Consumer Protection Act, 1986 (COPA)

Under this Act, a customer, as an individual or along with other individuals, or through a consumer organization, can approach the various forums prescribed under the Act for redress, in case he is not satisfied with the goods or services provided. He has to allege a defect in the goods or services A defect or deficiency is a fault, imperfection, shortcoming or inadequacy in the quality, nature or manner of performance, which is required to be maintained by or under any law or in pursuance of a contract or undertaking in relation to that service.

Consumer dispute redressed forums are established in each district and for each state. The three tier set up will hear complaints at these three levels up to the value of –

District Level ----> 20 Lakhs
State Level Forum ----> 1 Crore
National Commission ----> Above one core and also appeals against the decision of a state forum

The COPA applies to the insurance business. Policyholders have the right to seek redress against unfair practices or unsatisfactory service from insurers and agents. The majority of disputes relating to insurance arise out of repudiation and delays in settlement of claims.

Ombudsman in Insurance

The Governing body of the Insurance Council is authorized by law to appoint Ombudsmen for the insurance industry. The function of the Ombudsman is to resolve complaints in respect of disputes between policyholders and insurers in cost effective, efficient and impartial manner.

The complaints to the Ombudsman may relate to -

• partial or total repudiation of claim
• any dispute regarding premium paid or payable in terms of the policy
• any dispute on the legal construction of the policy relating to claims
• delay in settlement of claims
• non-issue of any insurance document to customers after receipt of premium

The Ombudsman acts as a counsel and mediator in matters within its terms of reference. It is not a judicial authority. It has no right to summon witnesses. It has to make its decision on the basis of documents submitted to it. The complainant and the insurer are allowed to make personal submissions. But lawyers are not permitted to argue the case.

Complaints to the Ombudsman lie only when the insurer had rejected the complaint or no reply was received within one month of the complaint or he reply was not satisfactory. A complaint can be made within one year after the insurer had rejected the representation. The subject matter should not be already before any court or consumer forum or arbitration.

The Ombudsman is expected to make a recommendation within one month from the date of receipt of complaint. If the complainant accepts this recommendation, the insurer has to comply within 15 days and inform the Ombudsman accordingly. If the complainant does not accept the Ombudsman's recommendation, the Ombudsman shall pass an award in writing, stating the amount awarded which shall not be in excess of what is necessary to cover the loss suffered by the complainant or for an amount not exceeding Rs.20 lacs, whichever is lower. The award has to be passed within 3 months. The complainant has to intimate his acceptance of the award within one month by a letter of acceptance to the insurer and the insurer has to comply within 15 days and inform the Ombudsman. If the complainant does not intimate acceptance, the award can not be implemented.

Keyman Insurance

With the tremendous industrial growth and technological development, every organization needs eminent technicians and top level experienced officials. It is an undeniable fact that the success of any business depends much on the competency of the key personnel. On the other hand, loss of a key man, say through premature death, would severely affect the profitability of a concern, at least in the short term. So it would be prudent to cover by means of insurance the financial loss likely to be suffered to the extent of the contribution to the business by the key man. The financial loss could be reduction in profits, loss of business, cost of finding and training a replacement, loss of goodwill and loss of profitability. Hence it is possible to establish an insurable interest in the life of such important personnel employed to the extent of financial loss likely to suffer by the business on the death of a key man and provide an appropriate cover through a life insurance policy. Arranging life insurance on the lives of important employees is known as Key man insurance.

Who is key man?

A key man can be an expert, a technocrat, a director, a shareholder or an executive. Broad guidelines for such a policy are as under: -

• The company should be a profit making one and average turnover tor the preceding three years should be more than Rs.5 crore.
• If the keyman is shareholder, he should have less than 51% shares in the company and he and his family should hold less than 70% shares in the company
• He should be at least a matriculate and less than 50 years age.
• Normally limited premium payment endowment assurance without profit plans are allowed for key man insurance. Other plans of assurance, if allowed, will also be generally without profit.
• Ordinarily, a term of 10 or 15 years is granted but maturity date of the policy would in no case be beyond norman retirement age.

Nomination

Section 39 of Insurance Act, 1938 provides for nomination under a life insurance policy. Nomination is a simple way to ensure easy payment of policy moneys in the event of a death claim

The holder of a policy of life insurance on his own life may, when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death.

Where any nominee is minor, it shall be lawful for the policyholder to appoint in the prescribed manner any person to receive the money secured by the policy in the event of his/her death during the minority of the nominee.

Nomination can be made at the time of filling up the proposal form which can be incorporated in the text or schedule of the policy bond. If nomination has not been effected at the proposal stage, it can be made afterward at any time before the maturity of the policy by serving a notice of nomination to the insurer in the prescribed form regarding first nomination. Such nomination may be made at any time before the policy matures for payment. Nomination can be cancelled or changed by the policyholder by making an endorsement or a will, as the case may be. The insurer shall furnish to the policyholder a written acknowledgement of having registered a nomination or a cancellation or change thereof.

When a policy is assigned, the existing nomination is automatically cancelled. The assignee, not being the life assured, cannot make a nomination. When the policy is reassigned to the life assured, he will have to make a fresh nomination. An assignment made in favour of the insurer, in consideration of a loan granted against the security of the policy, does not cancel the nomination.

A nomination gives the nominee only the right to receive he policy moneys in the event of death of the life assured. A nominee does not have any right to the whole (or part) of the claim. He only has the right to give a valid discharge but has to hold the moneys on behalf of those entitled to it.

Some facts to be considered in respect of Death Claim

RIVAL CLAIM: If more than one person claims the policy moneys, it is called as Rival Claim. Such rival claimants are advised to approach a court with a request to serve a prohibitory order on the insurers from making the payment. Such an Order from the court should be served on the insurers within a fortnight from the date of insurer's advice to the effect. If the court stays the payment, the insurer has to wait till the court passes final order regarding payment.

LIMITATION PERIOD: Limitation Act, 1963 says that no claim can be made after a period of 3 years from the date of claim or from the date of last correspondence. In life insurance, if a claim arises, whether intimated immediately or not, the amount has to be paid in discharge of the insurer's duties under the contract. If the payment can not be made immediately because the intimation was not given within 3 years from the date of the claim or intimation, the payment has still to be made. The provisions of the Limitation Act do not apply to insurance contracts.

PRESUMPTION OF DEATH: In respect of death claim, proof of death is essential. A death certificate issued by the municipal office or similar local body is the acceptable proof of death. A certificate of burial or cremation can also be obtained. Statements from witnesses to the last rites will be supporting evidence. In the case of accidents or air crashes or on seas or natural calamities, the bodies may not be found. In such cases, insurers rely on statements from the carriers or other authorities with the relevant information. In case of defence personnel, a certificate from the commanding officer of the unit is to be obtained. If a court of enquiry is ordered, its findings should be obtained.

Sometimes a person is reported missing without any information about his whereabouts. The Indian Evidence Act provides for presumption of death in such cases, if he has not been heard of for seven years. If the nominee or heirs claim that the life assured is missing and must be presumed to be dead, the insurers insist on a decree from a competent court. It is necessary that the premiums should be paid till the court decrees presumption of death. The insurer may also act on its own without a decree of the court, if reasonably strong circumstantial evidence exists to show that the life assured could not have survived a fatal accident or hazard. Insurers may as a matter of concession, waive the premiums during the seven years' period.

ACCIDENT AND DISABILITY BENEFITS: These benefits are conditional on conclusive evidence, that all the eligibility conditions are satisfied and that the exclusions do not apply. The conditions are that –

• the accident must be caused by outward, violent and visible means, not self inflicted
• the death must be a result of injuries caused by that accident
• the death must occur within 120 days or such other period as may be
  specified

The exclusions may be –

• intentional self injury, attempted suicide, insanity, immorality, intoxication
• accident while engaged in civil aviation or aeronautics, other than as a passenger
• injuries resulting from riots, civil commotion etc.,

Claim settlement would require the following documents as evidences -

• First information report (FIR)
• Panchnama of accident site
• Police report
• Post mortem report
• Chemical examiner's report, in case of poisoning, drugs, narcotics, etc.
• Hospital reports, if any

CRITICAL ILLNESS CLAIMS

The benefits would be payable on satisfactory evidence, in the nature of hospital and other medical reports, that the conditions of criticality, waiting period and illness are met.

IRDA REGULATIONS: IRDA has set forth following guidelines for Insurers regarding settlement of Claim -

• the insurer should ask for all the requirements in the case of a death claim at one time and not piecemeal.
• the decision to admit or to repudiate should be made within 30 days of receipt of all papers
• If an investigation is necessary, it should be completed within 6 months
• Interest at 2% over the Bank rate, will be payable for delays in settling the death claims
• Interest at the Savings Bank rate will be paid if the insurer is ready to pay but the claimants are not ready to collect

Requirement of Document in respect of Death Claim

Death within 3 years from the date of issue of First Premium Receipt or from the date of revival is known as early death claim and death after 3 years from date of issue of First Premium Receipt or from the date of revival is known as non-early death claim. In respect of early death claim, an investigation has to be done to rule out the possibility of wrong payment to wrong party. The investigation is generally entrusted to an officer of the insurer. The officer has to submit the investigation report within a maximum period of 6 months, as per guidelines of IRDA. Following documents are requirement in respect of death claim -

NATURAL DEATH:

• Intimation of death by the members of the family, relatives, neighbours, friends, and colleagues, employers, professionals like doctors, lawyers etc. or insurance agents.
• Death certificate
• Policy Bond
• Proof of premiums paid
• Proof of age is required, if the age has not been admitted earlier.
• Proof of title of the claimant e.g. (nominee, assignee, or legal heirs etc.)
• Discharge form duly signed by the claimant and witnessed by a responsible person.

UNATURAL DEATH: (In respect Early or non-early claim) :

• First Information Report (FIR)
• Post Mortem Report
• Panch nama

CLAIM CONCESSION: The policy lapses, if the payment of premium is not made within the grace period. But in case of death of the life assured after lapse of policy after certain period, death claim can be paid after allowing claim concession, as per the practice of Life Insurance Corporation of India, which is appended below : -

1. If the premiums are paid for at least 3 years and death of the Life Assured occurred within 6 months from the first unpaid premium, full sum assured is paid along with Bonus, if participating policy, subject to deduction of unpaid premium along with interest
2. If the premiums are paid for at least 5 years and death of Life Assured occurred within 12 months from the date of first unpaid premium, full sum assured is paid alongwith Bonus, if participating policy, subject to deduction of unpaid premium alongwith interest.

Death Claim under Life Assurance Policies

Claim is a demand by the insured on the insurer to fulfill its promise made in the life insurance contract. Claim is of two types i.e. Maturity or Death. Payment of maturity claim is taken by the policy holder on completion of specified term, mentioned in the Policy Bond. The insurers send the intimation in advance in respect of maturity of the policy to the life assured to enable him to get the payment before the date of maturity.

On the other hand, the procedures in settling a death claim are more complex than in the case of maturity claims. This is mainly because of the facts relating to the death which have to be studied and the identities of the claimants have to be established.

Who can Claim?

When the claim has arisen due to the death of the life assured, policy amount has to be paid to the claimant. Either of the following persons may claim the amount of the Policy, after fulfilling certain procedure : -

• NOMINEE : The nominee can make a claim. Nominee is not the owner of the policy. The nominee can only give a valid discharge to the insurer, in the event of any happening. Nominee is expected to be the representative of all the legal heirs of the life assured. If the nominee is minor, the appointee can receive the claim amount.
• WILL : The executor of a WILL left by the life assured can also make a claim. The WILL has to be registered with the registrar to establish the priority of the claim. There should be a mention of the policy in the WILL. The contents of the WILL prevail even if there is mention of nomination in the policy. The WILL should have to be registered for this purpose with the Registration Authorities.
• ABSENCE OF NOMINATION OR WILL: If there is no nomination or WILL, the legal heirs of the life assured can prefer the claim. The legal heirs have to prove their title through a Succession Certificate or Administrator General's Certificate.
• ASSIGNMENT: The assignee can make a claim, if the policy is assigned to him. If the assignment is not registered with the insurer, the assignee can apply for registration of the assignment at the time of making a claim. In respect of minor assignee, the guardian of the assignee can claim, if they are registered as guardians.
• If the policy is assigned for natural love and affection, then, the assignee (normally within the family) can claim.
• If the policy is conditionally assigned conferring the rights to the conditional assignee on the death of the Life Assured, the conditional assignee can claim.
• If the assignee had predeceased the life assured or if the assignee died after the life assured but before he received the claim amount, then the legal heirs of the assignee can make the claim. The legal heirs of the assignee have to submit the documents of death of the life assured or the assignee. They have to produce the title or documents as their succession to the assignee
• If the policy is taken under Married Women's Property Act, the trustees can make a claim. If no trust has been created, the beneficiaries under such MWP Act policy can claim the policy money, provided they all are major and competent to contract.
• If the trustee relinquishes his right, then the official trustee has to make the claim.
• If all the beneficiaries have deceased, only the legal heirs of the Life Assured can claim.
• If the Life Assured has divorced the wife before his death, the provisions of the MWP Act still will prevail, provided the document of divorce decree allows this. The courts will have to decide whether the wife can claim the policy moneys.
• If the payment of premium was made by the HUF funds, then the KARTA of the HUF can make a claim, who will be the senior most living male member of the family.

Assignment (Section 38 of Insurance Act,1938)

Section 38 of Insurance Act, 1938 has made provision for assignment or transfer of rights under a life insurance policy.

A transfer or assignment of a policy of life insurance, may be made only by an endorsement upon the policy bond itself or by a separate instrument, signed in either case by the transferor or assignor or his duly authorized agent and attested by at least one witness, specifically setting forth the fact of transfer or assignment. Assignment can be made with or without consideration.
Where the assignment is made in favour of the Insurer against loan granted under the policy, the right of the insurer is limited to the loan amount with interest outstanding under the policy. In case of death of the policy-holder during the term of the policy, the balance amount under the policy, after deducting the loan, will be given to the nominee/claimant.

Assignment is of two types : -

• Conditional Assignment
• Absolute Assignment

Under Conditional Assignment, the policy may be transferred back to the original policyholder, after happening of a specified event or fulfilling the condition laid down at the time of assignment. Such policy will be re-assigned in favour of the assignor by the assignee.

Under Absolute Assignment, the rights are transferred in favour of assignee completely and it can not be reverted back. The payment under the policy will be made to the assignee at the time or maturity or earlier death of the life assured.

While assigning a policy, a notice in writing of the transfer or assignment will be given to the Insurer to register such assignment. Such notice is required to establish the priority of claim, if needed.

Assignment automatically cancels the nomination made earlier under life insurance policy.

Settlement of Claim under Life Insurance policies

Claim is a demand on the Insurer to fulfill its promise. Claim is the last policy condition relates to the settlement of claim. Claim arises at maturity or at death, whichever comes earlier.

There are two types of claim in life insurance policies –

Death Claim

It is divided into two parts -

(a) Early Claim : Within 3 years from the date of issue of first premium receipt

(b) Non-early Claim : After 3 years from the date of issue of first premium receipt.

Normally Life Insurance Companies will require the following documents for settlement of Claim. However, companies reserve the right to call for other documents, if needed, for settlement the claim as early as possible.

• Prescribed Claim form
• Policy Bond
• Original death certificate
• Discharge voucher
• Hospital/last medical attendant's certificate
• Certificate of burial / cremation
• Employer's certificate in case the deceased was in employment
• FIR, Police Inquest Report and Post-mortem Report in case of death by accident
• Legal title of the claimant
• Any other document as may be called for, if required

Maturity Claim

In the case of Claims arising by maturity of the policy after specified term, the policy holder is advised well before the actual date of maturity in order that the necessary papers may be completed to allow the payment being made before the date of maturity. Following documents may be required for settlement of maturity claim.

• Policy Bond
• Discharge Voucher
• Deed of assignment, if any

After receipt of above papers, the cheque is prepared in favour of the policyholder and the same is sent before the date of maturity.

Postal Life Insurance (PLI)

Monopoly for securing life insurance business in India was created in favour of Life Insurance Corporation of India by passing the L.I.C. Act. 1956.  The only exception was Postal Life Insurance.  In fact Postal Life Insurance was started in 1884 as a welfare measure for the employees of Posts and Telegraph Department under Government of India.  Seeing the popularity of its schemes, various departments of Central and State Governments were extended its benefits.  Now Postal Life Insurance is open for employees of all Central and State Government Departments, Nationalized Banks, Public Sector undertakings, Financial Institutions, Local Bodies like Municipalities and Zila Parishads, Educational Institutions added by the Government etc.

Rural Postal Life Insurance

On 24^th March, 1995, the benefits of Postal Life Insurance were extended to rural population of the country under the banner of Rural Postal Life Insurance.

The Postal Life Insurance and Rural Postal Life Insurance have following  products : -

PLI                                    RPLI

(a)  Santosh                 (a)  Gram Santosh

(b)  Suraksha                (b)  Gram Suraksha

(c)  Suvidha                  (c)  Gram Suvidha

(d)  Sumamgal               (d)  Gram Sumangal

(e)  Yugal Suraksha        (e)  Gram Priya

(f)  Children Policy          (f)  Children Policy

The main characteristic of the Postal Life Insurance Scheme is its simplicity and limited number of its products.  The rates of premium are slightly lower and bonus raters are higher, as compared to LIC Plans. The surrender values are also more liberal. In real sense there are no marketing activities in PLI.  In spite of this it has registered a modest growth.

The Postal Department is also chalking out plans to expand its operation on larger scale.

Helpful Tips for Life Insurance Agents / Advisors

Life Insurance Products are canvassed with the help of insurance professionals and not through any other medium. In other words, Insurance Agents / Advisors are the backbone of any Life Insurance Company and it is the Agents / Advisors, who procure new business on behalf of the Company. If you are confronted with a question that what are you doing in your role as an Agent / Advisor, you must have utmost clarity as below:-

• You sell life insurance policies to clients according to their needs and hence help people to plan their finance in a better way.
• You, as a Wealth Manager/Advisor help people to manage their wealth for investment, savings, and risk management.

There could be many more answers of similar nature but in my opinion the role of an insurance agent/advisor can be best defines as -

• A person promoting the principles of life insurance among the public and hence doing a noble and an excellent job.
• A person educating the clients about the need of insurance, different products offered by one's company and other competitive insurance companies, thus preparing people for selection of most suitable product.
• A person mobilizing the public funds through insurance premium which in turn is being used for nation building activities by different Govt. Agencies / Projects. Therefore, knowingly or unknowingly you are a partner to build the nation.

As a professional insurance Agent and financial Advisor, one should completely understand the Product that one is going to sell and the people to whom one intends to sell the product.

A life insurance policy is a harmonious blending of three elements viz. Risk Management, Tax Planning and Financial Planning or Saving Schemes. Out of these three elements, risk management component is the most unique feature because it indemnifies life to the extent of human value by providing insurance cover.

Therefore, it is desirable that the agent should focus more on the customers than the products, because people are also aware and capable to choose the best product from the market. But as an agent one should be very clear that (a) People are dying out of over eating (b) People are dying out of under eating or starvation (c) No human being is a perfect one (d) Not all individuals are healthy, but we have to insure all. Therefore, it is clear that the basic point is to focus on the customers.

While approaching the client for insurance cover, one comes across to know client's profession, income, family history, personal history, habits, record of his past illness, if any, his previous insurance, his present health status etc., as these are the vital part of an insurance proposal.

Please understand that health influencing factors are smoking, liquor intake, life style and common diseases. As an Agent you are compulsorily required to know about all, because above factors are vital part of insurance chain which goes like this-

Proposal --> Underwriting --> Policy --> Claim

Non disclosure of vital data will disrupt the chain and this is the weakest point of the chain which will contribute for occurrence of early claims. Such early claims will be examined throughly and if found inappropriate then one's selling capacity will experience a jolt when such claims are repudiated.

Therefore, one has to deter the habit of non disclosure. This will improve one's selling skills and the interests of the Life Insurance Company. There are chances to loose a customer on account of non-disclosure because at times one may aim at the end result i.e. sale of insurance policy, ignoring the means that one is applying.

It is desirable on the part of Agents / Advisors that they should not deviate from the vision and values of concerned life insurance company, with whom they are associated. Therefore, the means (methods applied for sale of an insurance proposal) should qualify the ends. This is of paramount importance.

Life Insurance Products - Salient Features

The salient features of Life Assurance Products are as follows : -

Term Assurance Policy : It is a pure risk plan, covering the risk of death during the specified period. The premium is very low and maximum risk is covered. In majority of cases, there is no claim under Term Assurance Policy because of non happening of death during the term of the policy.

Pure Endowment Assurance Policy : It provides only survival benefit. If the insured dies within the specified period, no payment is made under a Pure Endowment Plan. The premiums paid may be returned in full or partly. If the specified contingency does not happen, the policyholder does not get anything from the insurer.

Whole Life Assurance Policy : Under this policy, the Sum Assured is payable only on death. Some insurers pay the sum assured, when the life assured completes age of 80 years. Premiums are paid till the happening of an unfortunate event.

Endowment Assurance Policy : This policy is combination of Term Assurance and Pure Endowment Assurance Policy. The sum assured is paid on maturity of the policy or on earlier death, as both element of death and survival is covered. This is the most popular plan, taken by the insured persons. Under this category of policy, Money Back Policy or Anticipated Endowment Policy has also been designed by the Insurers, suiting the needs of the insured person. Under Money Back Policy, certain percentage of Sum assured is paid on specified intervals. Full risk is covered under this Policy, irrespective of the periodical payments, received by the insured.

Annuity : This policy covers the hazards of old age, when one's income ceases on attaining certain age. Annuities are of two types i.e. Immediate or Deferred. Under Immediate annuity, lump sum payment is made at a time and in turn annuity payments starts immediately after the contract is concluded. On the other hand under Deferred Annuity, certain payment is made to the insurer for specified period, called deferment period. The purchase price can be paid as a single premium at the commencement or may be paid in installments during the deferment period. If the annuitant dies during the deferment period, the premiums paid are returned to the nominee or heirs. The annuity will commence at the end of the deferment period, which is called the vesting date.

Life Insurance Products

Life Insurance Products are the outcome of hazards of life, which are as under : -

1. Pre-mature Death

2. Disability

3. Old Age

Keeping in view of above hazards of life, Life Insurance Companies came out with such products, which covers risk in lieu of the premium amount, which is being given to the Insurer. Life insurance products are usually referred to as 'plans' of insurance। These plans have two basic elements. One is the 'Death cover' providing for the benefit being paid on the death of the insured person within a specified period. The other is the 'Survival Benefit', providing for the benefit being paid on survival of a specified period. The products are as under : -

(a) Term Assurance Policy

(b) Pure Endowment Policy

(c) Whole Life Assurance Policy

(d) Endowment Assurance Policy

(e) Annuity

The above products cover all the three hazards of life i.e. Pre-mature death, Disability and Old Age.

Income Tax Slabs for the Fiscal Year 2010-2011

Knowing one's taxable income is an easy job, yet there is a lack of knowledge among people on the subject. This write-up is to spread awareness about the calculation of one's taxable income and the taxes applicable on one's total earning. Here is to explain the same in most simple terms. Below is the table that tells us the exemptions that we are eligible for as per the provisions given in the Union Budget for the fiscal year 2010-2011 (AY 2011-2012) :

Slab for FY 2010-2011(Assessment Year 2011-12)
For Men below 65 years of age		For Women below 65 years of age		For Senior Citizens
Income Level (Rs.)	Tax Rate	Income Level (Rs.)	Tax Rate	Income Level (Rs.)		Tax Rate
Up to 1,60,000	Nil	Up to 1,90,000	Nil	Up to 2,40,000		Nil
1,60,001 - 5,00,000	10%	1,90,001 - 5,00,000	10%	2,40,001 - 5,00,000		10%
5,00,001 - 8,00,000	20%	5,00,001 - 8,00,000	20%	5,00,001 - 8,00,000		20%
Above 8,00,000	30%	Above 8,00,000	30%	Above 8,00,000		30%
Education Cess
Education Cess is applicable at the rate of 3 % on the income tax. (Inclusive of surcharge, if any.)
Section 80C
Section 80C provides for a deduction of up to Rs 1 lakh from taxable income in respect of investments made towards certain savings instruments. This includes all the bonds, NSC, PPF, Life Insurance Premiums, Fixed Deposits of more than 5 years and Super Annuation etc.

One may easily calculate one's taxable amount and hence the amount of income tax for the year on the basis of the above table and the description. Please note that the exemption of Rs. 1.0 lakh under section 80C, includes one's PF contribution and the additional or voluntary PF deducted, if any.

Concept Of Risk

In the business of Insurance, its imperative to understannd risk in order to be able to attach financial values to it. Apprehending risk is the first step towards quantifying the hypothesis of Insurance.

Risk may be defined as the possibility of adverse consequences flowing from any occurrence that could be Natural or Otherwise. It arises out of uncertainty. Insurance is a process of transferring risk from individual to the insurer, who fixes a 'Premium' according to total likely loss in a certain period.

Insurance, hence may be defined as a co-operative device to spread the loss caused by a particular risk over a number of persons who are exposed to the same risk and who agree to insure themselves against that risk. Many contribute a certain sum of money called Premium. Few who suffer losses are compensated by the insurer.

Lets try to understand the same with the help of an example. Here we take the example of marine business.

Lets us assume that there is a loss of ships on voyage on a particular route and the same may be quantified as two ships per year, valued at two crores of Rupees. Total ships on voyage is 1,000. The premium for each ship may be fixed at 2,00,00,000 / 1000 = 20,000 + some money towards administrative expenses and profit, say Rs.2000/ making it a total of Rs.22,000/- towards premium.

Its aparent from the above example that Insured person gets protectection from the heavy loss likely to be caused by an uncertain event in exchange for paying a comparatively much smaller sum of money as premium. Insurance provide financial compensation and security for the effects of misfortune. Lets be clear where there is uncertainty, there is a risk and where there is no risk, there is a certainty.

Insurance has touched all the domains of life where there is any amount of risk involved. Just imagine, singers can now get their voice insured and dancers can get their legs insured so that when their singing or dancing skill declines due to an unforeseen risk, the insurance company pays them the policy amount. Therefore, conceptualisation of risk is of paramount importance in the business of Insurance.

Insurance Sector in India : Economic Reforms & Beyond

The economic reforms aligned the business scenario across various domains with the global trends and with the futuristic vision for the market in compliance with the transition that was touching us with the advancement of technology, change in social fabric, enhanced urban employment, expansion of rural economy, increasing number of young population and improved lifestyle/facilities for elderly and retired persons.

Insurance sector, undoubtedly was important part of this whole gamut of events. In 1990s the process of opening up of insurance sector began. Government of India set up a committee under the able guidance of Shri R N Malhotra in 1993 to suggest the reforms in insurance sector in line with the overall economic reform that was underway. Committee submitted its report in 1994 and among the many suggestions, was an important recommendation to open up the sector for private players. Committee also recommended allowing foreign companies into Indian insurance sector through joint venture route. Relevant laws were amended by the parliament in 1999 and LIC's monopoly to transact life insurance business in India came to end.

This led to the constitution of Insurance Regulatory & Development Authority (IRDA) in 1999 as an autonomous body which was incorporated as a statutory body in April 2000. The apex body has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards effected several regulations ranging from registration of companies to carry out insurance business to protection of policyholders’ interests. IRDA did a wonderful job and started the process of opening up of the market in August 2000. The regulatory body invited application for registrations and foreign companies were allowed stakes up to 26%.

The key responsibilities of IRDA were to create an environment of competition in insurance sector by ensuring the participation of more companies in order to offer customers a vide range of options to chose from and to improve customer satisfaction level. The Regulators had to strike a balance between the low premium for the customers and financial security of the insurance market. Till December 2009, 22 life insurers had been registered to transact life insurance business in India.

On the same line, changes were brought in General Insurance too. In December 2000, the subsidiaries of the General Insurance Corporation of India were restructured into independent companies. GIC was converted into a national re-insurer. In July 2002 Parliament passed a bill de-linking the four subsidiaries from GIC. Today there are 21 general insurance companies including the ECGC and Agriculture Insurance Corporation of India who are registered to transact business of general insurance.

Insurance is a gigantic sector now which is contributing around 7% to the country’s GDP and is growing steadily at around 18% growth rate. The economic reforms and economic growth need short term and long term objectives to be taken care of and a robust insurance sector may well support achieving these objectives.

History of Insurance in India

In 19th century India, insurance business started with Life Insurance. It was the time when British officials on their postings in India felt the need of life insurance cover. Year 1818, in India, witnessed Life Insurance being initiated and transacted by an English company, The Oriental Life Insurance Company Ltd. Then it was Madras Equitable which came into insurance business in 1829.

Thereafter British Insurance Act was enacted in 1870. The English Company 'The European and the Albert' pioneered and took care of the needs of British officials. The first Indian insurance company, Bombay Mutual Assurance Society Ltd., was formed in 1870 in Mumbai. This followed by the Bharat Insurance Company in 1896 in Delhi, Empire of India in 1897 in Mumbai, United India in Chennai, National Indian and Hindustan Co-operative in Kolkata.

In the wake of the Swadeshi Movement in India in the early 1900s, quite a good number of Indian companies were formed in various parts of the country to transact insurance business as the perceived threat level gained height during this period. The Co-operative Assurance was established in Lahore, Bombay Life (originally called the Swadeshi Life), Indian Mercantile, New India and Jupitor in Mumbai and Lakshmi Insurance in New Delhi.

During the first half of the 20th century insurance business in India went through few acts and regulations that were aimed at streamlining the business to strike a balance between the interests of the insurers and the policy holders. But this could not bring much relief.

This made Government of India to nationalise life insurance business in the year 1956. Life Insurance Corporation of India (LIC) was formed on 1^st September, 1956 through an act passed by the parliament. At that time, there were 245 private companies (consisting of 170 companies and 75 provident fund societies) transacting life insurance business in India. LIC steered the business of insurance in a manner that proved to be a mutually-benefitting relationship between insurer and policy holder. LIC spread its network across the width and depth of the country and ventured overseas too. The contribution of LIC in the growth of the country is phenomenal.

On the other side, the General Insurance business also passed through various regulations before the enforcement of the act called General Insurance Business (Nationalisation) ACT 1972. Through this act acquisition and transfer of shares held by Indian insurance companies and undertakings took place which were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commenced business on January 1st 1973.

This scenario prevailed till the economic reforms started taking place and the socio-economic transition touched India to face the challanges of the new era.

Evolution of Inurance

Understanding the risk and overpowering the same was the basic acumen that mankind gained since the time of Neanderthals probably. There is no reason to doubt that the concept of Insurance would not have been there since the time immemorial, when the civilizations evolved and shaped up in human history. The endeavour to neutralize risk by man is as old as man itself.

In Indian context we may find traces of description of Concept of Insurance in our ancient scriptures, defining it as pooling in of resources so as to re-align the same to face calamities like flood, famine, fire, epidemics, war and other natural disasters. Some noted doctrines are Arthshastra by Kautilya, Manusmriti by Manu and Dharmshastra by Yagyavalk. In simple terms we may understand our age old joint family system was in place as an unwritten protection to all the members in the family by head of the family.

All the civilizations and societies across the globe recognized the phenomenon of insurance in some form or the other and pursued it accordingly. Be it Greek, Mexican, Iranian, Persian, Egyptian, Cambodian or Assyrian, there are mention of Insurance in their writings. Some of the ancient dynasties like Achaemenian Monarch in Iran recognized insurance and supported that their people should be insured.

There are reasons to believe that primarily it was fire, calamities and international trade through oceans that crystallized the fundamentals of initial insurance practices as all such civilizations evolved near the waters and were involved in trade through sea.

In medieval times, Insurance business is traced back to the city of London. Marine business was instrumental to formulate and propagate Insurance business. It was a time when marine was the lifeline of the International trade and was exposed to severe risks. Rough weather resulting in the sinking of ships, damages of goods in the high seas, robbery by pirates and capturing of ships by enemies were the factors which were potential threats to the merchants.

Therefore, a concept gradually evolved where Marine traders started the practice of gathering together where they used to agree to share the losses of goods during transportation by ship on pre-defined terms and conditions. Lloyd's Coffee House in London has witnessed the evolution and progress of such meeting which undoubtedly were the foundation of modern insurance business.

The first insurance policy was issued in England in the year 1583 and modern insurance business took off from there.

Fundamentals of Insurance

Fundamentally, Insurance is a sharing device. It is a method of spreading and transferring the risk. The losses to assets resulting from natural calamities like fire, flood, earthquake, accidents, etc. are met out of the common pool contributed by large number of persons who are exposed to similar risks.

The pool is created by the contribution of money called Premium from many, and a few who suffer losses are compensated by the Insurer. Its imperative that insured person should not make any gains out of Insurance. The business of insurance is related to the protection of economic value of assets.

As an individual any person is an asset who offers emotional and financial support to his/her family by being there. But in a fateful circumstance of death, the person’s emotional support can not be re-obtained. However, Insurance can replace financial support which is key for the sustenance of the dependents, provided the person is insured.

Insurance, hence can be understood as a phenomenon that provides continuity in case of any loss and prevents life being seized at that particular point of time by offering monitory support to move forward.

In nutshell life insurance can be understood as the financial presence of the deceased person, whereas on the other hand General insurance is sharing of financial loss. Both, in nature are protection against any happening or damage.