INTRODUCTION

Contract 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, 1938
The 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 registration
✔a 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 association
✔Name & address of the directors & their occupation
✔A 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, ACT
The 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, ACT
ACT 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
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 crores
✔General insurance business-not exceeding 10 crores
✔Re-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.