Insurance 08

INSURANCE SERVICES

INSURANCE SERVICES

Insurance is a contract in which the insurer (insurance co.)

• agrees / undertakes, • in considerations of a sum of money (premium), • to make good the loss suffered by the insured

against a specified risk such as fire and any other similar contingency or compensate the insured / beneficiaries on the specified risk such as fire and other similar contingency or compensate the insured / beneficiaries on the happening of a specified event such as accident or death.

INSURANCE ACT ,1938

Any type of insurance business in India can be carried out only by :

• A public company• A cooperative society• An insurance cooperative society , • Having paid up capital of Rs 1000 crores, • In which no body corporate holds more than 26 % of its

paid up capital and • Whose sole purpose is to carry on insurance business in

India.• After the enactment of IRDA Act 1999 ,only Indian

insurance companies are permitted to carry on business.

An Indian Insurance Company

It is a company formed and registered under the Companies Act in which the aggregate holding of equity shares by a foreign company ,either by itself or through subsidiaries / nominees, does not exceed 26% paid –up equity capital and whose sole purpose is to carry on life / general / reinsurance business.

Registration [ Sec 3 , IRDA 1999 ]

Registration with IRDA is mandatory. The application should be accompanied by the following:• A certified copy of MOA and AOA• Name , address and occupation of directors• A statement of class (es) - of insurance business done / to be

done • Statement of deposit with RBI on behalf of the

government .The deposit can be in cash / approved securities. The deposits would be deemed to be part of the assets of the insurer , but not be susceptible to any assignment / charge.

If any part of the deposit is used in the discharge of any liability of the insurer , the deficiency should be supplied within 2 months to make up the amount so used.If an insurer ceases to carry on in India all classes of insurance business and all his liabilities have been satisfied / provided for , the court may order the return of the deposit.

The certificate showing the amount deposited .

• A declaration verified by an affidavit by the principal officer of the insurer that the requirement of paid-up capital :

Rs 100 cr : for life / general and Rs 200 cr : for reinsurance business

• A certified copy of

(i) published prospectus , if any (ii) standard policy form of the insurer and (iii) statement of assured rates, advantages, terms and

conditions to be offered in connection with insurance policies.• The receipt showing payment of fee (as determined by IRDA

regulations) not exceeding Rs 50,000 for each class of business

• Any other document as specified by IRDA

Renewal of Registration • Certificate of registration should be renewed every year• Application for which should be made to IRDA before Dec.31

of the preceding year

Cancellation of Registration

The IRDA will cancel registration of an insurer if he :• fails to comply with the requirement of deposits with RBI• fails to comply with the requirement relating to sufficiency

of assets• has transferred his business to another person• defaults in complying with directions as per IRDA /

Companies Act / FEMA / GIC Act / LIC Act• carries on any other business

Investment of Assets

The assets of insurers should (under Sec.27 of the Insurance Act) be invested in the following manner :

• 25 % in govt securities• Not less than 25 % in govt / other approved securities• The balance in approved investments as specified in Sec

27-A (1) : **Securities of, or guaranteed by the Govt of UK **Debentures or other securities issued with the permission of central govt, state govt, Act of state legislature **Immovable property situated in India **Preference share of any company which has paid dividends on its ordinary shares for the 5 years immediately preceding to the current year.• The funds of the policy-holders are prohibited from being

directly / indirectly invested outside India.

Insurance Business in Rural / Social Sector

[ Sec. 32 – B ]

Every insurer would have to undertake such percentage

of life / general insurance business in the rural / social

sectors as may be specified by the IRDA in this behalf .

Rural Sector

• A place with population not more than 5,000• Density of population not more than 400 per sq. km.• More than 25% of male working population is engaged in

agricultural pursuits as :

• Cultivators• Agricultural laborers• Workers in live stock , forestry ,plantation , orchards etc

Life Insurer :

Of the total policies written in that year :• I st fin.al year : 7 %• 2 nd fin.al year : 9 %• 3 rd fin.al year : 12 %• 4 rth Fin.al year : 14 %• 5 th Fin.al year : 16 % General Insurer :

• First 2 years should be 2 % and 3 % respectively and • Thereafter 3% of total gross premium income direct in that

year.

Social Sector

• Unorganized sector • Informal sector ;• Economically vulnerable sector / backward classes • Other categories of workers • Guardians who need insurance to protect persons with

disability Bidi workers , carpenters , cobblers , artisans , physically

disabled self employed persons , washer men , person running a repairs outlet , rickshaw puller , vegetable vendors etc.

All insurers are obliged to insure 5,7,10,15, and 20

thousand lives in the first 5 fin.al years respectively.

Insurance Agents An insurance agent is a licensed agent with the IRDA who

receives / agrees to receive payment by way of commission / other remuneration in consideration of his soliciting / procuring insurance business, including continuance, renewal or revival of policies .

Code of Conduct • Identify himself with an insurance company • Disseminate the requisite information in respect of insurance

products offered for sale by his insurer and take into account the needs of the prospects while recommending a specific insurance plan

• Indicate the premium to be charged by the insurer for the insurance product offered for sale

• Explain to the prospect the nature of information required in the proposal form by the insurer and also the importance of disclosure of material information

• Bring to the notice of the insurer any adverse habit or income inconsistency of the prospect, in the form of a report

• Inform promptly the prospect about the acceptance or rejection of the proposal by the insurer

• Obtain the required documents at the time of filing the proposal form

• Render the necessary assistance to the policyholders or claimants or beneficiaries in complying with the requirements for the settlement of claims by the insurers

• Advise every individual policyholder to effect nomination

INSURANCE BROKERS Direct Brokers Carries out the functions specified below in the field of general / life insurance :• Obtain detailed information of the client's business and

risk mgt philosophy• Rendering advice on appropriate insurance cover and

terms• Detailed knowledge about the insurance market• Submitting quotations to the client for consideration• Acting promptly on instruction of clients• Assisting client in paying premiums• Providing services related to insurance consultancy and

risk management• Assisting in the settling of claims• Maintaining proper record of claims

Re- Insurance Brokers

Is one who arranges reinsurance for direct insurers with insurance and reinsurance companies. His function includes the following :

• Familiarizing himself with the client's business and risk retention philosophy

• Maintaining record of the insurer's business to assist the re-insurer

• Rendering advice based on technical data on the re-insurance covers available in the international insurance and re-insurance markets

• Maintaining data base of available reinsurance markets , including solvency rating of individual re-insurers

• Rendering consultancy and risk management services for reinsurance

• Selecting and recommending a re-insurer or a group of re-insurers

• Negotiating with a re-insurer on the client's behalf

• Assisting in finalizing the reinsurance contract ,payment of premium and settlement of claims if any

Composite Brokers

An insurance broker who arranges insurance for the clients with the insurance companies and / or reinsurance for his clients.

He performs the function of both the direct broker as well as the re-insurance broker

Surveyors and Loss Assessors

• Claims of loss amounting to Rs 20,000 or more can be admitted by an insurer payment or settled only after obtaining a report from an approved surveyor / loss assessor holding a license from IRDA.

• In case of a claim of less than Rs 20,000 in value on any policy of insurance , an insurer can employ a surveyor / loss assessor other than an approved one for surveying such loss on payment of remuneration as thought fit.

DUTIES AND RESPONSIBILITIES

• Estimate , measure and determine the quantum and description of the subject under loss nature of ownership and insurable interest.

• Conduct spot and final survey , as and when necessary ,and comment upon excess / under insurance and any other related matter

• Examine , inquire , investigate , verify and check upon the causes and the circumstances of the loss in question also the extent of loss .

• Advise the insurer and the insured about the loss minimization , loss control , security and safety measures , wherever appropriate , to avoid further losses

• Comment on the admissibility of the loss as also observance of warranty conditions under the policy contract

• Assess the loss on behalf of the insurer • Give reasons for denial of claim , incase the claim is not

covered by policy terms and conditions• Comment on its disposal and salvage value

A surveyor / loss assessor should submit his report to the insurer as expeditiously as possible , but not later than 30 days of his appointment.

DUTIES AND OBLIGATIONS of an Actuary

In the interest of the insurance industry and the policy–holders , the duties and obligations of an appointed actuary of an insurer include :

• Render advice regarding product design , pricing , insurance contract wording , investments and re-insurance

• Ensure the solvency of the insurer at all times• Comply with provisions of Insurance Act regarding maintenance

of required solvency margins • Comply with provisions of Insurance Act regarding certification

of the assets and liabilities • Draw attention of the management towards important issues to

avoid (i) any contravention of the Insurance Act (ii) prejudice to the interests of the policyholders

• Comply with IRDA directions from time to time

• Ensure that all requisite records have been made available to him/ her for the purpose of conducting actuarial valuation of assets and liabilities

• Ensure that the premium rates of the insurance products are fair

• To certify that necessary reserves have been determined as per the norms of Actuarial society of India and IRDA

• Ensure that the policyholders` reasonable expectations have been considered in the matter of valuation of liabilities and distribution of surplus to the participating policyholders , who are entitled to a share of the surplus

INVESTMENT COMMITTEE

Every insurer should constitute an investment committee consisting of a minimum of 2 non-executive directors of the insurer , chief of finance and investment divisions and the appointed actuary.

The decision taken by the investment committee should be properly recorded and be open to the inspection by IRDA.

Every insurer should draw up annually an investment policy , their major considerations being :

• Issues relating to liquidity , prudential norms , exposure limits , stop loss limits in securities trading , management of all investment and market risks / asset liability mismatch , investment audit / statistics and so on and provision of Insurance act and IRDA regulation

• Ensuring an adequate return on policy-holders/shareholders funds consistent with the protection , safety and liquidity of such funds

• The funds of the insurer should be invested in shares and instruments which enjoy investment grade rating.

• Thank you