Insurance act 1938 iibs

Insurance Act 1938

1. INSURANCE ACT 1938 Soumendra Roy

2. INTRODUCTION Insurance is the key to good financial planning. On one hand, it safeguards your money and on the other, ensures its growth, thus providing you with complete financial well being . Dictionary of business and Finance defines “Insurance as a form of contract agreement under which one party agrees in return for a consideration to pay an agreed amount of money to another party to make good a loss, damage or injury to something of value in which the insured has a interest as a result of some uncertain event. It is a device by which loss likely to be caused by an uncertain event is spread over a number of persons who are exposed to it and who propose to insure themselves against such an event”.

3. DEFINITIONS Definition of life Insurance:- As per section 2(ii) of the Insurance Act 1938, “life insurance business is the business of effecting contract upon human life”. Definition of General Insurance:- General Insurance Corporation of India was formed in pursuance of section 9 (1) of GIBNA. It was incorporated on 22 November 1972 under the Companies Act 1956 as a private company limited by shares. GIC was formed for the purpose of superintending , controlling and carrying on the business of general insurance.  

4. IMPORTANCE OF INSURANCE Provides protection against occurrence of uncertain events. Device for eliminating risks and sharing losses. Co-operative method of spreading risks. Facilitates international trade. Serves as an agency of capital formation. Financial support. Medical support. Source of employment.

5. TYPES OF INSURANCE

6. PRINCIPLES OF INSURANCE Principle of Insurable interest. Principle of Utmost Good Faith. Principle of Indemnity. Principle of Subrogation. Principle of Contribution. Principle of Causa Proxima . Principle of Mitigation of Loss.

7. LIFE INSURANCE PLANS Term Insurance. Endowment Insurance Plan. Money Back Policy. Group Life Insurance.

8. REGULATIONS OF INSURANCE BY IRDA Deposits. Investments. Valuation Of Assets. Submission of Returns. Insurance Advertisements. Foreign Exchange laws.

9. ACTS GOVERNING INSURANCE The insurance Act, 1938 to govern all form of insurance and to provide strict control over insurance business. Insurance Regulatory and authority act, 1999 (to provide) for the establishment of an authority to protect the interest of the holder of insurance policy, to regulate, promote and ensure orderly growth of insurance industry and for matter connected therewith or incidental thereto and future to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the general insurance business (Nationalization) act, 1972. The Actuaries Act, 2006 (An Act to provide for regulating and developing the profession of Actuaries and for matters connected therewith or incidental thereto).

10. INSURANCE LAW REGULATIONS Insurance law regulations in India manage all the matters related to various insurance companies in the country. The concept of insurance in India dates back to the ancient period. Entry of Private Companies. Regulatory Authorities. Insurance Regulatory and Development Authority.

11. INSURANCE REGULATORY & DEVELOPMENT AUTHORITY Insurance Regulatory & Development Authority is regulatory and development authority under Government of India in order to protect the interests of the policyholders and to regulate, promote and ensure orderly growth of the insurance industry. Powers and Functions of IRDA. Impact Of IRDA On Indian Insurance Sector.

12. According to section 2C of the act, only certain business entities may conduct insurance business in India. An insurance business must be a society registered under the Co-operative Societies Act or be registered according to the laws of any other state that relate to co-operative societies. A public company -- a company with shares that can be owned by members of the public -- can be an insurance company, and any business entity other than a private company that is registered according to the appropriate laws of another state can conduct insurance business in India. Since the Insurance Regulatory and Development Authority Act of 1999, only Indian companies can conduct insurance business in India. GUIDELINES FOR INSURANCE COMPANIES

13. Registration Insurance companies in India must register as insurance businesses to conduct insurance business. The Insurance Regulatory and Development Authority (IRDA) is responsible for administering insurance business registration. The IRDA issues a certificate of authorization to each registered insurance business, and this certificate of registration must be renewed annually on March 31. Insurance businesses must apply for their renewal certificates before Dec. 31 of the year prior to the renewal. According to section 3A of the act, the renewal fee varies, as it is based on the amount of insurance premium business that the company wrote in the year before the renewal application. GUIDELINES FOR INSURANCE COMPANIES

14. Separation of Accounts Some insurance businesses may conduct several types of insurance business, such as life insurance, marine insurance and fire insurance. Section 10 of the act states that when an insurance business conducts multiple types of insurance business, the insurer must keep a separate account for each type of insurance business. If the insurer conducts life insurance business, the insurer must not only keep separate accounts for the life insurance business but also must keep these receipts separate from receipts relating to other insurance business. The insurer must keep life insurance receipts in a fund called the life insurance fund. GUIDELINES FOR INSURANCE COMPANIES

15. Winding Up The courts may order the winding up of an insurance business under certain circumstances set out in section 53 of the act. Winding up means the disposal of the assets of the business and using the proceeds to pay off outstanding debts. The courts may order the winding up of an insurance business if the business has not maintained a certain level of funds with the Reserve Bank of India. These funds differ from company to company and are designed to ensure the solvency of an insurance business. The courts may also order the winding up of an insurance business that has failed to comply with any provision contained in the act and still fails to comply three months after notification of the failure by the IRDA. GUIDELINES FOR INSURANCE COMPANIES

16. GUIDELINES Business Obligation Rural Sector Life insurance 5% in 1 st financial year General Insurance 2% in 1 st financial year Social Sector :- In respect of all insurer 1 st year – 5000 lives 2 nd year – 7500 lives 3 rd year - 10000 lives

17. OTHER IMPORTANT SECTION Section 50- An insurer must, within three months of the lapsing of a life policy, give notice to the policyholder in forming him of the options available to him. Section 113- if premiums have been paid for three Years under a policy where a definite number of premiums is payable, the policy shall acquire a surrender value and shall not lapse not with standing any contract to the contrary, but shall be kept in Force to the extent of its paid-up value

18. OMBUDSMEN Appointed in accordance with the redressal of public grievances rules 1998, to resolve all complaints relating to settlement of claims in a cost effective and efficient manner .

19. SECTION 27 :- INVESTMENT OF ASSETS Sec 27c :- According to this no insurer can invest the fund of policyholders outside of India Sec 27D :- Manner and condition of investment Sector Life Insurance general Insurance Govt. Securities 25% Not less than20 % Other approved Securities Not less then 25% More than 10 % Infrastructure Not less than 15% Not less than 10 % Housing and loan to govt - More than 5% Prudential norms Maximum 20 % Maximum 30 %

20. AMENDMENT OF 1950 Large Number of Insurance companies High level of Competition Unfair trade practices 19 th January, 1956 Nationalizing the life insurance sector and LIC came in to existence LIC absorbed 154 Indian, 16 non Indian insurers and 75 provident societies LIC had monopoly till the late 90 when the insurance sector was reopened to the private sector

21. Major Amendments in Insurance act

22. Section 45 This section deals with the right of the insurer to repudiate policy on the life of the insured- “Policy not to be called in question on ground of misstatement after 3 years”