AMENDMENTS IN

INSURANCE ACT
POST IRDA TO
PRESENT
 INTRODUCTION

Insurance act ,1938 to regulate the business of

insurance
Stronger economic growth
Reforms in  insurance 1990
Malhotra Commitee formation
IRDA formation in 1999 to protect the interest of
policy holders
Privatisation
 RE: FURNISHING OF THE
RETURNS BY THE INSURERS
Section 15 of the Insurance Act, 1938

Governed by the IRDA (Preparation of Financial Statements

and Auditor’s Report of Insurance Companies) Regulations,
2002.

Section 220 of the Companies Act, 1956.

While the Insurance Act, 1938 provides a period of six

months for filing of the returns.
 MEDICAL INSURANCE
Medical insurance: Preference in licensing will be given to
companies engaged in providing health cover (amendment to
Insurance Act, 1938, Section 3, clause (2AA)).

Investment of assets: Investment of assets is covered by Sec. 27

of the Insurance Act. The main amendments made by the IRDA
Act are:

 Sec. 27C: Prohibition on investment of funds outside India

 Sec. 27D: IRDA will specify the regulations regarding
investment of assets to be held by an insurer
 REGULATION OF
INVESTMENTS
Life business: Every insurer carrying on the business of life
insurance shall invest and at all times keep invested his controlled
fund in the following manner:

Government securities: 25 per cent,

Government securities or other approved securities, including
(i) above: not less than 50 per cent,
Approved investments: as specified
 infrastructure and social sector: not less than 15 per cent,
 others: to be governed by exposure/prudential norms specified:
not exceeding 20 per cent,
Other than in approved investments to be governed
by exposure/prudential norms: not exceeding 15 %.
 PENSION AND GENERAL BUSINESS
Every insurer shall invest and at all times keep invested
assets of pension business, general annuity business and
group business in the following manner:
 Government securities: being not less than 20 per cent,

 Government securities or other approved securities inclusive of

above: being not less than 40 per cent

 Balance to be invested in approved investments as specified

and to be governed by exposure/ prudential norms: not
exceeding 60 per cent.
General insurance business: Every insurer carrying on
the business of general insurance from now shall invest and at all times
keep invested his total assets in the manner set out below:

 Central Government securities: being not less than 20 per cent

 State government securities and other guaranteed securities
including above: being not less than 30 per cent
 Housing and loans to State government for housing and fire fighting
equipment: being not less than 5 per cent
 Investments in approved investments as specified
 infrastructure and social sector: not less than 10 per cent
 others to be governed by exposure/ prudential norms specified:
not exceeding 30 per cent
 Other than in approved investments to be governed by exposure/
prudential norms: not exceeding 25 per cent.
 CREATION OF RESERVE FOR
UNEXPIRED RISK (URR) BY THE
NON-LIFE INSURANCE COMPANIES
Section 64V(1) of the Insurance Act lays down the manner of
valuation of Assets and Liabilities of insurance companies.
Provision (ii) (b) of the said section provides for creation of
reserves for unexpired risks in respect of –

 Fire and miscellaneous business, 50 per cent,

 Marine cargo business, 50 per cent, and
 Marine hull business, 100 per cent, of the premium,
during the preceding twelve months.
 E PAYMENT
Clause 3.1.9 (i) of the Guidelines which among others specifies that all
payments should be made after due verification of the bonafide
beneficiary through' account payee' cheques.

To permit payments to all policyholders and beneficiaries through

electronic payment methods.

Reserve Bank of India has impressed upon banks the need to use
electronic modes for payments
 So that the dependence on paper-based clearing products
is brought down the payment systems
 Becomes safe, secure, sound and efficient
 Speed up the clearing process
 Reduces incidence of frauds inherent in cheques, drafts
and other paper modes of payment.
 DETERMINATION OF REQUIRED
SOLVENCY MARGIN UNDER LIFE
INSURANCE BUSINESS
The efficient use of capital and provide insurance products at
affordable premium rates while maintaining the continued safety of the
insurance companies so that they remain solvent at all points of time.

Computation of the required solvency margin reckons two

factors:
First factor: which is applicable to the mathematical reserve
under each policy .
Second factor: which is applicable to the sum at risk.
 RE: TRANSFER OF FUNDS BY THE
LIFE INSURANCE COMPANIES
“All securities are required to be transferred to the
policy holders Account at market price or cost price,
whichever is lower.( 29th april 2003)

In respect of debt securities, the transfers are to be

carried out at the net amortized cost”.
Transfer from the shareholders’ account to the
policyholders’ account
Transfer between policyholders’ funds
Purchase / Sale transactions between unit linked funds
Funds of Non-linked business
 REQUIREMENT OF PAN FOR
INSURANCE PRODUCTS
Insurers shall collect PAN from all persons purchasing insurance
policies with annualized premiums exceeding Rs. one lakh per policy.

• Representations have also been made that since certain categories of

persons such as persons with only agricultural income, NRIs with no
assessed income under the IT Act, 1961 etc are exempted from the
requirement of PAN.

• It has also been decided that in cases where a proposer has applied for
PAN but has still not received the same, a copy of form 49A in lieu of
PAN Card.
 FOREIGN DIRECT INVESTMENT IN
INSURANCE
THE PROPOSAL to raise the level of foreign direct investment in the
insurance sector from 26 per cent to 49 per cent has, as expected,
caused some concern among trade unions.

The main recommendations of the Malhotra committee were:

 The private sector should be allowed to enter the insurance business.

 The promoters' holding in a private insurance company should not
exceed 40 per cent of the total.
 If promoters wish to start with a higher holding, the holding is
brought down to 40 per cent within a specified period through a
public offering.
 Entry of foreign insurance companies is permitted, in
joint venture with an Indian partner.
The Government accepted all the recommendations of
the committee. But, as per:

Sec.2 (7A), incorporated in 1999 in the Insurance

Act, 1938, "a foreign company's stake in the equity
of an Indian insurance company shall not exceed 26
per cent,
Four foreign companies can together exercise 100
per cent control over an Indian life insurance
company.
 4 INSURANCE COMPANIES =
1 INSURANCE COMPANY + 3 NON-INSURANCE COMPANY