regulation of insurance business in india

7/31/2019 Regulation of Insurance Business in India

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REGULATION OF

INSURANCE BUSINESS ININDIA


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The development and growth of theInsurance Industry in India has gone

through three distinct stages. Insurance law in India had its origins in

the United Kingdom with the

establishment of a British firm, theOriental Life Insurance Company in1818 in Calcutta.

Followed by the Bombay Life Assurance

Company in 1823.The Madras Equitable Life Insurance

Society in 1829 and the Oriental LifeAssurance Company in 1874.


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REGULATION OF INSURANCE

BUSINESS IN INDIA

Till the establishment of the Bombay MutualLife Assurance Society in 1871, Indians werecharged an extra premium of up to 20% ascompared to the British.

The first statutory measure in India toregulate the Life Insurance Business was in1912 with the passing of the Indian LifeAssurance Companies Act, 1912 (Act of1912) (which was based on the English Actof 1909).


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BUSINESS IN INDIA

General insurance on the other hand alsohas its origins in the United Kingdom. Thefirst general insurance company TritonInsurance Company Ltd. was promoted in1850 by British nationals in Calcutta.

The first general insurance company

established by an Indian was IndianMercantile Insurance Company Ltd. inBombay in 1907.


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BUSINESS IN INDIAwith the growth of fire, accident and marine

insurance, the need was felt to bring such kinds ofinsurance within the purview of the Act of 1912.

While there were a number of attempts to introduce

such legislation over the years, non-lifeinsurance was finally regulated in 1938 through the

passing of the Insurance Act, 1938 (Act of

1938).

The Act of 1938 along with various amendments

over the years continues till date to be the one

definitive piece of legislation on insurance and

controls both life insurance and general insurance.


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On January 19, 1956, the management oflife insurance business of two hundred and

forty five Indian and foreign insurers and

provident societies then operating in India was

taken over by the Central Government.

The Life Insurance Corporation (LIC) was

formed in Sept ember 1956 by the Life

Insurance Corporation Act, 1956 (LIC Act)which granted LIC the exclusive privilege to

conduct life insurance business in India.


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The general insurance business was alsonationalised with effect from January 1, 1973,

through the introduction of the General

Insurance Business (Nationalisation) Act,

1972 (GIC Act)

The GIC was established by the Central

Government in accordance with the provisionsof the Companies Act, 1956 (Companies Act)

in November 1972 and it commenced business

on January 1,1973.


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BUSINESS IN INDIAPrior to 1973, there were a hundred and seven

companies, including foreign companies,

offering general insurance in India. These

companies were amalgamated and groupedinto four subsidiary companies of GIC viz.

The National Insurance Company Ltd.

The New India Assurance Company Ltd.

The Oriental Insurance Company Ltd.The United India Assurance Company Ltd.


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Insurance in India used to be tightly regulated and

monopolized by state-run insurers.

The insurance regulatory and development authority

(IRDA) act of 1999 was passed.

The insurance business was opened on two fronts :

Firstly: Domestic private-sector companies were

permitted to enter both life and non-life insurancebusiness


BUSINESS IN INDIA


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Secondly: Foreign companies were allowedto participate, albeit with a cap on

shareholding at 26%.

Since its inception IRDA has been taking

steps to promote insurance sector and also

protect interest of people.

A number of reforms have been introduced

by IRDA regarding regulation of agents,

deciding about premium, marketing

strategies etc.


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DUTIES, POWERS AND FUNCTIONS OF IRDA

To regulate, promote and ensure orderly growth of the

insurance business and re-insurance business.

Issue to the applicant a certificate of registration, renew,modify, withdraw, suspend or cancel such registration.

Protection of the interests of the policy holders in matters

concerning assigning of policy, nomination by policyholders, insurable interest, settlement of insurance claim,

surrender value of policy and other terms and conditions of

contracts of insurance.


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Cont:

Specifying requisite qualifications, code of

conduct and practical training for intermediary

or insurance intermediaries and agents.

Specifying the code of conduct for surveyors and

loss assessors.

Promoting efficiency in the conduct of insurancebusiness.


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Calling for information from, undertaking

inspection of, conducting enquiries and

investigations including audit of the insurers,intermediaries.

Control and regulation of the rates,advantages, terms and conditions that may be

offered by insurers in respect of general

insurance business.


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BUSINESS IN INDIACont:

Specifying the form and manner in whichbooks of account shall be maintained andstatement of accounts shall be rendered byinsurers and other insurance intermediaries.

Regulating investment of funds by insurancecompanies.

Regulating maintenance of margin of

solvencyAdjudication of disputes between insurersand intermediaries or insuranceintermediaries.


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Registration of an Insurance Company

Every insurer seeking to carry outthe business of insurance in India is

required to obtain a certificate ofregistration from the IRDA prior tocommencement of business.

The pre-conditions for applying forsuch registration have been set outunder the Act of1938, the IRD Actand the various regulations

prescribed by the Authority.


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General Registration RequirementsThe following are some of the important general registrationrequirements that an applicant would need to fulfill:

(a) The applicant would need to be a company registered under theprovisions of the Indian Companies Act, 1956. Consequently, anyperson intending to carry on insurance business in India would need toset up a separate entity in India.(b) The aggregate equity participation of a foreign company (either byitself or through its subsidiary companies or its nominees) in theapplicant company cannot not exceed twenty six per cent of the paid upcapital of the insurance company. However, the Insurance Act and theregulations there under provide for the manner of computation of such

twenty-six per cent.(c) The applicant can carry on any one of life insurance business,general insurance business or reinsurance business. Separatecompanies would be needed if the intent were t o conduct more thanone business.

(d) The name of the applicant needs to contain the words insurance

company or assurance company.


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REGULATION OF INSURANCEBUSINESS IN INDIA

Capital Structure Requirements

The applicant would need to meet with the following capital structurerequirements:

(a) A minimum paid up equity capital ofrupees one billion in case ofan applicant which seeks to carry on the business of life insurance orgeneral insurance.

(b) A minimum paid-up equity capital of rupees two billion, in case ofa person carrying on exclusively the business of reinsurance.

In determining the aforesaid capital requirement, the deposits to bemade and any preliminary expenses incurred in the formation andregistration of the company would be included.

A promoter of the company is not permitted to hold, at any time,more than twenty-six per cent of the paid-up capital in any Indianinsurance company. However, an interim measure has been permittedfor percentages higher than twenty six percent if the promoters divest,in a phased manner, over a period of ten years from the date of

commencement of business, the share capital held by them in excess oftwenty six per cent.


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Procedure for obtaining a certificate of registration:

An applicant desiring to carry on insurance business in

India is required to make a requisition for a registration

application to the IRDA in a prescribed format along with

all the relevant documents.

The applicant is required to make a separate requisition

for registration for each class of business i.e. life

insurance business consisting of linked business, non-

linked business or both, or general insurance businessincluding health insurance business


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The IRDA may accept the requisition on beingsatisfied of the bonafides of the applicant, thecompleteness of the application and that theapplicant will carry on all the functions inrespect of the insurance business includingmanagement of investments etc.

In the event that the aforesaidrequirements arenot met with, the Authority may after giving theapplicant a reasonable opportunity of beingheard, reject the requisition.


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BUSINESS IN INDIARenewal of registration

An insurer who has been granted a certificate ofregistration should renew the registration before the 31stday of December each year, and such application shouldbe accompanied by evidence of fees that should be the

higher of- fifty thousand rupees for each class of insurance

business, and

one fifth of one per cent of total gross premium writ tendirect by an insurer in India during the financial yearpreceding the year in which the application for renewal ofcertificate is required to be made, or the application forrenewal of certificate is required to be made, or rupeesfifty million whichever is less.


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BUSINESS IN INDIASuspension of registration

The registration of an Indian insurance company or insurer may besuspended for a class or classes of insurance business, in additionto any penalty that may be imposed or any action that may betaken, for such period as may be specified by the Authority, in thefollowing cases:

Conducts its business in a manner prejudicial to theinterests of the policy-holders;

Fails to furnish any information as required by theAuthority relating to its insurance business;

Does not submit periodical returns as required under

the Act or by the Authority; Does not co-operate in any inquiry conducted by the

Authority;

Indulges in manipulating the insurance business;

Fails to make investment in the infrastructure or socialsector as specified under the Insurance Act.


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ActuaryAn insurer carrying on the business of insuranceor reinsurance in India is required, under theIRDA (Appointed Actuary) Regulations, 2000, to

appoint a person fulfilling the eligibilityrequirements, to act as an appointed actuary,after seeking the approval of the Authority in thisregard.

It is mandatory for an insurer carrying on thebusiness of life insurance in India to appoint anyActuary.


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Powers, Duties and Obligations of an Actuary

An appointed actuary has access to all

such information and documents of an

insurer for the performance of his dutiesand obligations.

An appointed actuary may also attend

the meetings of the insurer and discussmatters related to the actuarial advice and

solvency of margin.


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Cont:

An appointed actuary, in addition to rendering

actuarial advice to insurer (in particular in the

areas of product design and pricing, insurancecontract wording, investments and reinsurance), is

also required inter alia to ensure the solvency of the

insurer at all times, certify the assets and liabilities

that have been valued and maintain the solvency

margin.


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Cont:In case the insurer is carrying on life insurance business,an appointed actuary should also inter alia -

Certify the actuarial report, abstract and other returnsrequired under the Insurance Act,

Comply with the provisions wit h respect to the bases ofpremium,

Comply with the provisions with respect torecommendation of interim bonus or bonuses payable bythe life insurer to policyholders whose policies mature for

payment by reason of death or otherwise during the inter-valuation period, and

Ensure that the policyholders' reasonable expectationshave been considered in the matter of valuation of liabilitiesand distribution of surplus to the participating

policyholders who are entitled for a share of surplus.


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In case of an insurer carrying on general insurance

business in India, the appointed actuary is required to

ensure that the rates are fair in respect of those contracts

that are governed by the insurer's in-house tariff and that

the actuarial principles, in the determination of liabilities,have been used in the calculation of reserves for incurredbut not reported claims and other reserves where actuarial

advice is sought by the Authority.

regulation of insurance business in india

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