JAYANT K.

OKE

THE EARLIEST TRACES OF INSURANCE IN THE ANCIENT WORLD ARE FOUND IN THE FORM OF MARINE LOANS TO CARRIERS CONTRACTS WHICH INCLUDED AN ELEMENT OF INSURANCE. EVIDENCE IS ON RECORD THAT ARRANGEMENTS EMBODYING THE IDEA OF INSURANCE WERE MADE IN BABYLONIA & INDIA, AT QUITE AN EARLY PERIOD.

IN INDIA, IN RIGVEDA, REFERENCES WERE MADE TO THE CONCEPT OF YOGAKSHEMA, MORE OR LESS AKIN TO THE WELL-BEING & SECURITY OF THE PEOPLE. THE CODES OF HAMMURABI AND OF MANU HAD RECOGNISED THE ADVISABILITY OF PROVISION FOR SHARING THE FUTURE LOSSES.

HOWEVER, INSURANCE IN THE PRESENT FORM WAS NOT AVAILABLE / PRACTICED PRIOR TO THE 20 th CENTURY

TODAY, WE FIND VARIOUS TYPES OF INSURANCE LIKE: LIFE INSURANCE MARINE INSURANCE FIRE INSURANCE VEHICLE INSURANCE MISCELLANEOUS INSURANCE etc.

INSURANCE CAN BE DEFINED IN TWO WAYS: FUNCTIONAL WAY

CONTRACTUAL WAY

INSURANCE IS A CO-OPERATIVE DEVICE TO SPREAD THE LOSS CAUSED BY A PARTICULAR RISK OVER A NUMBER OF PERSONS, WHO ARE EXPOSED TO IT & WHO AGREE TO INSURE THEMSELVES AGAINST THE RISK INSURANCE IS A CO-OPERATIVE DEVICE OF DISTRIBUTING LOSSES, FALLING ON AN INDIVIDUAL OR HIS FAMILY OVER A LARGE NUMBER OF PERSONS, EACH BEARING A NOMINAL EXPENDITURE & FEELING SECURE AGAINST HEAVY LOSSES.

a) A co-operative device to spread the risk, b) The system to spread the risk over a number of persons who are insured against the risk, c) The principle to share the loss of each member of the society on the basis of probability of loss to their risk, d) The method to provide security against losses to the insured.

INSURANCE IS DEFINED TO BE THAT IN WHICH A SUM OF MONEY AS A PREMIUM IS PAID IN CONSIDERATION OF THE INSURERS INCURRING THE RISK OF PAYING A LARGE SUM UPON A GIVEN CONTINGENCY.

a) Certain sum, called premium, is charged in consideration, b) Against the said consideration, a large sum is guaranteed to be paid by the insurer who received the premium, c) The payment will be made in a certain definite sum, i.e. d) The payment is made only upon a contingency.

THE FUNCTIONS OF INSURANCE CAN BE DIVIDED INTO TWO PARTS: PRIMARY FUNCTIONS SECONDARY FUNCTIONS

INSURANCE PROVIDES SECURITY

INSURANCE PROVIDES PROTECTION RISK SHARING

FACILITATES PREVENTION OF LOSS HELPS IN PROVISION OF CAPITAL HELPS IN IMPROVING EFFICIENCY OF A PERSON BY MINIMISING WORRIES OF LOSSES HELPS ECONOMIC PROGRESS

1. 2. 3. 4. 5. 6. 7. 8.

SHARING OF RISK CO-OPERATIVE DEVICE VALUE OF RISK PAYMENT AT CONTINGENCY AMOUNT OF PAYMENT LARGE NUMBER OF INSURED PERSONS INSURANCE IS NOT GAMBLING INSURANCE IS NOT A CHARITY

THE INSURANCE CONCEPT / BUSINESS IS BASED UPON THE FOLLOWING PRINCIPLES: 1. PRINCIPLES OF CO-OPERATION 2. PRINCIPLES OF PROBABILITY

INSURANCE CAN BE DIVIDED INTO TWO BROAD CATEGORIES FROM TWO PERSPECTIVES: FROM THE BUSINESS POINT OF VIEW FROM THE RISK POINT OF VIEW

FROM BUSINESS POINT OF VIEW, INSURANCE CAN BE CLASSIFIED INTO THE FOLLOWING THREE CATEGORIES: 1. LIFE INSURANCE 2. GENERAL INSURANCE 3. SOCIAL INSURANCE

PERSONAL INSURANCE
LIFE INSURANCE PERSONAL ACCIDENT INSURANCE HEALTH INSURANCE

PROPERTY INSURANCE
MARINE INSURANCE FIRE INSURANCE

LIABILITY INSURANCE
THIRD PARTY INSURANCE EMPLOYEES INSURANCE MOTOR INSURANCE

FIDELITY INSURANCE
FIDUCIARY INSURANCE CREDIT INSURANCE PRIVILEGE INSURANCE

AUTOMOBILE INSURANCE

CATTLE INSURANCE
CROP INSURANCE MACHINERY INSURANCE THEFT INSURANCE

RE-INSURANCE

1. SELF-INSURANCE @ 2. INDIVIDUAL INSURER @ 3. PARTNERSHIP @ 4. JOINT STOCK COMPANIES 5. MUTUAL COMPANIES 6. CO-OPERATIVE INSURANCE ORGANISATION 7. LLOYDS ASSOCIATION (@ THESE TYPES OF ORGANISATIONS HAVE NOW COMPLETELY DISAPPEARED , THANKS TO THE ADVENT OF JOINT STOCK COMPANIES)

THE INSURANCE SECTOR PLAYS A PIVOTAL ROLE IN FACILITATING & ACCELERATING THE PROCESS OF ECONOMIC DEVELOPMENT. AS WE ALL KNOW, CAPITAL FORMATION IS CRITICAL FOR ECONOMIC DEVELOPMENT (MOVING FROM THE VICIOUS CYCLE OF POVERTY TO THE VIRTUOUS CYCLE OF PROSPERITY)

THE PROCESS OF CAPITAL FORMATION ENVISAGES THREE ESSENTIAL STEPS: 1. REAL SAVINGS 2. MOBILISATION & CHANNELLISING OF SAVINGS THROUGH FINANCIAL & NONFINANCIAL INTERMEDIARIES FOR BEING PLACED AT THE DISPOSAL OF INVESTORS 3. THE ACT OF INVESTMENT

THE INSURANCE SECTOR CONTRIBUTES IN THE PROCESS OF CAPITAL FORMATION THROUGH ALL THESE THREE STAGES INSURANCE SECTOR ACTS AS A TOOL TO MOBILISE SAVINGS, PARTICULARLY THE HOUSEHOLD SECTOR. IT FUNCTIONS AS FINANCIAL INTERMEDIARY AT TIMES, THOUGH RARELY, ALSO ENGAGES IN DIRECT INVESTMENT IN THE CAPITAL MARKET

THE INDIAN GENERAL INSURANCE INDUSTRY IS GOVERNED BY : INSURANCE ACT, 1938 GENERAL INSURANCE BUSINESS (NATIONALISATION) ACT, 1972 INSURANCE REGULATORY & DEVELOPMENT AUTHORITY ACT, 1999 (IRDA, 1999)

THE INDIAN LIFE INSURANCE INDUSTRY IS GOVERNED BY : INSURANCE ACT, 1938 LIFE INSURANCE CORPORATION ACT, 1956 INSURANCE REGULATORY & DEVELOPMENT AUTHORITY ACT, 1999 (IRDA, 1999)

TO PERFORM THE ROLE / DUTIES OF AN EFFECTIVE WATCHDOG & A REGULATOR FOR THE INSURANCE SECTOR IN INDIA. TO ENABLE THE AUTHORITY (IRDA) TO FUNCTION IN A TRULY INDEPENDENT MANNER & DISCHARGE ITS ASSIGNED RESPONSIBILITIES EFFECTIVELY, THE AUTHORITY (IRDA) HAS BEEN VESTED WITH STATUTORY STATUS.

1. ISSUE TO THE APPLICANT A CERTIFICATE OF REGISTRATION, RENEW, MODIFY, WITHDRAW, SUSPEND OR CANCEL SUCH REGISTRATION. 2. PROTECTION OF THE INTEREST OF THE POLICYHOLDERS IN MATTERS CONCERNING ASSIGNING OF POLICY, NOMINATION BY POLICYHOLDERS, INSURABLE INTEREST, SETTLEMENT OF INSURANCE CLAIM, SURRENDER VALUE OF POLICY, & OTHER TERMS & CONDITIONS OF CONTRACTS OF INSURANCE.

3. SPECIFYING REQUISITE QUALIFICATIONS, CODE OF CONDUCT & PRACTICAL TRAINING FOR INTERMEDIARY OR INSURANCE INTERMEDIARIES & AGENTS (HSC, 100 HOUR OF TRAINING). 4. SPECIFYING THE CODE OF CONDUCT FOR SURVEYORS & LOSS ASSESSORS. 5. PROMOTING EFFICIENCY IN THE CONDUCT OF INSURANCE BUSINESS.

6. PROMOTING & REGULATING PROFESSIONAL ORGANISATION CONNECTED WITH THE INSURANCE & RE-INSURANCE BUSINESS. 7. LEVYING FEES & OTHER CHARGES FOR CARRYING OUT THE PURPOSES OF IRDA ACT. 8. CALLING FOR INFORMATION FROM, UNDERTAKING INSPECTION OF, CONDUCTING ENQUIRIES & INVESTIGATIONS INCLUDING AUDIT OF INSURERS, INTERMEDIARIES, INSURANCE INTERMEDIARIES & OTHER ORGANISATIONS CONNECTED WITH THE INSURANCE BUSINESS.

9. CONTROL & REGULATION OF THE RATES, ADVANTAGES, TERM & CONDITIONS THAT MAY BE OFFERED BY INSURERS IN RESPECT OF GENERAL INSURANCE BUSINESS NOT SO CONTROLLED & REGULATED BY THE TARIFF ADVISORY COMMITTEE (UNDER SECTION 64-U OF THE INSURANCE ACT, 1938). 10. SPECIFYING THE FORM & MANNER IN WHICH BOOKS OF ACCOUNT SHALL BE MAINTAINED & STATEMENT OF ACCOUNTS WILL BE RENDERED BY INSURERS & OTHER INSURANCE INTERMEDIARIES.

11. REGULATING INVESTMENT OF FUNDS BY INSURANCE COMPANIES (e.g.:30% IN GOVERNMENT SECURITIES, 15% IN HOUSING PROJECTS, 55% IN APPROVED MARKET SECURITIES). 12. REGULATING MAINTENANCE OF MARGIN OF SOLVENCY. 13. ADJUDICATION OF DISPUTES BETWEEN INSURERS & INTERMEDIARIES OR INSURANCE INTERMEDIARIES. 14.SUPERVISING THE FUNCTIONING OF THE TARIFF ADVISORY COMMITTEE.

15. SPECIFYING THE PERCENTAGE OF PREMIUM INCOME OF THE INSURER TO FINANCE SCHEMES FOR PROMOTING & REGULATING PROFESSIONAL ORGANISATIONS REFERRED TO IN CLAUSE 1. 16. SPECIFYING PERCENTAGE OF LIFE & GENERAL INSURANCE BUSINESS TO BE UNDERTAKEN BY THE INSURER IN THE RURAL OR SOCIAL SECTOR. 17. EXERCISING SUCH OTHER POWERS AS MAY BE PRESCRIBED, FROM TIME TO TIME .

IN APRIL 1993, THE GoI SET UP A HIGHPOWERED COMMITTEE HEADED BY Shri R.N. MALHOTRA, FORMER SECRETARY, FINANCE, GoI, & FORMER GOVERNOR RBI, TO EXAMINE THE STRUCTURE OF THE INSURANCE INDUSTRY & RECOMMEND CHANGES TO MAKE IT MORE EFFICIENT & COMPETITIVE KEEPING IN VIEW THE STRUCTURAL CHANGES IN OTHER PARTS OF THE FINANCIAL SYSTEM OF THE ECONOMY

THE SUBSEQUENT REFORMS IN THE INDIAN INSURANCE SECTOR ARE BASED ON THE RECOMMENDATIONS OF THE MALHOTRA COMMITTEE, WHICH, INTER ALIA, INCLUDED: OPENING UP OF INSURANCE SECTOR FOR PRIVATE SECTOR ALLOWING FOREIGN EQUITY IN INDIAN INSURANCE COMPANIES SETTING UP OF A STRONG & EFFECTIVE INSURANCE REGULATORY AUTHORITY IN INDIA

THE RECOMMENDATIONS OF MALHOTRA COMMITTEE PAVED THE WAY FOR REFORMS IN THE INDIAN INSURANCE SECTOR & FACILITATED THE ENTRY OF NEW PLAYERS IN THE FIELD BY OPENING UP THE INSURANCE SECTOR TO PRIVATE SECTOR PLAYERS

THE DEMOGRAPHIC FEATURES & THE LOW LEVELS OF INSURANCE DENSITY / PENETRATION PRESENT AN INVITING SCENARIO FOR THE NEW / FOREIGN ENTRANTS, THE ENTRY NORMS FOR WHOM ARE BEING CONSIDERABLY RELAXED BY THE REGULATORY AUTHORITY.

THE CAPITAL REQUIREMENT FOR STARTING A GENERAL OR LIFE INSURANCE COMPANY IS EQUITY PAID-UP CAPITAL OF Rs. 100 CRORES & FOR STARTING RE-INSURANCE COMPANY IT IS Rs. 200 CRORES. THE REQUIRED SOLVENCY MARGIN SHALL BE THE HIGHEST OF THE FOLLOWING: Rs. 50 CRORES (Rs. 100 CRORES IN CASE OF REINSURER), OR A SUM EQUIVALENT TO 25%OF THE PREMIUM INCOME, OR A SUM EQUIVALENT TO 30% OF NET INCURRED CLAIMS

INVESTMENTS IN CUSTOMER SERVICE & VALUE TRANSFER OF TECHNOLOGICAL KNOW-HOW TRANSFER OF MANAGERIAL KNOW-HOW ADDITIONAL EXTERNAL FINANCIAL RESOURCES / CAPITAL CREATION OF BENEFICIAL DOMESTIC SPILLOVERS (LINKAGES WITH BANKS, ACCOUNTING FIRMS, LAW FIRMS, BPO SERVICES etc.)

FOREIGN INSURERS WILL DOMINATE THE DOMESTIC MARKET FOREIGN INSURERS WILL SERVICE THE MARKET SELECTIVELY (CLASS RATHER THAN MASS INSURANCE PRODUCTS / SERVICE) MARKET OPENING SHOULD AWAIT CERTAIN REFORMS & STRENTHENING OF ENFORCEMENT / INVESTIGATION SUPPORT STRUCTURE