INSURANCE AND RISK MANAGEMENT- FRAMEWORK OF INSURANCE IN INDIA

INSURANCE AND RISK MANAGEMENT- FRAMEWORK OF INSURANCE IN INDIA

1. 4. FRAMEWORK OF INSURANCE IN INDIA

2. Overview STAGES OF INSURANCE INDUSTRY IN INDIA REGULATORY AUTHORITIES REGULATORY FRAMEWORK REGULATIONS FOR GENERAL INSURANCE COMPANIES

3. STAGES OF INSURANCE INDUSTRY IN INDIA Formation of the Insurance Industry in India Nationalization of the Insurance Business in India Entry of Private Players

4. 1. Formation of the Insurance Industry in India Origins in the UK with the estb. of a British firm, Oriental Life Insurance Company in 1818 in Calcutta. Followed by the Bombay Life Assurance Company in 1823, the Madras Equitable Life Insurance Society in 1829 and the Oriental Life Assurance Company in 1874. Till estb. of the Bombay Mutual Life Assurance Society in 1871, Indians charged an extra premium of up to 20% as compared to the British. The 1 st statutory measure in India to regulate the life insurance business was in 1912. Indian Life Assurance Companies Act, 1912 based on the English Act of 1909. Other classes of insurance business were left out of the scope of the Act of 1912, as such kinds of insurance were still in rudimentary form and legislative controls were not considered necessary.

5. General insurance also has its origins in the United Kingdom. The first general insurance company Triton Insurance Company Ltd. was promoted in 1850 by British nationals in Calcutta. The first general insurance company estb. by an Indian was Indian Mercantile Insurance Company Ltd. in Bombay in 1907. With growth of fire, accident and marine insurance, the need felt to bring such insurance within the purview of the Act of 1912. Non-life insurance regulated in 1938 through the passing of the Insurance Act, 1938. Act of 1938 along with various amendments over the years continues till date to be the 1 definitive piece of legislation on insurance and controls both life insurance & general insurance.

6. 2. Nationalization of the Insurance Business in India January 19, 1956, the management of life insurance business of 245 Indian and foreign insurers and provident societies then operating in India was taken over by the Central Government. The LIC formed in Sept. 1956 by the Life Insurance Corporation Act, 1956 which granted LIC the exclusive privilege to conduct life insurance business in India. Exception was made in the case of any company/firm/persons intending to carry on life insurance business in India in respect of the lives of persons ordinarily resident outside India, with approval of the Central Government. Exception not absolute & a curious prohibition existed. Such company, firm or person would not be permitted to insure the life of any person ordinarily resident outside India during any period of their temporary residence in India.

7. General insurance nationalised w.e.f. Jan. 1, 1973, through the introduction of the General Insurance Business (Nationalisation) Act, 1972. Shares of the existing Indian general insurance companies & undertakings of other existing insurers were transferred to the GIC. The GIC was established by the Central Government in accordance with the provisions of the Companies Act, 1956 in Nov. 1972 and commenced business on January 1, 1973. Prior to 1973, there were a 107 companies, including foreign companies, offering general insurance in India. Amalgamated and grouped into 4 subsidiary companies of GIC- National Insurance Company Ltd. the New India Assurance Company Ltd. The Oriental Insurance Company Ltd. and the United India Assurance Company Ltd.

8. 3. Entry of Private Players Since 1956, LIC held the monopoly in India's life insurance sector. GIC, with its 4 subsidiaries, enjoyed the monopoly for general insurance business. In 1993, the Government of India set up an 8 member committee chaired by Mr. R. N. Malhotra, former Governor of RBI to review prevailing structure of reg. & supervision of insurance sector & to make recommendations for strengthening and modernizing the regulatory system. 2 of the key recommendations of the Committee included the privatization of the insurance sector by permitting the entry of private players to enter the business of life and general insurance and the establishment of an Insurance Regulatory Authority. Parliament passed the Insurance Regulatory and Development Act, 1999 (IRDA) on December 2, 1999 Aim to provide for the establishment of an Authority, to protect interests of policy holders, to regulate, promote and ensure orderly growth of the insurance industry and to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalization) Act, 1972.

9. REGULATORY AUTHORITIES Insurance Regulatory and Development Authority Tariff Advisory Committee Insurance Association of India, Councils and Committees Ombudsmen

10. Insurance Regulatory and Development Authority The IRD Act established the Insurance Regulatory and Development Authority (IRDA or Authority) as a statutory regulator to regulate and promote the insurance industry in India To protect the interests of holders of insurance policies. The IRD Act also carried out a series of amendments to the Act of 1938 and conferred the powers of the Controller of Insurance on the IRDA. Members of IRDA appointed by the CG from amongst persons of ability, integrity and standing who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration etc. The Authority consists of a chairperson, not more than five whole-time members and not more than four part-time members.

11. Tariff Advisory Committee Body corporate which controls and regulates the rates, advantages, terms and conditions offered by insurers in the general insurance business. Authority to require any insurer to supply such information/ statements necessary for discharge of its functions. Failing to comply - deemed to have contravened the provisions of the Insurance Act. Every insurer required to make an annual payment of fees to the Committee of an amount not exceeding in case of reinsurance business in India, 1% of the total premiums in respect of in India; and in case of any other insurance business, 1% of total gross premium in India

12. 3. Insurance Association of India, Councils and Committees All insurers incorporated/domiciled in India are members of the Insurance Association of India All insurers incorporated/domiciled elsewhere than in India are associate members of the Insurance Association. 2 councils of the Insurance Association, namely the Life Insurance Council and the General Insurance Council. The Life Insurance Council, through its Executive Committee, conducts examinations for individuals wishing to qualify themselves as insurance agents. Likewise, the General Insurance Council, through its Executive Committee, may fix the limits by which the actual expenses of management incurred by an insurer carrying on general insurance business may exceed the limits as prescribed in the Insurance Act.

13. 4. Ombudsmen Appointed in accordance with the Redressal of Public Grievances Rules, 1998. Resolve all complaints relating to settlement of claims on the part of insurance companies in a cost-effective, efficient and effective manner. Any person who has a grievance against an insurer may make a complaint to an Ombudsman within his jurisdiction, in the manner specified. Prior to making a complaint, such person should have made a representation to the insurer and either the insurer has rejected the complaint or has not replied to it. Complaint should be made not later than 1 year from the date of rejection of the complaint by the insurer and should not be any other proceedings pending in any other court, Consumer Forum or arbitrator pending on the same subject matter. Act as a counsellor and mediator and make recommendations to both parties in the event that the complaint is settled by agreement between both the parties. If the complaint is not settled by agreement, the Ombudsman may pass an award of compensation within 3 months of the complaint, which shall not be in excess of which is necessary to cover the loss suffered by the complainant as a direct consequence of the insured peril, or for an amount not exceeding Rs.2 million.

14. REGULATORY FRAMEWORK Deposits Investments

15. 1. Deposits Every insurer should, in respect of the insurance business carried on by him in India, deposit with RBI for and on behalf of the C.G. Cash or approved securities or partly in cash and partly in approved securities. Life insurance business – 1% of total gross premium written in India in any financial year commencing after the 31-03-2000, not exceeding Rs.100 million; General insurance business – 3% of total gross premium written in India , in any financial year commencing after the 31-03-2000 not exceeding Rs.100 million; In the case of re-insurance business - a sum of Rs.200 million.

16. 2. Investments (a) Life insurance

17. (b) General Insurance

18. (c) Pension and General Annuity

19. Salient features of the IRDA Capital Regulations Indian Insurance Companies that have been granted certificate of registration to transact the business of general insurance or health insurance or reinsurance will have to seek prior approval of the IRDA before approaching the SEBI for public issue of shares. Any other manner of issue of capital other than as specified above or transfer of shares beyond the specified limit under the Insurance Act, 1938 shall be subject to approval of the IRDA pursuant to the IRDA (Transfer of Equity Shares of Insurance Companies) Regulations, 2015. The General Insurance Corporation of India and the insurance companies specified under the General Insurance Business (Nationalization) Act, 1972 can apply for approval of IRDA only on satisfactory compliance with the provisions.

20. The promoters and/ or investors of the applicant company shall abide by the lock-in period, if any, specified by the IRDA at the time of grant of Certificate of Registration; IRDA may prescribe certain conditions at the time of grant of approval which may relate to minimum lock-in period for the promoters and investors from the date of allotment, dilution of shareholding, mandated disclosures in the offer documents, amendments to the charter documents of the applicant company, transfer restrictions; The validity of the approval of the IRDA for issue of capital shall be 1 year from the date of the approval letter, within which the applicant company will have to file the Draft Red Herring Prospectus with SEBI. IRDA may, on written request from the applicant company, extend the validity by a further period of 6 (six) months.