m Insurance is a contract between two parties, the

insurer or the insurance company, and the

insured, the person seeking the cover. Within this
contract, the insurer agrees to pay the insurer for
financial losses arising out of any unforeseen
events or risk in return for a regular payment of
premium
m Insurance business is divided into four classes :

1) Life Insurance business

2) Fire
3) Marine
4) Miscellaneous Insurance
m Life Insurers transact life insurance business; the
rest is transacted by General Insurers.
m No composites are permitted as per law.
m 1. Protection to the investors
2. Accumulate savings
3. Channelise savings into sectors needing huge
long term investments.
m ICs receive, without much default, a steady cash stream
of premium or contributions to pension plans. Various
actuary studies and models enable them to predict,
relatively accurately, their expected cash outflows.
Liabilities of ICs being long-term or contingent in nature,
liquidity is excellent and their investments are also long-
term in nature.
m Since they offer more than the return on savings in the
shape of life-cover to the investors, the rate of return
guaranteed in their insurance policies is relatively low.
m ¢he risk-return trade off is heavily tilted in favour
of risk. As a combined result of all this,
investments of insurance companies have been
largely in bonds floated by GOI, PSUs, state
governments, local bodies, corporate bodies
and mortgages of long term nature. ¢he last
place where Insurance companies are expected
to be over-active is bourses.
m
Lately ICs have ventured into pension schemes and mutual funds
also. However, life insurance, constitutes the major share of
insurance business.
m Life Insurance depends upon the laws of mortality and there lies the
difference between life and general insurance businesses. Life has
to extinguish sooner or later and the claim in respect of life is
certain.
m In case of general insurance, however, there may never be a claim
and the amount can never be ascertained in advance.
m Hence, Life Insurance includes, besides covering the risk of early
happening of an event, an element of savings also for the
beneficiaries.
m Pension business also derives from life insurance
in as much as the pension outgo again depends
upon the laws of mortality. ¢he forays made by
insurance companies in this area are, therefore,
natural corollary of their business.
m Insurance is a federal subject in India. ¢he primary
legislation that deals with insurance business in India is:
Insurance Act, 1938, and Insurance Regulatory &
Development Authority Act, 1999.

Insurance Industry has ombudsmen in 12 cities. Each

ombudsmen is empowered to redress customer
grievances in respect of insurance contracts on personal
lines where the insured amount is less than Rs. 20
lakhs, in accordance with the Ombudsmen Scheme.
m IRDA was constituted by an act of parliament. ¢he
Authority is a ten member team consisting of:

(a) a Chairman
(b) five whole-time members
(c) four part-time members
m (1) Subject to the provisions of Section 14 of IRDA Act, 1999 and
any other law for the time being in force, the Authority shall have the
duty to regulate, promote and ensure orderly growth of the
insurance business and re-insurance business.
(2) Without prejudice to the generality of the provisions contained in
sub-section (1), the powers and functions of the Authority shall
include, -
(a) issue to the applicant a certificate of registration, renew, modify,
withdraw, suspend or cancel such registration;
(b) protection of the interests of the policy holders in matters
concerning assigning of policy, nomination by policy holders,
insurable interest, settlement of insurance claim, surrender value of
policy and other terms and conditions of contracts of insurance;
m (c) specifying requisite qualifications, code of conduct
and practical training for intermediary or insurance
intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss
assessors;
(e) promoting efficiency in the conduct of insurance
business;
(f) promoting and regulating professional organisations
connected with the insurance and re-insurance
business;
m (g) levying fees and other charges for carrying out the purposes of
this Act;
(h) calling for information from, undertaking inspection of,
conducting enquiries and investigations including audit of the
insurers, intermediaries, insurance intermediaries and other
organisations connected with the insurance business;
(i) control and regulation of the rates, advantages, terms and
conditions that may be offered by insurers in respect of general
insurance business not so controlled and regulated by the ¢ariff
Advisory Committee under section 64U of the Insurance Act, 1938
(4 of 1938);
m (j) specifying the form and manner in which books of
account shall be maintained and statement of accounts
shall be rendered by insurers and other insurance
intermediaries;
(k) regulating investment of funds by insurance
companies;
(l) regulating maintenance of margin of solvency;
(m) adjudication of disputes between insurers and
intermediaries or insurance intermediaries;
m (n) supervising the functioning of the ¢ariff Advisory
Committee; (o) specifying the percentage of premium
income of the insurer to finance schemes for promoting
and regulating professional organisations referred to in
clause (f);
(p) specifying the percentage of life insurance business
and general insurance business to be undertaken by the
insurer in the rural or social sector; and
(q) exercising such other powers as may be prescribed
 ¢


  ¢
(Statutory Body under Insurance Act 1938)

m ¢ariff Advisory Committee controls and regulates the

rates, advantages, terms and conditions that may be
offered by insurers in respect of General Insurance
Business relating to Fire, Marine (Hull), Motor, Engg. and
Workmen Compensation.
Effective 22/07/98,the ¢AC Board has been reconstituted
with seven members representing the present General
Insurance Industry and eight members from government
and Industry.
¢he Controller of Insurance cum Chairman IRDA is the
Chairman of ¢AC.