INTRODUCTIONContract of insurance may be looked upon as a special type of contract b/w two parties called ‘the insurer’ & ‘the insured’. In this contract ‘the insurer’, for a premium, undertakes to pay to the ‘insured’ a fixed amount of money on the happening of certain event.

In India, the contract of insurance should comply with provision of the Insurance Act 1938.

INSURANCE ACT, 1938The Insurance Act, 1938 contains important provisions relating to insurance sector in country. Important provisions are:

ELIGIBILITY : a public company

a co. registered under the co-operative societies Act

REGISTRATION:should obtain a certificate of registrationa person who carry on any class of insurance business before IRDA Act,1999 shall make an application for such registration within three months from the date of commencement of such Act.

DOCUMENTS TO BE FILED:A certified copy of memorandum & articles of associationName & address of the directors & their occupationA statement of the class of insurance business done or to be done.A certified copy of published prospectus & standard policy forms of the insurer.

The receipt showing payment of fee Rs. 50000.

GRANT OF CERTIFICATE:After satisfying the soundness of the management of the applicant, volume of its business & other requirements, the authority may register the applicant & grant a certificate of registration.

CANCELLATION OF REGISTRETION:The Authority may cancel the registration of an insurer if he fails to comply with requirements of deposits with RBI, TRANSFER HIS BUSINESS, do not pay any claim within 3 months of final court judgement etc.

RENEWAL OF REGISTRATION:The insurer has to file an application of renewal before 31st December of preceding year along with evidence of payment of requisite fee.

FEE:1/4th percent of total gross premium or Rs. 5 crore whichever is less, & a minimum of Rs. 50000 for each class of business.

CAPITAL REQUIREMENT:The capital of ins. Co. should consist ordinary shares each of which has single face value, paid amt. of all should be same & maintain the register of shareholders with names & address.

FINANCIAL STATEMENTS:Every insurer is required to prepare a balance sheet, a profit & loss a/c, a receipt & payment a/c, a revenue a/c at the end of each financial year. Separate fund a/cs of shareholders & policy holders should be maintained.

INVESTIGATION BY ACTUARY:Every insurer who is carrying on life insurance business should get the investigation, done by an actuary, into financial conditions including a valuation of liabilities.

IRDA, ACTThe Insurance Act, 1938 provided comprehensive regulation of the insurance business in India. It created a powerful supervisory authority in the controller of insurance, which had the powers to direct, advice, investigate, inspect, search, seize, register & liquidate insurance companies.

In 1993, Govt. of India, with a view to examine the structure of the insurance industry & to recommend changes to make it more competitive & efficient, appointed a committee under the chairmanship of former Governer of Reserve Bank of India, Sh. R.N.Malhotra. The committee submitted its report in jan. 1994. In 1999 the bill titled as Insurance Regulatory & Development Authority Bill 1999 was introduced in parliament. After discussion & debate the Bill become an Act known as Insurance Regulatory & Development Authority (IRDA) Act,1999.

FEATURES OF IRDA, ACTACT TO ESTABLISH THE REGULATORY AUTHORITY:Act is to establish authority which will:Protect the interest of holders of insurance policies;Regulate, promote & ensure orderly growth of insurance industry;

Section 3 of the Act, provides that the authorities shall be a body corporate with the name “The Insurance Regulatory Authority” that have thew perpetual succession & a common seal.

INSURANCE ADVISORY COMMITTEE:Sec.25 of the Act provides that an insurance advisory committee consisting of not more than 25 members.

The members will represent the interest of commerce, industry, transport, agriculture, agents etc. the chairperson and the members of the authority shall be ex officer members of the committee.

ENDING THE MONOPOLY OF LIC AND GIC:Sec 30, 31of the IRDA Act have amended certain provisions of Insurance Act 1972. These amendments have ended the exclusive privilege of LIC,GIC and its subsidiaries to carry on life and general insurance respectively.

THE INSURANCE BUSINESS OPENED TO INDIAN COMPANIES ONLY:An Indian insurance company has been defined in sec 2 as an insurer being a company:Formed and registered under companies act 1956. Aggregate holding of equity shares of foreign company donot exceed 26% of paid up equity share capital of Isndian INS.

RENEWAL OF REGISTRATION:An insurer who has been granted a certificate shall make application in the form of IRDA/R5 for renewal of certificate before the 31st December each year with the evidence of payment of fee.

CAPITAL ADEQUACY REQUIREMENT:Paid up equity capital of 100 crores in case of person carrying life insurance and general insurance business.Paid up equity capital of Rs.200 crores in case of company carrying business as re-insurer.

DEPOSITS:keep the deposits with RBI either cash or approved securities Life insurance business- not exceeding 10 croresGeneral insurance business-not exceeding 10 croresRe-insurance business-a sum of Rs.20 crores

INVESTMENT OF ASSETS:Sec. 27 provides that atleast 50% of the funds shall be parked in the govt. securities & insurer can invest upto 20%of their funds in corporate debts in addition to 15% in market investment. Infrastructure has been included in the social sector, where the companies have to mandatorily invest atleast 15% of their funds.

POWER OF INVESTIGATION AND INSPECTION:The authority may by an order direct any person to investigate the affairs of the insurer and to report to it.it may take the services of auditor or actuary for the purpose of assisting him in any investigation.

TARIFF ADVISORY COMMITTEE:Tariff advisory committee shall control and regulates the rates, advantages, term and conditions that may be offered by that insurer in respect of general insurance business.

LICENSING OF SURVEYORS AND LOSS ASSESSORS:It provides that a person shall not act as surveyors or loss assessors in respect of general insurance unless he holds a valid license issued to him by the authority.

SUFFICIENCY OF THE ASSETS:An insurer should maintain excess of assets over liabilities. The solvency margin shall be the highest of the following :50 crore. Sum equivalent to 20% of net premium income.A sum equivalent to 30% of net incurred claims.

NO RISK TO ASSUME UNLESS PREMIUM RECEIVED IN ADVANCE:An insurance company shall not asssume any risk in respect of any insurance business of which premium payable is received by him or is guarrented to be paid by a person within such time or unless and until deposit of such amount is made in advance in the prescribed manner.

REINSURANCE:If the insurers find that they have entered into a contract of insurance which is an expensive proposition for them or if they wish to minimise the clesrences of any possible loss, without at the same time ,giving up the contract resort it to have reinsurance.