Insurance
Insurance is the means of managing risk and protection
against financial loss arising as a result of
contingencies, which may or may not occur.
In other words, insurance is the act of providing
assurance, against a possible loss, by entering into a
contract, with one who is willing to give assurance.
Through this contract the person willing to give
assurance binds himself to make good such loss, if it
occurs.
Non-Life Life Insurance
General insurance means managing risk against
financial loss arising due to fire, marine or
miscellaneous events as a result of contingencies,
which may or may not occur.
General Insurance means to Cover the risk of the
financial loss from any natural calamities viz. Flood,
Fire, Earthquake, Burglary, etc.
Types of General Insurance:
Motor Insurance: Motor Insurance can be divided into two
groups, one is car Four wheeler insurance and other is two
wheeler insurance.
Health Insurance: Common types of health insurance
include individual health insurance, family floater health
insurance, comprehensive health insurance and critical
illness insurance.
Travel Insurance: Travel insurance can be broadly grouped
into Individual travel policy, Family Travel policy, student
travel insurance and senior citizen health insurance.
Home Insurance: Home insurance protects house and its
contents in bad time.
Marine Insurance: Marine cargo insurance covers goods,
freight, cargo and other interests against loss or damage
during transit by rail, road, sea and/or air.
Commercial Insurance : Commercial insurance
encompasses solutions for all sectors of the industry
arising out of business operations
Frequent Term Used
Agent: An insurance company representative licensed by the
state, who solicits, negotiates or effects contracts of insurance,
and provides service to the policyholder faith insurer.
Actual Total Loss: It is a loss where the goods are completely
lost and become irrecoverable
Additional cover: An insurance policy extended to cover
additional risk perils such as strikes. Riots and Civil commotion
etc. on payment of extra premium.
Agreed value policy: Policy which undertakes to pay a specified
amount in case of total loss. Under this case the policy does not
take into account the current market value.
Assessor: Person who estimates the value of goods for the
purpose of apportioning the sum payable by the underwriters
to settle the claims. Also called as Surveyor.
Assured: Party indemnified against 19ss by means of insurance.
Burglary: It is a theft committed by breaking into or out of the
premises. Evidence of breaking In, Is necessary.
Coverage: The scope of protection provided under a contract of
insurance; any of several risks covered by a policy.
Cargo insurance: A generic term used in both inland marine and
ocean marine insurance to designate the types of insurance
available to provide coverage for cargo that is being
transported by truck, rail, air, ship, or boat.
Certificate of Insurance: A statement of coverage issued to an
individual insured, specifying the insurance benefits and
principal provisions applicable to the member.
Claim: The formal request by a policyholder or a claimant for
payment of loss under an insurance policy.
Co-insurance: A provision under which an insured who carries
less than the stipulated percentage of insurance to value, will
receive a loss payment that is limited to the same ration which
the amount of insurance bears to the amount required;
Cover Note: Is the document that is issued provisionary
pending issuance of insurance Policy.
Indemnity: Legal principle that specifies an insured should not
collect more than the actual cash value of a loss but should be
restored to approximately the same financial positions existed
before the loss.
Insurable Interest: A condition in which the person applying for
insurance and the person who is to receive the policy benefit
will suffer all emotional or financial loss, if any untouched event
occurs. Without insurable interest, an insurance contract is
invalid,
Insurance: Social device for minimizing risk of uncertainty
regarding loss by spreading the risk over a large enough
number of similar exposures to predict the individual chance of
loss.
Net Premium: The portion of premium rate which is designed to
cover benefits of the policy, excluding expenses, contingencies
and profit.
Policy: Is the legal document that has the conditions of the
insurance contract.
Premium: It is the amount paid to secure an insurance policy.
Salvage: Recovery made by an insurance company by the sale
of property which has been taken over from that insured as a
part of loss settlement. The remains of damaged vehicle or any
other property.
Third party: Any person other than the two parties signing an
insurance, contract.
Underwriting: Underwriting of a risk involves consideration of
material, facts on the basis of which a decision will be taken
whether to accept the risk and if so at what rate of premium.
Origin of General Insurance
The history of general insurance dates back to the Industrial
Revolution in the west and the subsequent growth of sea-faring
trade and commerce in the 17th century. It came to India as a
legacy of British occupation. General Insurance in India has its
origin in the establishment of Triton Insurance Company Ltd., in
the year 1850 in Calcutta by the British. In 1907, the Indian
Mercantile Insurance Ltd was set up. This was the first company
to carry out all classes of general insurance business.
1957 saw the creation of the General Insurance Council, a wing
of the Insurance Association of India. The General Insurance
Council structured a code of conduct for ensuring fair conduct
and sound business practices. In 1968, the Insurance Act was
amended to regulate the investments and to set minimum
solvency margins. The Tariff Advisory Committee was also set
up then.
History of General Insurance in India:
In 1972 with the passing of the General Insurance Business
(Nationalisation) Act, general insurance business was
nationalized with effect from 1st January, 1973. 107 insurance
companies were amalgamated and grouped into four
companies, namely
National Insurance Company Ltd.
The New India Assurance Company Ltd.
The Oriental Insurance Company Ltd.
The United India Insurance Company Ltd.
The General Insurance Corporation of India was incorporated as
a company in the year 1971 and it commence business on
January 1sst 1973.
This millennium has seen insurance come a full circle in a
journey extending to around 200 years. The process of reopening of the sector had begun in the early 1990s and the last
decade and more has seen it been opened up significantly. In
1993, the Government set up a committee under the
chairmanship of R.N. Malhotra, former Governor of RBI, to
suggest recommendations for improvements in the insurance
sector. The objective was to balance the reforms initiated in the
financial sector. The committee submitted its report in 1994 in
which, among other things, it recommended that the private
sector be allowed to enter the insurance industry. They stated
that foreign companies are permitted to enter by floating Indian
companies, preferably a joint venture with Indian partners.
By following the recommendations of the Malhotra Committee
report, in 1999, the Insurance Regulatory and Development
Authority (IRDA) was constituted as an independent body to
regulate and develop the insurance industry. The IRDA was
integrated as a statutory body in April, 2000. The key
objectives of the IRDA include promotion of competition so as
to improve customer satisfaction through increased consumer
choice and lower premiums, while ensuring the financial
security of the insurance market.
In August 2000 the IRDA opened up the market private players
with the invitation for application for registrations. Foreign
companies were allowed ownership of up to 26%. The Authority
has the power to frame regulations under Section 114A of the
Insurance Act, 1938 and has from 2000 onwards framed
different regulations ranging from registration of companies for
carrying on insurance business to protection of policyholders
interests.
In December, 2000, the subsidiaries of the General Insurance
Corporation of India were reorganized as independent
companies and at the same time GIC was changed into a
national re-insurer. Parliament passed a bill de-linking the four
subsidiaries from GIC in July, 2002.
The insurance sector is a gigantic one and is growing at a
speedy rate of 15-20%. Together with banking services,
insurance services add about 7% to the countrys GDP. A welldeveloped and evolved insurance sector is a boon for economic
development as it provides long- term funds for infrastructure
development at the same time strengthening the risk taking
capability of the country.
General Insurance in India was nationalized with the General
Insurance Business Act of 1972. By this process of
nationalization the government of India took charge of 55
insurance companies in India and 52 insurers who were in the
General Insurance Business. The main function of the General
Insurance Corporation of India was supervising and managing
the general insurance business in India. With the creation of the
general insurance corporation, all the government shares
related to the general insurance was transferred to it. The
merger of the general insurance companies led to the
formation of the four subsidiaries under the general insurance
company of India. They were the National Insurance Company
Limited, the New India Assurance Company Limited, The
Oriental Insurance Company Limited, United India Insurance
Company Limited.
Growth of General Insurance
Growth has been elusive for the general insurance sector. In the
past three years, the non-life sector has seen a slowdown and
2014 was no exception. According to figures on gross premium
underwritten up till November this year, the general insurance
industry grew by 9.24%. In FY14, it grew at 12% and around
19% in FY13. Growth is slowing and it is partly due to the
economic environment and partly due to the fact that the
industry hasnt taken enough measures to increase insurance
penetration. Awareness levels have increased but are still low
for growth to pick up.
However, Insurance Regulatory and Development Authority
(IRDA) initiated reforms which may bring positive changes.
Increase in premiums
IRDA also expressed concerns over pricing of non-life products
not being adequate owing to stiff competition after the industry
got de-tariffed. Accordingly, IRDA has suggested that the
burning cost must be the starting point while pricing fire,
property and group health products from next year.
Smaller company health covers
Health insurance regulations, which were implemented in 2013,
made products customer friendly. However, owing to huge
pressure on group health insurance premiums, these policies
have started shaving off extra benefits.
Salient feature of Insurance Act,
IRDA Act
The insurance sector in India has been thrown open to the
private sector. The second and third schedules of the Act
provide for removal of existing corporations (or companies) to
carry out the business of life and general (non-life) insurance in
India.
An Indian insurance company is a company registered
under the Companies Act, 1956, in which foreign equity does
not exceed 26 per cent of the total equity shareholding,
including the equity shareholding of NRIs, FIIs and OCBs.
After commencement of an insurance company, the Indian
promoters can hold more than 26 per cent of the total equity
holding for a period of ten years, the balance shares being held
by non-promoter Indian shareholders which will not include the
equity of the foreign promoters, and the shareholding of NRIs,
FIIs and OCBs.
After the permissible period of ten years, excess equity
above the prescribed level of 26 per cent will be disinvested as
per a phased programme to be indicated by IRDA. The Central
Government is empowered to extend the period of ten years in
individual cases and also to provide for higher ceiling on
shareholding of Indian promoters in excess of which
disinvestment will be required.
On foreign promoters, the maximum of 26 per cent will
always be operational. They will thus be unable to hold any
equity beyond this ceiling at any stage.
The Act gives statutory status for the Interim Insurance
Regulatory Authority (IRA) set up by the Central Government
through a Resolution passed in January 1996.
All the powers presently exercised under the Insurance
Act, 1938, by the Controller of Insurance (CoI) will be
transferred to the IRDA.
The IRDA Act also provides for the appointment of CoI by
the Central Government when the Regulatory Authority is
superseded.
The minimum amount of paid-up equity capital is Rs.100
crores in case of life insurance as well as general insurance,
and Rs.200 crore in the case of re-insurance.
Solvency margin (excess of assets over liabilities) is fixed
at not less than Rs.50 crores for life as well as general
insurance; for reinsurance solvency margin is stipulated at not
less than Rs.100 crores in each case.
Insurance companies will deposit Rs.10 crores as security
deposit before starting their business.
In the non-life sector, IRDA would give preference to
companies providing health insurance.
Safeguards for policy holders funds include specific
provision prohibiting investment of policy holders funds outside
India and provision for investment of funds in accordance with
policy directions of IRDA, including social and infrastructure
investments.
Every insurer shall provide life insurance or general
insurance policies (including insurance for crops) to the persons
residing in the rural sector, workers in the unorganized or
informal sector or for economically vulnerable or backward
classes of the society and other categories of persons as may
be specified by regulations made by IRDA.
Failure to fulfil the social obligations would attract a fine of
Rs.25 lakhs; in case the obligations are still not fulfilled, licence
would be cancelled