Do you know about - assurance Law - An Indian Perspective
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"Insurance should be bought to safe you against a calamity that would otherwise be financially devastating."
In straightforward terms, insurance allows someone who suffers a loss or accident to be compensated for the effects of their misfortune. It lets you safe yourself against daily risks to your health, home and financial situation.
Insurance in India started without any regulation in the Nineteenth Century. It was a typical story of a colonial epoch: few British insurance associates dominating the market serving mostly large urban centers. After the independence, it took a theatrical turn. insurance was nationalized. First, the life insurance associates were nationalized in 1956, and then the general insurance enterprise was nationalized in 1972. It was only in 1999 that the secret insurance associates have been allowed back into the enterprise of insurance with a maximum of 26% of foreign holding.
"The insurance commerce is colossal and can be quite intimidating. insurance is being sold for almost whatever and all things you can imagine. Determining what's right for you can be a very daunting task."
Concepts of insurance have been extended beyond the coverage of tangible asset. Now the risk of losses due to sudden changes in currency change rates, political disturbance, negligence and liability for the damages can also be covered.
But if a someone thoughtfully invests in insurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is ascertained.
The entry of the State Bank of India with its proposal of bank insurance brings a new dynamics in the game. The public palpate of the other countries in Asia has already deregulated their markets and has allowed foreign associates to participate. If the palpate of the other countries is any guide, the dominance of the Life insurance Corporation and the general insurance Corporation is not going to disappear any time soon.
The aim of all insurance is to compensate the owner against loss arising from a range of risks, which he anticipates, to his life, property and business. insurance is generally of two types: life insurance and general insurance. general insurance means Fire, maritime and Miscellaneous insurance which includes insurance against burglary or theft, fidelity guarantee, insurance for employer's liability, and insurance of motor vehicles, livestock and crops.
Life insurance In India
"Life insurance is the genuine,sincere love letter ever written.
It calms down the crying of a hungry baby at night. It relieves the heart of a bereaved widow.
It is the comforting whisper in the dark silent hours of the night."
Life insurance made its debut in India well over 100 years ago. Its salient features are not as widely understood in our country as they ought to be. There is no statutory definition of life insurance, but it has been defined as a contract of insurance whereby the insured agrees to pay inescapable sums called premiums, at specified time, and in notice thereof the insurer agreed to pay inescapable sums of money on inescapable condition sand in specified way upon happening of a singular event contingent upon the period of human life.
Life insurance is first-rate to other forms of savings!
"There is no death. Life insurance exalts life and defeats death.
It is the excellent we pay for the free time of living after death."
Savings through life insurance certify full security against risk of death of the saver. In life insurance, on death, the full sum assured is payable (with bonuses wherever applicable) whereas in other savings schemes, only the whole saved (with interest) is payable.
The considerable features of life insurance are a) it is a contract relating to human life, which b) provides for payment of lump-sum amount, and c) the whole is paid after the expiry of inescapable period or on the death of the assured. The very purpose and object of the assured in taking policies from life insurance associates is to safeguard the interest of his dependents viz., wife and children as the case may be, in the even of premature death of the assured as a ensue of the happening in any contingency. A life insurance procedure is also commonly accepted as security for even a market loan.
Non-Life Insurance
"Every asset has a value and the enterprise of general insurance is related to the security of economic value of assets."
Non-life insurance means insurance other than life insurance such as fire, marine, accident, medical, motor car and household insurance. Assets would have been created through the efforts of owner, which can be in the form of building, vehicles, machinery and other tangible properties. Since tangible property has a corporal shape and consistency, it is branch to many risks fluctuating from fire, allied perils to theft and robbery.
Few of the general insurance policies are:
Property Insurance: The home is most valued possession. The procedure is designed to cover the various risks under a singular policy. It provides security for property and interest of the insured and family.
Health Insurance: It provides cover, which takes care of medical expenses following hospitalization from sudden illness or accident.
Personal accident Insurance: This insurance procedure provides recompense for loss of life or injury (partial or permanent) caused by an accident. This includes refund of cost of treatment and the use of hospital facilities for the treatment.
Travel Insurance: The procedure covers the insured against various eventualities while traveling abroad. It covers the insured against personal accident, medical expenses and repatriation, loss of checked baggage, passport etc.
Liability Insurance: This procedure indemnifies the Directors or Officers or other professionals against loss arising from claims made against them by think of any wrongful Act in their official capacity.
Motor Insurance: Motor Vehicles Act states that every motor car plying on the road has to be insured, with at least Liability only policy. There are two types of procedure one exterior the act of liability, while other covers insurers all liability and damage caused to one's vehicles.
Journey From An infant To Adolescence!
Historical Perspective
The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher excellent was expensed for Indian lives than the non-Indian lives as Indian lives were considered more risky for coverage.
The Bombay Mutual Life insurance community started its enterprise in 1870. It was the first enterprise to fee same excellent for both Indian and non-Indian lives. The Oriental insurance enterprise was established in 1880. The general insurance enterprise in India, on the other hand, can trace its roots to the Triton (Tital) insurance enterprise Limited, the first general insurance enterprise established in the year 1850 in Calcutta by the British. Till the end of nineteenth century insurance enterprise was almost entirely in the hands of overseas companies.
Insurance regulation formally began in India with the passing of the Life insurance associates Act of 1912 and the Provident Fund Act of 1912. Several frauds during 20's and 30's desecrated insurance enterprise in India. By 1938 there were 176 insurance companies. The first allinclusive legislation was introduced with the insurance Act of 1938 that provided literal, State control over insurance business. The insurance enterprise grew at a faster pace after independence. Indian associates strengthened their hold on this enterprise but despite the increase that was witnessed, insurance remained an urban phenomenon.
The Government of India in 1956, brought together over 240 secret life insurers and provident societies under one nationalized monopoly corporation and Life insurance Corporation (Lic) was born. Nationalization was justified on the grounds that it would originate much needed funds for rapid industrialization. This was in conformity with the Government's chosen path of State lead planning and development.
The (non-life) insurance enterprise prolonged to prosper with the secret sector till 1972. Their operations were restricted to organized trade and commerce in large cities. The general insurance commerce was nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped into four associates - National insurance Company, New India insurance Company, Oriental insurance enterprise and United India insurance Company. These were subsidiaries of the general insurance enterprise (Gic).
The life insurance commerce was nationalized under the Life insurance Corporation (Lic) Act of India. In some ways, the Lic has come to be very flourishing. Regardless of being a monopoly, it has some 60-70 million policyholders. Given that the Indian middle-class is colse to 250-300 million, the Lic has managed to capture some 30 odd percent of it. colse to 48% of the customers of the Lic are from rural and semi-urban areas. This probably would not have happened had the lease of the Lic not specifically set out the goal of serving the rural areas. A high recovery rate in India is one of the exogenous factors that have helped the Lic to grow rapidly in up-to-date years. Despite the recovery rate being high in India (compared with other countries with a similar level of development), Indians display high degree of risk aversion. Thus, nearly half of the investments are in corporal assets (like property and gold). colse to twenty three percent are in (low yielding but safe) bank deposits. In addition, some 1.3 percent of the Gdp are in life insurance related savings vehicles. This frame has doubled in the middle of 1985 and 1995.
A World viewpoint - Life insurance in India
In many countries, insurance has been a form of savings. In many advanced countries, a considerable fraction of domestic recovery is in the form of donation insurance plans. This is not surprising. The prominence of some developing countries is more surprising. For example, South Africa features at the whole two spot. India is nestled in the middle of Chile and Italy. This is even more surprising given the levels of economic improvement in Chile and Italy. Thus, we can cease that there is an insurance culture in India despite a low per capita income. This promises well for hereafter growth. Specifically, when the wage level improves, insurance (especially life) is likely to grow rapidly.
Insurance Sector Reform:
Committee Reports: One Known, One Anonymous!
Although Indian markets were privatized and opened up to foreign associates in a whole of sectors in 1991, insurance remained out of bounds on both counts. The government wanted to pace with caution. With pressure from the opposition, the government (at the time, dominated by the Congress Party) decided to set up a committee headed by Mr. R. N. Malhotra (the then Governor of the reserve Bank of India).
Malhotra Committee
Liberalization of the Indian insurance market was suggested in a record released in 1994 by the Malhotra Committee, indicating that the market should be opened to private-sector competition, and eventually, foreign private-sector competition. It also investigated the level of satisfaction of the customers of the Lic. Inquisitively, the level of customer satisfaction seemed to be high.
In 1993, Malhotra Committee - headed by old Finance Secretary and Rbi Governor Mr. R. N. Malhotra - was formed to evaluate the Indian insurance commerce and recommend its hereafter course. The Malhotra committee was set up with the aim of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more sufficient and contentious financial principles convenient for the needs of the cheaper holding in mind the structural changes presently happening and recognizing that insurance is an leading part of the allinclusive financial principles where it was considerable to address the need for similar reforms. In 1994, the committee submitted the record and some of the key recommendations included:
o Structure
Government bet in the insurance associates to be brought down to 50%. Government should take over the holdings of Gic and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance associates should be given greater free time to operate.
Competition
Private associates with a minimum paid up capital of Rs.1 billion should be allowed to enter the sector. No enterprise should deal in both Life and general insurance through a singular entity. Foreign associates may be allowed to enter the commerce in collaboration with the domestic companies. Postal Life insurance should be allowed to control in the rural market. Only one State Level Life insurance enterprise should be allowed to control in each state.
o Regulatory Body
The insurance Act should be changed. An insurance Regulatory body should be set up. Controller of insurance - a part of the Finance Ministry- should be made Independent.
o Investments
Compulsory Investments of Lic Life Fund in government securities to be reduced from 75% to 50%. Gic and its subsidiaries are not to hold more than 5% in any enterprise (there current holdings to be brought down to this level over a period of time).
o Customer Service
Lic should pay interest on delays in payments beyond 30 days. insurance associates must be encouraged to set up unit related pension plans. Computerization of operations and updating of technology to be carried out in the insurance industry. The committee accentuated that in order to heighten the customer services and increase the coverage of insurance policies, commerce should be opened up to competition. But at the same time, the committee felt the need to practice caution as any failure on the part of new competitors could ruin the public reliance in the industry. Hence, it was decided to allow competition in a small way by stipulating the minimum capital requirement of Rs.100 crores.
The committee felt the need to provide greater autonomy to insurance associates in order to heighten their operation and enable them to act as independent associates with economic motives. For this purpose, it had proposed setting up an independent regulatory body - The insurance Regulatory and improvement Authority.
Reforms in the insurance sector were initiated with the duct of the Irda Bill in Parliament in December 1999. The Irda since its incorporation as a statutory body in April 2000 has meticulously stuck to its agenda of framing regulations and registering the secret sector insurance companies.
Since being set up as an independent statutory body the Irda has put in a framework of globally compatible regulations. The other decision taken at the same time to provide the supporting systems to the insurance sector and in singular the life insurance associates was the open of the Irda online assistance for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance associates would have a trained workforce of insurance agents in place to sell their products.
The Government of India liberalized the insurance sector in March 2000 with the duct of the insurance Regulatory and improvement Authority (Irda) Bill, lifting all entry restrictions for secret players and allowing foreign players to enter the market with some limits on direct foreign ownership. Under the current guidelines, there is a 26 percent equity lid for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent.
The opportunity up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also comprise restructuring and revitalizing of the public sector companies. In the secret sector 12 life insurance and 8 general insurance associates have been registered. A host of secret insurance associates operating in both life and non-life segments have started selling their insurance policies since 2001
Mukherjee Committee
Immediately after the publication of the Malhotra Committee Report, a new committee, Mukherjee Committee was set up to make concrete plans for the requirements of the newly formed insurance companies. Recommendations of the Mukherjee Committee were never disclosed to the public. But, from the data that filtered out it became clear that the committee recommended the inclusion of inescapable ratios in insurance enterprise equilibrium sheets to ensure transparency in accounting. But the Finance clergyman objected to it and it was argued by him, probably on the advice of some of the potential competitors, that it could work on the prospects of a developing insurance company.
Law Commission Of India On revision Of The insurance Act 1938 - 190th Law Commission Report
The Law Commission on 16th June 2003 released a Consultation Paper on the revision of the insurance Act, 1938. The old practice to amend the insurance Act, 1938 was undertaken in 1999 at the time of enactment of the insurance Regulatory improvement Authority Act, 1999 (Irda Act).
The Commission undertook the present practice in the context of the changed procedure that has permitted secret insurance associates both in the life and non-life sectors. A need has been felt to toughen the regulatory mechanism even while streamlining the existing legislation with a view to removing portions that have come to be superfluous as a consequence of the up-to-date changes.
Among the major areas of changes, the Consultation paper suggested the following:
a. Merging of the provisions of the Irda Act with the insurance Act to avoid multiplicity of legislations;
b. Deletion of redundant and transitory provisions in the insurance Act, 1938;
c. Amendments reflect the changed procedure of permitting secret insurance associates and strengthening the regulatory mechanism;
d. Providing for stringent norms regarding maintenance of 'solvency margin' and investments by both public sector and secret sector insurance companies;
e. Providing for a full-fledged grievance redressal mechanism that includes:
o The constitution of Grievance Redressal Authorities (Gras) comprising one judicial and two technical members to deal with complaints/claims of policyholders against insurers (the Gras are predicted to replace the present principles of insurer appointed Ombudsman);
o Appointment of adjudicating officers by the Irda to rule and levy penalties on defaulting insurers, insurance intermediaries and insurance agents;
o Providing for an motion against the decisions of the Irda, Gras and adjudicating officers to an insurance Appellate Tribunal (Iat) comprising a judge (sitting or retired) of the consummate Court/Chief Justice of a High Court as presiding officer and two other members having adequate palpate in insurance matters;
o Providing for a statutory motion to the consummate Court against the decisions of the Iat.
Life & Non-Life insurance - improvement and Growth!
The year 2006 turned out to be a momentous year for the insurance sector as regulator the insurance Regulatory improvement Authority Act, laid the foundation for free pricing general insurance from 2007, while many associates announced plans to strike into the sector.
Both domestic and foreign players robustly pursued their long-pending inquire for addition the Fdi limit from 26 per cent to 49 per cent and toward the fag end of the year, the Government sent the allinclusive insurance Bill to Group of Ministers for notice amid strong reservation from Left parties. The Bill is likely to be taken up in the allocation session of Parliament.
The infiltration rates of condition and other non-life insurances in India are well below the international level. These facts indicate heavy increase potential of the insurance sector. The hike in Fdi limit to 49 per cent was proposed by the Government last year. This has not been operationalized as legislative changes are required for such hike. Since opportunity up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have tipped into the Indian market and 21 secret associates have been granted licenses.
The involvement of the secret insurers in various commerce segments has increased on account of both their capturing a part of the enterprise which was earlier underwritten by the public sector insurers and also creating further enterprise boulevards. To this effect, the public sector insurers have been unable to draw upon their potential strengths to capture further premium. Of the increase in excellent in 2004-05, 66.27 per cent has been captured by the secret insurers despite having 20 per cent market share.
The life insurance commerce recorded a excellent wage of Rs.82854.80 crore during the financial year 2004-05 as against Rs.66653.75 crore in the old financial year, recording a increase of 24.31 per cent. The gift of first year premium, singular excellent and renewal excellent to the total excellent was Rs.15881.33 crore (19.16 per cent); Rs.10336.30 crore (12.47 per cent); and Rs.56637.16 crore (68.36 per cent), respectively. In the year 2000-01, when the commerce was opened up to the secret players, the life insurance excellent was Rs.34,898.48 crore which constituted of Rs. 6996.95 crore of first year premium, Rs. 25191.07 crore of renewal excellent and Rs. 2740.45 crore of singular premium. Post opportunity up, singular excellent had declined from Rs.9, 194.07 crore in the year 2001-02 to Rs.5674.14 crore in 2002-03 with the retirement of the guaranteed return policies. Though it went up marginally in 2003-04 to Rs.5936.50 crore (4.62 per cent growth) 2004-05, however, witnessed a considerable shift with the singular excellent wage rising to Rs. 10336.30 crore showing 74.11 per cent increase over 2003-04.
The size of life insurance market increased on the vigor of increase in the cheaper and concomitant increase in per capita income. This resulted in a favourable increase in total excellent both for Lic (18.25 per cent) and to the new insurers (147.65 per cent) in 2004-05. The higher increase for the new insurers is to be viewed in the context of a low base in 2003- 04. However, the new insurers have improved their market share from 4.68 in 2003-04 to 9.33 in 2004-05.
The segment wise break up of fire, maritime and miscellaneous segments in case of the public sector insurers was Rs.2411.38 crore, Rs.982.99 crore and Rs.10578.59 crore, i.e., a increase of (-)1.43 per cent, 1.81 per cent and 6.58 per cent. The public sector insurers reported increase in Motor and condition segments (9 and 24 per cent). These segments accounted for 45 and 10 per cent of the enterprise underwritten by the public sector insurers. Fire and "Others" accounted for 17.26 and 11 per cent of the excellent underwritten. Aviation, Liability, "Others" and Fire recorded negative increase of 29, 21, 3.58 and 1.43 per cent. In no other country that opened at the same time as India have foreign associates been able to grab a 22 per cent market share in the life segment and about 20 per cent in the general insurance segment. The share of foreign insurers in other contentious Asian markets is not more than 5 to 10 per cent.
The life insurance sector grew new excellent at a rate not seen before while the general insurance sector grew at a faster rate. Two new players entered into life insurance - Shriram Life and Bharti Axa Life - taking the total whole of life players to 16. There was one new entrant to the non-life sector in the form of a standalone condition insurance enterprise - Star condition and Allied Insurance, taking the non-life players to 14.
A large whole of companies, mostly nationalized banks (about 14) such as Bank of India and Punjab National Bank, have announced plans to enter the insurance sector and some of them have also formed joint ventures.
The proposed convert in Fdi cap is part of the allinclusive amendments to insurance laws - The insurance Act of 1999, Lic Act, 1956 and Irda Act, 1999. After the proposed amendments in the insurance laws Lic would be able to mouth reserves while insurance associates would be able to raise resources other than equity.
About 14 banks are in queue to enter insurance sector and the year 2006 saw Several joint venture announcements while others scout partners. Bank of India has teamed up with Union Bank and Japanese insurance major Dai-ichi Mutual Life while Pnb tied up with Vijaya Bank and considerable for foraying into life insurance. Allahabad Bank, Karnataka Bank, Indian Overseas Bank, Dabur venture Corporation and Sompo Japan insurance Inc have tied up for forming a non-life insurance enterprise while Bank of Maharashtra has tied up with Shriram Group and South Africa's Sanlam group for non-life insurance venture.
Conclusion
It seems cynical that the Lic and the Gic will wither and die within the next decade or two. The Irda has taken "at a snail's pace" approach. It has been very cautious in granting licenses. It has set up fairly literal, standards for all aspects of the insurance enterprise (with the probable exception of the disclosure requirements). The regulators always walk a fine line. Too many regulations kill the motivation of the newcomers; too relaxed regulations may induce failure and fraud that led to nationalization in the first place. India is not unique among the developing countries where the insurance enterprise has been opened up to foreign competitors.
The insurance enterprise is at a considerable stage in India. Over the next concentrate of decades we are likely to inspect high increase in the insurance sector for two reasons namely; financial deregulation always speeds up the improvement of the insurance sector and increase in per capita Gdp also helps the insurance enterprise to grow.
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