are:
• Port authorities
• Owners of ships
• Private and public port operators
 Marine Hull Insurance provides coverage for the following risks:
• Damage to the hull of the ship or vessel, including its machinery and equipment
• Damage or loss to the ship due to fire, burglary and/or theft
• Accidental damage to the ship due to earthquake, lightning, etc.
• Damage done to other boats by the insured vessel (third party liability)
• Damage to the vessel during maintenance activity
• World-wide coverage for ocean-going vessels
 Marine Cargo Insurance
Marine Cargo insurance / Transit Insurance covers the loss or damage of cargo /
goods in ordinary course of transit between the points of origin and the final
destination. Marine insurance covers Movement of goods from one place to another.
All-Risk and Named Perils are the two main types of cargo insurance an importer can purchase
to protect their goods during their supply chain.
Fire insurance

Fire insurance covers your property against the damage and losses caused by fire.
This Insurance protects physical goods and the equipment of the business or
home.
Purchasing additional fire coverage helps to cover the cost of replacement, repair, or
reconstruction of property above the limit set by the property insurance policy. Fire
insurance policies typically contain general exclusions such as war, nuclear risks, and
similar perils. Damage caused by a fire set deliberately is also typically not covered.
Inclusion of fire insurance – refer the pdf uploaded
 Exclusion under fire insurance in India
Exclusions include:-
• Damage due to nuclear perils, radioactivity, or nuclear waste.
• Loss directly or indirectly due to theft is not covered under this policy.
• The policy does not cover loss/ damage due to war, invasion, civil war, or terrorist
activities.
• No cover for damage or loss due to changes in temperature or due to natural
disasters.
• No coverage is provided for loss of earning, loss of delay or market loss,
consequential loss.
 Characteristics of fire insurance : All the general features of contract applies here .
Other features are:
• Covenant of good faith:- A fire insurance contract is governed by the principle of utmost good
faith, which says that the policyholder must disclose all the essential points regarding the subject
matter of the insurance policy.
• Covenant of indemnity:- The insurer has to set up a claim only to the insured limit. In case
there is no damages or loss, no claim is applicable.
• Insurable interest:- This policy is not valid if the insurer has an insurable interest in the
insured property.
• Direct loss:- If the root cause of the loss/ damage is not fire. No claim is applicable.
• Personal rights:- In case of any loss/damage because of any unfortunate circumstances, the
insured amount will be allotted to the one whose name is mentioned in the policy.
• Personal insurance contrast:- As this insurance is a private contract. The insurance company
must have complete knowledge about the behaviour of the policyholder.
TYPES

Valued Policy: In this policy the value of the subject-matter is agreed upon at the time
of taking up the policy. The insurer agrees to pay a pre-determined amount if the
subject-matter is destroyed or damaged by fire. The principle of indemnity is not
applicable to this policy. The agreed value may be more or less than the market value at
the time of loss.
Specific Policy: Under this policy the risk is insured for a specific sum. In case of loss of
property, the insurer will pay the loss if it is less than the specified amount.
Average Policy: If the ‘average clause’ is applicable to a policy, it is called Average
Policy. Average clause is added to penalise the insured for taking up a policy for a lesser
sum than the value of the property. The compensation payable is proportionately reduced
if the value of the policy is less than the value of the property.
Suppose a person takes up a fire insurance policy of Rs. 20,000 and the value of the
property is Rs. 30,000. If there is a loss of property worth Rs. 50,000, the underwriter
pays compensation of Rs. 10,000 (20,000/30,000 x 15,000) and not Rs. 15,000. It
discourages the insured to get under-valued policy.
Floating Policy: A floating policy is taken up to cover the risk of goods lying at different places. The goods
should belong to the same person and one policy will cover the risk of all these goods. This policy is useful
to those businessmen who are engaged in import and export of goods and the goods lie in warehouses at
different places. The premium charged is generally the average of the premium that would have been paid,
if specific policies would have been taken for all these goods. Average clause always applies to these
policies.
Comprehensive Policy: A policy may be taken up to cover up all types of risks, including fire. A policy
may be issued to cover risk like fire, explosion, lightening, burglary, riots, labor disturbances etc. This is
called a comprehensive policy or all risk policy.
Consequential Loss Policy: Fire may dislocate work in the factory. Production may go down while the
fixed expenses continue at the same rate. A policy may be taken up to cover up consequential loss or loss of
profits. The loss of profits is calculated on the basis of loss of sales. A separate policy may be taken up for
standing charges also.
Replacement Policy: The underwriter provides compensation on the basis of market price of the
property. The amount of compensation is calculated after taking into account the amount of depreciation. A
replacement policy provides that compensation will be according to the replacement price. The new asset
should be similar to the one which has been lost. The amount of compensation will depend upon the
market price of the new assets so that it is replaced without additional cost to the insured.
AVIATION

Also known as aircraft insurance, aviation insurance typically offers both property
and liability coverage to aircraft. So, it covers losses that can result from aviation risks such
as damage to property, loss of cargo, or injury to people. In many countries, aircraft owners
and operators are required by law to purchase insurance for third party liability.
In the aviation industry, third party liability usually includes the payment that aircraft
owners and operators have to pay for the medical expenses of the people injured in an
aircraft accident. This insurance may also include the expenses of search and rescue
operation missions, costs incurred on emergency landings, and injuries received while
operating the aircraft.
There are several types of aviation insurance that aircraft owners and operators can
opt for. The insurance covers several different types of aircraft such as standard, vintage,
experimental, and even seaplanes. The premium to be paid depends on the type of aircraft
being covered. Further, the levels of coverage may differ depending on whether the aircraft
is for personal use or for commercial purposes.
Public Liability Insurance : This insurance covers the expenses that can result from
damage occurring to the third party entities and property, like houses, crops, other aircraft,
cars, and airport facilities caused by the insured aircraft. This insurance is also known as
third party liability. The insurance does not offer coverage to the insured aircraft or the
injured passenger travelling in that aircraft. In most countries, this insurance is
mandatory.
Passenger Liability Insurance: this insurance provides payments for injuries and final expenses in
the event of death of a passenger travelling in the aircraft. This insurance is usually mandatory by law for
commercial or large aircraft.
Combined Single Limit (CSL): CSL insurance clubs the coverage provided by the public liability and
passenger liability insurance into a single coverage. It sets an overall limit per payout per accident.
Ground Risk Hull Insurance Not in Motion : This type of aviation insurance provides
coverage for damages sustained by the aircraft when it is on the ground and not in motion. So, the insurance
provides coverage for damages that can be caused by fire, theft, flood, wind or hailstorms, animals, hangar
collapse, and uninsured vehicles or aircraft colliding against the insured aircraft.
Ground Risk Hull Insurance in Motion: This aviation insurance provides coverage for
damages that the aircraft may sustain while in motion. However, it excludes any damage that might occur
while landing and taking off.
In-flight Insurance :In-flight insurance provides coverage for damages that an aircraft may sustain
when it is in motion. This is the most expensive aviation insurance as most accidents are likely to
occur when the aircraft is in motion.
Engineering Insurance

Engineering insurance refers to the insurance that provides economic safeguard to the risks
faced by the ongoing construction project, installation project, and machines and equipment
in project operation. Product categories: Depending on the project, it can be divided into
construction project all risks insurance and installation project all risks insurance; depending
on the attribute of the object, it can be divided into project all risks insurance, and machinery
breakdown insurance.
Insurance Period: the same as the construction period of the project.
Loss compensation
Material loss: the insured project loss caused by any accidents or natural disasters except the
exclusions.
The third party liability: according to law, the insured shall assume the compensation liability
for the personal injury or property damage to the third party in construction sites and
adjacent areas caused by the accident that directly relates to the insured project.
Exclusions: engineering design, construction technology error, construction material quality
defects, mechanical damage of machinery and equipment that happens without external
momentum.
 HEALTH INSURANCE
Health insurance is a type of insurance that covers medical expenses that arise due to an illness. These expenses could be
related to hospitalisation costs, cost of medicines or doctor consultation fees. Some contracts also specify that they don’t pay
for annual physical checkup, wellness checkup etc.`
Types of Health Insurance
There are two basic types of health insurance:
1. Mediclaim Plans
Mediclaim or hospitalization plans are the most basic type of health insurance plans. They cover the cost of treatment when you
are admitted to the hospital. The payout is made on actual expenses incurred in the hospital by submitting original bills. Most
of these plans cover the entire family up to a certain limit. – Room expenses, Anesthesia , nursing expenses , specialist fees ,
blood , oxygen , operation theatre charges, Xray , medicines , Dialysis , cost of pacemaker. Hospital expenses reimbursed.
Group Mediclaim policy : It is not individual but a group policy. But the coverage is same. It is available to any group ,
association or corporate body , provided it has a central administration point and subject to a minimum number of persons to
be covered.
2. Critical Illness Insurance Plans
Critical Illness Insurance Plans cover specific life-threatening diseases. These diseases could require prolonged treatment or
even change in lifestyle. Unlike hospitalization plans, the payout is made on Critical Illness cover chosen by the customer and
not on actual expenses incurred in the hospital. The cover gives the flexibility to use the monies for changing lifestyle and
medicines. Also it's a substitute for income for the time you could not resume work due to illness. Payout under these
plans are made on the diagnosis of the disease for which the original medical bills are not required. 30 days after illness - time
LIABALITY INSURANCE

Liability insurance provides protection against claims resulting from injuries and
damage to people and/or property. Liability insurance covers legal costs and
payouts for which the insured party would be found liable. Provisions not covered
include Intentional damage, contractual liabilities, and criminal prosecution.
liability insurance is also called third-party insurance. Liability insurance does not cover
intentional or criminal acts even if the insured party is found legally responsible.
Policies are taken out by anyone who owns a business, drives a car, practices medicine
or law—basically anyone who can be sued for damages and/or injuries.
Personal liability insurance covers individuals against claims resulting from injuries or
damage to other people or property experienced on the insured's property or as a result
of the insured's actions. Business liability insurance instead protects the financial
interests of companies and business owners from lawsuits or damages resulting from
similar accidents but also extending to product defects, recalls, and so on.
TYPES

Produces liability
Professional Indemnities
Workmen Compensation Insurance Explanation refer the pdf
Fidelity Guarantee Insurance
What is the Difference Between Insurance
and Assurance?

Insurance is most commonly associated with general insurance, such as automobile and
motorcycle insurance, which covers accidents and vehicle damage. In contrast, assurance
has links with life insurance plans, which cover the policyholder's death benefit.
The term "insurance" refers to the process of compensating for a loss, for instance, losses
sustained due to an accident, fire, theft, flood, and so on. Providing monetary support for a
particular scenario is referred to as assurance. A severe disease, death, or disability, for
example.
 What Is Bancassurance?
Bancassurance is an arrangement between a bank and an insurance company allowing the
insurance company to sell its products to the bank's client base. This partnership arrangement
can be profitable for both companies. Banks earn additional revenue by selling insurance
products, and insurance companies expand their customer bases without increasing their sales
force.
Bancassurance is not a type of insurance but a sales channel for the selling of insurance
products through banks. It is common in much of the world today and growing in acceptance in
the United States. For banks and insurance companies, bancassurance can be a profitable
enterprise. For consumers it can be convenient, although it may discourage comparison
shopping and limit their access to expert advice
• It is convenient for the customers as they can get access to different insurance policies through
their bank.
• Banks benefit from this arrangement as they get the added revenue that is earned by selling the
insurance policies.
• Insurance companies get a wider customer base and larger market reach through bancassurance.
• This arrangement brings profits to both the parties involved due to which it is growing globally
What is the IRDA Act?

The IRDAI Act provides a complete regulation of the insurance sector in India (all the insurance
business in India is regulated by IRDAI). The IRDAI plays a key role in the development of
regulatory mechanism of insurance in the insurance sector.
A committee was established by the Government of India to examine the structure of the insurance
sector and to advocate revisions to the rules and regulations to make it more effective and efficient.
The Insurance Regulatory and Development Authority Act, 1999 is an Act to provide for the
establishment of an authority to protect the interests of holders of insurance policies, to regulate,
promote and ensure orderly growth of an insurance industry and for matters connected therewith or
incidental thereto and further to amend the Insurance Act, 1938, the Life Insurance Corporation
Act, 1956 and the General Insurance Business (Nationalisation) Act, 1972.
IRDAI was presented in the parliament in 1999. The bill was discussed and debated before it
finally became the Insurance Regulatory and Development Authority of India (IRDAI) Act of
1999
IRDA ACT 1999

THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY ACT, 1999

An Act to provide for the establishment of an Authority to protect the interests of holders
of insurance policies, to regulate, promote and ensure orderly growth of the insurance
industry and for matters connected therewith or incidental thereto and further to amend the
Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance
Business (Nationalisation) Act, 1972.
It extends to the whole of India.
IRDA Act contains provisions relating to
Composition of Authority
Tenure of office of Chairperson and other members
Removal from office
Duties, powers and functions of Authority
Accounts and audit.
Power of Central Government to issue directions.
Furnishing of returns, etc., to Central Government
 Who is the founder of Irdai?
In 1993, the government set up a committee chaired by former Reserve Bank of India
governor R. N. Malhotra to propose recommendations for insurance reform
complementing those initiated in the financial sector.
When was IRDA Act passed?
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.
Who is the chairman of IRDAI at present ?
Insurance Regulatory and Development Authority/Chairperson - Debasish Panda
IRDAI

The Insurance Regulatory and Development Authority of India is a statutory body under the jurisdiction of Ministry of
Finance, Government of India and is tasked with regulating and licensing the insurance and re-insurance industries in
India. The IRDA was incorporated as a statutory body in April, 2000.
Organizational Structure of IRDAI:
Composition of IRDAI:
As per Sec. 4 of IRDAI Act, 1999, the composition of the Authority is:
a) Chairman;
b) Five whole-time members;
c) Four part-time members,
(appointed by the Government of India)
IRDAI’s Head Office is at Hyderabad : All the major activities of IRDAI including ensuring financial stability of insurers and
monitoring market conduct of various regulated entities is carried out from the Head Office.
The Regional Office, New Delhi focuses on spreading consumer awareness and handling of Insurance grievances besides
providing required support for inspection of Insurance companies and other regulated entities located in the Northern Region. This
office is functionally responsible for licensing of Surveyors and Loss Assessors.
 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.
 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.
Duties ,Powers and Functions of IRDAI

Section 14 of the IRDAI Act,1999 specifies the Duties, Powers of the Authority. These include the
following:
• To grant licenses to (re) Insurance companies and Insurance intermediaries
• To protect interests of policyholders, in matters pertaining to policy assignment, insurable interest,
payment of insurance claims, policy surrender value, and other terms and conditions of insurance
contracts.
• 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;
FUNCTIONS

1. IRDAI issues a certificate of registration to the life insurance company and also renews, modifies,
withdraws, suspends and cancels the registration.
2. The regulatory body secures policyholder’s interests in areas like assigning of policy, nomination by
policyholders, insurable interest, settlement of insurance claim, surrender value of the policy, and other
terms and conditions applicable to an insurance contract.
3. It specifies the requisite qualifications, code of conduct and practical training required for insurance
intermediaries and agents.
4. IRDAI makes certain that the code of conduct is followed by surveyors and loss assessors.
5. The autonomous body promotes efficiency in the conduct of the insurance business.
6. It also promotes and regulates professional organisations connected with the insurance and reinsurance
business.
7. It levies fees and other charges for carrying out the purposes of the IRDAI Act.
8. IRDAI carries out functions like inspection, conducting inquiries and investigations, including an audit
of the insurers, insurance intermediaries and other organisations involved with the insurance business.
9. The rates, advantages, terms and conditions that may be offered by insurers with respect to general
insurance business are also controlled and regulated by the regulatory body.
10.It also specifies the form and manner in which books of account should be maintained, and the statement
of accounts should be rendered by insurers and insurance intermediaries.
11. IRDAI monitors the investment of funds by insurance companies and governs the maintenance of the
margin of solvency.
12. It also judges the disputes between insurers and intermediaries or insurance intermediaries.
13. It supervises the functioning of the Tariff Advisory Committee.
14. IRDAI specifies the percentage of premium income of the insurer to finance schemes for promoting and
regulating professional organisations referred to in clause (f).
15. It specifies the percentage of life insurance and general insurance business to be undertaken by the
insurer in the rural or social sector.
16. With so many roles, the IRDAI maintains the standard of the industry and takes measures to eliminate
insurance frauds.
Understanding The Role Of IRDAI In Indian Insurance Sector
The Insurance Industry in India, established back in the early 1800s, has developed over the decades with better
transparency and emphasis on protecting the interest of the policyholders. Here are the roles IRDAI plays in the Indian
Insurance Sector:
1. Protecting the interest of the policyholder.
2. Assist in advancing the growth of the insurance industry in an organised manner for the benefit of the common man.
3. Grant, renew, revoke, modify or suspend the registration certificate of an insurance company.
4. Safeguard the policyholder in matters concerning the grant of policies, settlement of a claim, selection of a nominee by
the policyholder, surrender policy value and other such terms and conditions of the policy.
5. Provide long-term funds to accelerate the nation’s economy.
6. Enforce high standards of integrity and competence among policy providers.
7. Ensure that genuine claims are settled efficiently.
8. Prevent malpractices and policy fraud by providing a grievance redressal forum for policyholders.
9. Promote fairness and transparency of insurance in financial markets.
10. To build a reliable management system to ensure that high standards are maintained and financial stability is
observed by the policy providers.
11. Take appropriate actions when high standards are not maintained.
12. To ensure an optimal level of self-regulation in the insurance industry.
Law of Agency : what is Principal- Agent
relationship?
When one party delegates some authority to another party whereby the latter performs his
actions in a more or less independent fashion, on behalf of the first party, the relationship
between them is called an agency. Agency can be express or implied. Chapter X of the
Indian Contract Act, 1872 deals with the laws relating to Agency.
An agent is a person who is employed to do any Act for another or to represent another
dealings with the third person
The person for whom such an Act is done or who is for represented is called the principle.
According to Section 183, any person who has attained the age of majority and has a sound
mind can appoint an agent. In other words, any person capable of contracting can legally
appoint an agent. Minors and persons of unsound mind cannot appoint an agent.
Creation of Agency

Direct (express) appointment

Implication
Necessity
Estoppel
Ratification
Authority of an Agent
Authority of an agent can be both express or implied.
Section 187
the authority is said to be express when it is given by
words spoken or written.
authority is said to be implied when it is to be inferred
from the facts and circumstances of the case.
 An agent has 6 duties towards his Principal:
1. He has to conduct the business of the Principal according to the directions of the Principal.
2. An agent is bound to conduct the business he is supposed to conduct with as much skill as a
person on his position ordinarily holds.
3. An agent is supposed to show the relevant accounts to the Principal as and when the
Principal demands.
4. An agent has the duty to communicate any difficulty whatsoever he may come across while
doing the Principal’s business. He is supposed to perform due diligence in this regard.
5. If any material fact has been concealed or the business is not carried out in the manner that
the Principal directed, the Principal can repudiate the contract between them.
6. If the agent carries out the business in the manner he wanted to perform it, rather than on
the directions of the Principal, the Principal may claim from the agent any benefit he may
have achieved through doing so.
 The Principal has 4 duties towards the Agent:
1. The Principal is bound to indemnify the agent against any lawful acts
done by him in the exercise of his authority as an agent.
2. The Principal is bound to indemnify the agent against any act done by
him in good faith, even if it ended up violating the rights of third parties.
3. The Principal is not liable to the agent if the act that is delegated is
criminal in nature. The agent will also in no circumstances be
indemnified against criminal acts.
4. The Principal must make compensation to his agent if he causes any
injury to him because of his own competence or lack of skill.
According to Section 238, The Principal is liable for any fraud or
misrepresentation made by his agent during the course of his business,
as if the fraud or misrepresentation was done by the Principal himself.
 Rights of an Agent
An agent has the following 5 rights:
1. Right of retainer– An agent has the right to retain any remuneration incurred by
him while conducting the Principal’s business.
2. Right to remuneration– An agent, when he has wholly carried out the business of
the agency has the right to be remunerated of any expenses suffered by him while
conducting the business.
3. Right of Lien on Principal’s property- The agent has the right to hold (keep with
himself) any movable or immovable property of the Principal until his due
remuneration is paid to him by the Principal.
4. Right to be Indemnified– The agent has the right to be indemnified against all the
lawful acts done by him during the course of conducting the Principal’s business.
5. Right to Compensation– The Agent has the right to be compensated for any injury
or loss suffered by him due to the lack of skill and competency of the Principal.
Insurance is sold primarily by agents. The underlying contract, therefore, is
affected significantly by the legal authority of the agent, which in turn is
determined by well-established general legal rules regarding agency.
The law of agency, as stated in the standard work on the subject, “deals basically
with the legal consequences of people acting on behalf of other people or
organizations.
Agency involves three parties: the principal, the agent, and a third party. The
principal (insurer) creates an agency relationship with a second party by
authorizing him or her to make contracts with third parties (policyholders) on the
principal’s behalf. The second party to this relationship is known as the agent, who
is authorized to make contracts with a third party.It is important to note the
difference between an agent who represents the insurer and a broker who
represents the insured.
 In many situations, an agent is able to exercise binding authority, which secures
(binds) coverage for an insured without any additional input from the insurer. The
agreement that exists before a contract is issued is called a binder.
A conditional binder implies that coverage exists only if the underwriter
ultimately accepts (or would have accepted) the application for insurance. Thus, if
the applicant dies prior to the final policy issuance, payment is made if the
applicant would have been acceptable to the insurer as an insured.
The agent’s relationship between the insured and the insurer is greatly affected by
doctrines of waiver and estoppel.
Waiver is the intentional relinquishment of a known right. To waive a right, a
person must know he or she has the right and must give it up intentionally. If an
insurer considers a risk to be undesirable at the time the agent assumes it on behalf
of the company, and the agent knows it, the principal (the insurer) will have waived
the right to refuse coverage at a later date. This situation arises when an agent
insures a risk that the company has specifically prohibited.
Suppose, for example, that the agent knew an applicant’s seventeen-year-old son
was allowed to drive the covered automobile and also knew the company did not
accept such risks. If the agent issues the policy, the company’s right to refuse
coverage on this basis later in the policy period has been waived.
Estoppel occurs when the insurer or its agent has led the insured into believing that
coverage exists and, as a consequence, the insurer cannot later claim that no coverage
existed. For example, when an insured specifically requests a certain kind of coverage
when applying for insurance and is not told it is not available, that coverage likely
exists, even if the policy wording states otherwise, because the agent implied such
coverage at the time of sale, and the insurer is estopped from denying it.
An agency relationship may be created by estoppel when the conduct of the principal
implies that an agency exists. In such a case, the principal will be estopped from denying
the existence of the agency (recall the binding authority of some agents). This situation
may arise when the company suspends an agent, but the agent retains possession of blank
policies. People who are not agents of a company do not have blank policies in their
possession. By leaving them with the former agent, the company is acting as if he or she is
a current agent. If the former agent issues those policies, the company is estopped from
denying the existence of an agency relationship and will be bound by the policy.
CONSUMER PROTECTION ACT

Consumer protection is the practice of safeguarding buyers of goods and services against unfair
practices in the market. It refers to the steps adopted for the protection of consumers from
corrupt and unscrupulous malpractices by the sellers, manufacturers, service providers, etc. and
to provide remedies in case their rights as a consumer have been violated.
n India, the protection of the rights of the consumers is administered by the Consumer Protection
Act, 2019. The Consumer Protection Act, 2019 was introduced to replace the Consumer Protection
Act, 1986. The new Act contains various provisions which incorporate the challenges faced by
modern and technology-dependent consumers. The Act also contains various provisions for the
protection and promoting the rights of the consumers.
Section 2(7) of the Consumer Protection Act, 2019 defines a consumer as any person who buys
goods or services in exchange for consideration and utilizes such goods and services for
personal use and not for the purpose of resale or commercial use
Services as per sec 2(1)(o) of Consumer Protection Act, means and includes – banking,
financing, insurance, transport, processing, supply of electric energy, board or lodging or both,
entertainment, amusement or purveying of news or other information.
The Consumer Protection Act, 2019 was enacted by the Indian legislature to
deal with matters relating to violation of consumer’s rights, unfair trade
practices, misleading advertisements, and all those circumstances which are
prejudicial to the consumer’s rights. The intention of the Parliament behind
enacting the Act was to include provisions for e-consumers due to the
development of technology, buying and selling of goods and services online
have considerably increased during the last few years.
The Act seeks to provide better protection of the rights and interests of the
consumers by establishing Consumer Protection Councils to settle disputes in
case any dispute arises and to provide adequate compensation to the
consumers in case their rights have been infringed. It further provides speedy
and effective disposal of consumer complaints through alternate dispute
resolution mechanisms. The Act also promotes consumer education in order to
educate the consumer about their rights, responsibilities and also redressing
their grievances.
RIGHTS OF A CONSUMER

1. The right of a consumer to be protected from the marketing of goods and

services that are hazardous and detrimental to life and property.
2. The right of a consumer to be protected against unfair trade practices by
being aware of the quality, quantity, potency, purity, standard and price of
goods, products or services.
3. The right of a consumer to have access to a variety of goods, services
and products at competitive prices.
4. The right to seek redressal at respective forums against unfair and
restrictive trade practices.
5. The right to receive adequate compensation or consideration from
respective consumer forums in case they have been wronged by the seller.
6. The right to receive consumer education.
 Section 2(47) of the Consumer Protection Act, 2019 defines the term
‘unfair trade practices’ which include:
1. Manufacturing spurious goods or providing defective services.
2. Not issuing cash memos or bills for the goods purchased or services
rendered.
3. Refusing to take back or withdraw the goods or services and not
refunding the consideration taken for the purchase of the goods or
services.
4. Disclosing the personal information of the consumer
CONSUMER PROTECTION IN INSURANCE SECTOR

The Insurance Regulatory and Development Authority (IDRAI) is the agency which
governs the insurance industry in India. It has formulated schemes in order to address the
grievances of the consumers, the insurance ombudsman scheme and the integrated
grievance management system.
The very first step that is to be taken is to approach the GRO (grievance redressal
officer) of the insurance company and file a written complaint supported by the relevant
documents. The GRO has to reply within a period of 15 days, if not the consumer can file a
complaint at the, IGMS. If the dispute is still not settled, the individual can further escalate
the matter to the Ombudsman or the IRDA.
Integrated Grievance Management System, is an online consumer complaints registration
system created by IRDA. All insurance companies have integrated their online complaint
logging systems to the IGMS maintained by IRDA. Policyholders can register their
complaints online with their insurance company and track the progress of complaint
resolution. IRDA monitors the complaints and their progress in real-time through IGMS.
 An individual can register a complaint in the e-form provided in the link below:
http://igms.irda.gov.in/WebPages/PolicyHolderUserDetails.aspx

IRDA Grievance Call Centre

Toll Free Number: 155255
Timings: 8 AM to 8 PM -- (Monday to Saturday)2

Register and monitor your complaint at igms.irda.gov.in

The insurance ombudsman scheme was created by the Government of India to provide
cost-effective and Hassle- free redressal for the grievances of the consumers.
INSURANCE OMBUDSMAN

The Insurance Ombudsman scheme was created by the government of India for
individual policyholders to have their complaints settled out of the courts system in a
cost-effective, efficient, and impartial way. The Insurance Ombudsman offices are
presently widespread across 17 different locations in the country.
• The insurance ombudsman was established through a government of India notification dated
11th November, 1998.
• The purpose of establishing the insurance ombudsman is quick disposal of the grievances of the
insured customers and to reduce their problems with respect to such grievances.
• The insurance ombudsman carries immense importance and relevance not only to protect the
interests of the policyholders but also to build their confidence
An Ombudsman is an officer appointed by the Government of India. At the moment, there
are 17 Insurance Ombudsman working in different parts of the world. Any person having
a grievance against an insurance company may, himself or by his legal heir, nominee, or
assignee, write an official complaint to the Insurance Ombudsman.
One of the founding principles of insurance companies is to provide financial security to
the insured individuals in the time of need. When someone purchases an insurance policy,
they put their trust and faith in the company, believing that their claim will be honored
when the time comes. At the most fundamental and ethical levels, such confidence must
be maintained.
However, it cannot be denied that insurance companies across the world function with
the primary aim of generating profit, and it becomes essential to make sure that such
profit motives do not come in the way of honoring claims made by the individuals.
Hence, the Government of India created the Insurance Ombudsman scheme to allow
individual policyholders to have their complaints resolved out of the courts in a
cost-effective, timely, and impartial manner.
With such a system in place, people have the assurance that the system is fair to them
and that they can fully trust it and benefit from it. This also results in an optimal growth
for the insurance sector, so it is a win-win situation for all.
POWERS/FUNCTIONS

Insurance Ombudsman has two types of functions to perform (1) conciliation, (2) Award making.
Conciliation : The insurance Ombudsman is empowered to receive and consider complaints in
respect of personal lines of insurance from any person who has any grievance against an insurer.
Insurance ombudsman hears both the parties and come to a conclusion.
Award making : In case both parties agree for mediation, the Insurance Ombudsman shall give his
Recommendation within 1 month of date of receipt of mutual written consent for such mediation,
otherwise, he shall pass his Award within 3 months of the receipt of all requirements from the
complainant.
Ombudsman’s powers are restricted to insurance contracts of value not exceeding Rs. 30 lakhs.
The insurance companies are required to honor the awards passed by an Insurance Ombudsman
within three months.
 However, you can approach the Ombudsman with complaint if:
• The first step you took was to contact your insurance company with the complaint.
• It has been rejected by the insurance company or
• It has not been resolved to your satisfaction or
• For the last 30 days, the insurer has not replied to the compliant at all
• This complaint relates to an individual policy that you have taken and the claim
amount including expenses claimed does not exceed Rs 30 lakhs.
NATURE OF COMPLAINTS

You can complain to the Ombudsman about:

1. Claims that are not settled within the specified time period, outlined in the IRDAI Act, 1999.
2. Life, general, or health insurers have totally or partially rejected claims.
3. Disputes about premiums paid or payable under an insurance policy
4. The document or contract containing the policy terms and conditions has been misrepresented, any
time.
5. A legal construction of insurance policies in relation to a dispute over a claim.
6. Grievances against insurance companies, their agents, and intermediaries related to policy
servicing.
7. Issue of life insurance policies, general insurance policies, and health insurance policies that do not
conform to the proposal submitted by the proposer.
8. Failure to issue an insurance policy after receiving a premium in life insurance and general
insurance, including health insurance, and
9. In any case resulting from violations of the Insurance Act, 1938, or regulations, circulars,
guidelines, or instructions issued by the IRDAI from time to time, or the terms and conditions of the policy
contract, insofar as they relate to the issues described at clauses (a) to (f).
 The Process of Settlement - The Role of Insurance Ombudsman
• Recommendation: The Ombudsman will serve as a mediator and do as follows:
• Based on the facts of the dispute, make a fair recommendation
• As soon as you accept this as a full and final settlement, the Ombudsman will notify the
company that it must comply with the terms within 15 days.
• Award: In the event a settlement by recommendation fails, the Ombudsman takes
the following steps:
• After receiving all of the requirements from the complainant, pass an award in 3 months
which will be binding on the insurance company.
• After the Award is Passed: Within 30 days of receiving the award, the insurer must
comply with the award and notify the Ombudsman of its compliance.
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.
Other Important Acts include – LIC Act 1956 and GIC Act 1972
TIME LINE

INSURANC LIC ACT GIC ACT

E ACT 1938 1956 1972
Insurance Act 1938 was the first Act that was brought to regulate the insurance sector.
LIC act was passed with the intention of nationalizing the life insurance sector firms
GIC act was passed with the intention of nationalizing the general insurance sector firms
After this GIC act was passed, insurance sector was under the control of the government.
1999, IRDA act was passed, private participation was included in the insurance sector.
THE INSURACE ACT, 1938

It was the first comprehensive legislation governing both life and non-life
companies providing strict control over insurance business.
The Insurance Act, 1938 is enacted with the objective of consolidating and
amending the laws relating to business of insurance.
This act further regulates the Insurance Business in India.
Life insurance was not included.
With the coming of other Acts , importance of this Act diminished.
What is The Insurance Act 1938 and its
history?
The insurance act was introduced to regulate the activities of insurance companies. This act
prevents companies from being speculative and forces them to act on sound actuarial principles.
This act prevents companies from being speculative and forces them to act on sound actuarial
principles. Before the original insurance act 1938, a life insurance company’s act was
passed in 1912. The drawback of this act was that there was discrimination between Indian and
foreign companies.
Indian companies were required to make deposits with the government. But the foreign companies
were exempted from this rule.
The success of the independence and non-cooperation movement helped the Indian insurance
companies.
In 1937 the Sen Committee appointed whose comprehensive
recommendations formed the foundation of the Insurance Act 1938.
SALIENT FEATURES OF THE INSURACE ACT, 1938

The salient features of the Insurance Act 1938

• Forming a department of insurance to overlook all the insurance business.
• Mandatory registration of insurance companies.
• Compulsory submission of annual financial returns of insurance companies.
• A provision for initial deposits was made to allow only genuine companies in the insurance sector.
• Other important provisions such as the prohibition on rebate, restriction on licensing, and
commission payment were introduced in order to instill professionalism into the business.
• Insurance companies had to go through a periodical evaluation to assess their financial
stability.
• Policies with a standardized format were introduced.
• Certification of the premium tables through an actuary was made compulsory.
Provisions of this Act relates to

Registration
Accounts and Audit
Investment
Limitations on management expenses
Prohibition of rebates
Power of investigation
Licensing of Agents
Advance payment of premium
Tariff Advisory committee
Duties and powers of Controller of insurance.
CONTROLLER OF INSURANCE

Controller of Insurance means the officer appointed by the Central Government

under section 2B to exercise all the powers, discharge the functions and performs
the duties of the Authority under this Act or the Life Insurance Corporation Act,
1956 (31 of 1956) or the General Insurance Business (Nationalization) Act, 1972 (57
of 1972) or the Insurance Regulatory and Development Authority Act, 1999
The Life Insurance Corporation Act 1956

The Life insurance Corporation of India was founded on September 1, 1956, when the Parliament of
India passed the Life Insurance of India Act which came into effect on 1st Jul 1956 that nationalized the
insurance industry in India. Over 245 insurance companies and provident societies were merged to create
the state-owned Life Insurance Corporation of India.
The acts contains provisions relating to the constitution of LIC, capital structure and functioning of the
corporation, authorities of LIC and accounting and auditing guidelines for the Life insurance corporation.
It is basically an investment institution, in as much as the funds of policy holders are invested and
dispersed over different classes of securities, industries and regions, to safeguard their maximum interest on
long term basis.
LIC is required to invest not less than 75% of its funds in Central and State Government securities,
the government guaranteed marketable securities and in the socially-oriented sectors
At present, it is the largest institutional investor. It provides long term finance to industries. Besides, it
extends resource support to other term lending institutions by way of subscription to their shares and bonds
and also by way of term loans.
 Important Provisions of Life Insurance Corporation Act, 1956
• Constitution
• Capital
• Functions of the Corporation
• Transfer of Services
• Set-up of the Corporation
• Committee of the Corporation
• Authorities
• Finance, Accounts and Audit
• Miscellaneous
The LIC is a corporate having perpetual succession and a common seal with a power to acquire
hold and dispose of property and can by its name sue and be sued. Its working is governed by the
LIC Act.
The LIC of India was set up under the LIC Act, 1956 under which the life insurance was
nationalized. As a result, business of 243 insurance companies was taken over by LIC on 1-9-
1956.
It is basically an investment institution, in as much as the funds of policy holders are invested and
dispersed over different classes of securities, industries and regions, to safeguard their maximum
interest on long term basis. LIC is required to invest not less than 75% of its funds in Central and
State Government securities, the government guaranteed marketable securities and in the
socially-oriented sectors. At present, it is the largest institutional investor. It provides long term
finance to industries. Besides, it extends resource support to other term lending institutions by way
of subscription to their shares and bonds and also by way of term loans.
 Objectives of LIC The LIC was established with the following objectives:
• Spread life insurance widely and in particular to the rural areas, to the socially and
economically backward areas.
• Maximization of mobilization of people’s savings for nation building activities.
• Provide complete security and promote efficient service to the policy-holders at
economic premium rates.
• Conduct business with utmost economy and with the full realization that the money
belong to the policy holders.
• Act as trustees of the insured public in their individual and collective capacities.
Role and Functions of LIC

• It collects the savings of the people through life policies and invests the fund in a variety of
investments.
• It invests the funds in profitable investments so as to get good return. Hence the policy holders
get benefits in the form of lower rates of premium and increased bonus. In short, LIC is answerable
to the policy holders.
• It subscribes to the shares of companies and corporations
• It provides direct loans to industries at a lower rate of interest. It is giving loans to industrial
enterprises to the extent of 12% of its total commitment.
• It provides refinancing activities through SFCs in different states and other industrial loan giving
institutions.
• It has provided indirect support to industry through subscriptions to shares and bonds of financial
institutions such as IDBI, IFCI, ICICI, SFCs etc. at the time when they required initial capital. It
also directly subscribed to the shares of Agricultural Refinance Corporation and SBI.
• It gives loans to those projects which are important for national economic welfare. The
socially oriented projects such as electrification, sewage and water channelizing are
given priority by the LIC.
• It nominates directors on the boards of companies in which it makes its investments.
• It gives housing loans at reasonable rates of interest.
• It acts as a link between the saving and the investing process. It generates the savings of
the small savers, middle income group and the rich through several schemes
The General Insurance Business Nationalization Act
- 1972
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.
National Insurance Co. Ltd., The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd.
and United India Insurance Co. Ltd.. – Subsidiaries . Once the General Insurance Business
(Nationalisation) Amendment Act, 2002 (40 of 2002), came into effect from 21 March 2003, GIC
was no longer a holding company of its subsidiaries. The ownership of GIC and the four subsidiary
companies was vested with the government.
 General Insurance Corporation of India (GIC)
General insurance industry in India was nationalized 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:
1. PSUs (Public Sector Undertakings)- 4
2. Private Insurance Companies - 12
FEATURES OF INSURANCE CONTRACT

Valid Agreement
Legal relationship
Lawful consideration
Free consent
Lawful object
Agreement should not be void
Agreement should be possible
Formalities of law
Besides these parties must fulfil the following conditions to complete an insurance
contract
a) Utmost good faith
b) Insurable interest
a) Indemnity
b) Cause Proxima
c) Subrogation
d) Warranties
e) Assignment and nomination
f) Return of premium : Return premium is the amount due the insured if the actual
cost of a policy is less than what the insured has previously paid.
Assignment and nomination : A nomination is an appointment of a person (nominee)
to receive the insurance claim in case of the demise of the insured. An assignment
is a transfer of the policy's rights, ownership, and interest to another person or
entity. An assignment is a transfer of the policy's rights, ownership, and interest to
another person or entity.
Nomination types: beneficial nominee( family members), minor nominee, non
family nominee , changing nominee
Assignment types: Absolute & Conditional
Warranties : In applying for insurance, the applicant makes certain representations or
warranties. If the applicant makes a false representation, the insurer has the option of voiding
the contract. A warranty is a term in an insurance contract which must be exactly and literally
complied with by the insured. Departure from the exact requirements even for reasons of
necessity constitutes a breach. If, for example, in answer to an agent’s question, the applicant
reports no history of serious illness, in the mistaken belief that a past illness was minor, the
court may find the statement to be an honest opinion and not a misrepresented fact.
Warranties in insurance contracts can be divided into two types: affirmative or promissory.
An affirmative warranty is a statement regarding a fact at the time the contract was
made. A promissory warranty is a statement about future facts or about facts that will
continue to be true throughout the term of the policy. An untruthful affirmative warranty
makes an insurance contract void at its inception. If a promissory warranty becomes true, the
insurer may cancel coverage at such time as the warranty becomes untrue. For example, if an
insured party warrants that property to be covered by a fire insurance policy will never be
used for the mixing of explosives, the insurer may cancel the policy if the insured party
decides to start mixing explosives on the property. Warranty provisions should contain
language indicating whether they are affirmative or promissory.
Careers in Insurance industry

Actuary: An actuary is a person who helps insurance companies know how much money
to charge for insurance. To be an actuary, you will need a college degree in mathematics or
statistics. The Insurance Actuary will analyze statistical data such as mortality, accident,
sickness, disability, and retirement rates and construct probability tables to forecast risk and
liability for payment of future benefits.
• Compile and analyze statistical data and other information.
• Estimate the probability and likely economic cost of an event such as death,
sickness, an accident, or a natural disaster.
• Design and test insurance policies, investments, and other business strategies to
minimize risk and maximize profitability.
 Underwriter
An underwriter is a person who decides which people and things an insurance company should
insure and which ones they should not. For instance, if a car is no longer running and dented,
an underwriter will probably decided not to insure it. An underwriter also determines how
much the company should charge for insurance.
Adjuster
An adjuster is a person who helps people after their property has been damaged. They
investigate how the property was damaged and determine whether or not the damage will be
paid for by the insurance company. One of the most important things adjusters do is to
determine how much the damage will cost to repair
Present State of Insurance Industry in
India
Recent trends in insurance sector
• Standardized products
• Rising web aggregators
• Wellness products
CASE STUDIES

RAM made a proposal to an insurance company for an insurance policy on his life for
Rs.5,00,000. He truthfully answered all questions on the proposal form and disclosed all
relevant facts. A few days later but before the proposal was accepted, RAM was taken ill
with pneumonia. The proposal was accepted by the company the next day. Two days
after RAM died of pneumonia and the company learned for the first time of his illness.
Is the insurance company liable to make the payment? Assess the principle that is
applicable to this situation
Mr. X took a marine policy to cover the goods exported by him. Under the policy
goods have been insured against damage likely to be cause by sea-water. During
the voyage a hole was caused in the bottom of the ship. Through this hole sea water
entered into the ship which damaged the goods insured. Can Mr. X claim
compensation for the loss ?
A insures his life with an insurer for Rs.5,00,000, subsequently, he becomes
insane and while of unsound mind he commits suicide. Can the legal
representative of A recover the money from the insurance company

Yes he is eligible to get compensation. He committed suicide due to his mental instability. Also
contract is valid since he signed it when he was having a sound mind. In this full claim amount is
available and not the refund of premium.
Suicide Clause in Life Insurance
The contract in Northern India Assurance Co. v. Kanhayala stated that if Moolchand, the
insured, caused his own death for a year before the policy went into effect, the coverage would
become void.
Suicide clauses in life insurance contracts in India are comparable to those found in other parts of
the world. It refers to the payment or refund of premium to the beneficiaries in the event that the
insurer commits suicide within the policy's prescribed period of one or two years if the insured
destroys him in a sane state of mind.
a life insurance plan pays the nominee in case of the suicidal death of the policyholder. However,
there are specific provisions related to the payment terms associated with a suicidal death claim.
Life Insurance Policies of India underwent these changes after 2014. The IRDAI brought this up.
Mr. Ram Patel took a life insurance policy from an insurance company on his life. While
making the proposal of insurance, Mr.Ram in reply to a query asking whether all previous
proposal on his life were accepted by the insurers at ordinary rates, but omitted to disclose
that his proposal for insurance was declined by two other insurance companies. Mr.Ram
dies and his legal representative claimed the insurance money. Is the insurance company
liable to pay?
X enters into a contract to build house for Mr. Y. Mr. Y supplies all materials required for
construction . Can Mr. X insure the material supplied for the period of construction.
Mr. Arun ‘s goods in a warehouse where insured against fire with Bharath Insurance
Company . When a fire broke out in the warehouse, the goods were burned, and Arun was
able to get the insurance company to pay the full value. Subsequently Arun also sued the
warehouse keeper and recovered a sum of 10 lakh . Can Arun retain the money
Mr. Raymond insures his ship against the Perils of sea for 10L. The ship was burnt partially
and loss estimated to be 3L. Will the insurance company pass the claim