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DECLARAION

I hereby declare that this work entitled “Potential of Life Insurance

Industry in Surat Market” is my work carried out under the guidance

of my faculty guide Mr. Vikas Singh and my company guide Mr. Jignesh

Madhavani. This report neither full nor in past has ever been submitted

for award of any other degree of either this University or any other

University.

Chirag Patel

(5NB3430)



Brief History Of Insurance

The story of insurance is probably as old as the story of mankind. The sameinstinct that prompts modern businessmen today to secure themselves

against loss and disaster existed in primitive men also. They too sought to

avert the evil consequences of fire and flood and loss of life and were willingto make some sort of sacrifice in order to achieve security. Though the

concept of insurance is largely a development of the recent past, particularlyafter the industrial era – past few centuries – yet its beginnings date back

almost 6000 years.

Life Insurance in its modern form came to India from England in the year1818. Oriental Life Insurance Company started by Europeans in Calcutta was

the first life insurance company on Indian Soil. All the insurance companiesestablished during that period were brought up with the purpose of looking

after the needs of European community and Indian natives were not being

insured by these companies. However, later with the efforts of eminentpeople like Babu Muttylal Seal, the foreign life insurance companies started

insuring Indian lives. But Indian lives were being treated as sub-standardlives and heavy extra premiums were being charged on them. Bombay

Mutual Life Assurance Society heralded the birth of first Indian life insurance

company in the year 1870, and covered Indian lives at normal rates.Starting as Indian enterprise with highly patriotic motives, insurance

companies came into existence to carry the message of insurance and socialsecurity through insurance to various sectors of society. Bharat Insurance

Company (1896) was also one of such companies inspired by nationalism.

The Swadeshi movement of 1905-1907 gave rise to more insurancecompanies. The United India in Madras, National Indian and National

Insurance in Calcutta and the Co-operative Assurance at Lahore wereestablished in 1906. In 1907, Hindustan Co-operative Insurance Company

took its birth in one of the rooms of the Jorasanko, house of the great poet

Rabindranath Tagore, in Calcutta. The Indian Mercantile, General Assuranceand Swadeshi Life (later Bombay Life) were some of the companies

established during the same period. Prior to 1912 India had no legislation toregulate insurance business. In the year 1912, the Life Insurance Companies

Act, and the Provident Fund Act were passed. The Life Insurance Companies

Act, 1912 made it necessary that the premium rate tables and periodicalvaluations of companies should be certified by an actuary. But the Act

discriminated between foreign and Indian companies on many accounts,putting the Indian companies at a disadvantage.

The first two decades of the twentieth century saw lot of growth in insurance

business. From 44 companies with total business-in-force as Rs.22.44 crore,

it rose to 176 companies with total business-in-force as Rs.298 crore in



1938. During the mushrooming of insurance companies many financiallyunsound concerns were also floated which failed miserably. The Insurance

Act 1938 was the first legislation governing not only life insurance but alsonon-life insurance to provide strict state control over insurance business. The

demand for nationalization of life insurance industry was made repeatedly in

the past but it gathered momentum in 1944 when a bill to amend the LifeInsurance Act 1938 was introduced in the Legislative Assembly. However, it

was much later on the 19th of January, 1956, that life insurance in India wasnationalized. About 154 Indian insurance companies, 16 non-Indian

companies and 75 provident were operating in India at the time of

nationalization. Nationalization was accomplished in two stages; initially themanagement of the companies was taken over by means of an Ordinance,

and later, the ownership too by means of a comprehensive bill. TheParliament of India passed the Life Insurance Corporation Act on the 19th of

June 1956, and the Life Insurance Corporation of India was created on 1st

September, 1956, with the objective of spreading life insurance much morewidely and in particular to the rural areas with a view to reach all insurable

persons in the country, providing them adequate financial cover at areasonable cost.

LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart

from its corporate office in the year 1956. Since life insurance contracts arelong term contracts and during the currency of the policy it requires a

variety of services need was felt in the later years to expand the operationsand place a branch office at each district headquarter. re-organization of LIC

took place and large numbers of new branch offices were opened. As a result

of re-organisation servicing functions were transferred to the branches, andbranches were made accounting units. It worked wonders with the

performance of the corporation. It may be seen that from about 200.00crores of New Business in 1957 the corporation crossed 1000.00 crores only

in the year 1969-70, and it took another 10 years for LIC to cross 2000.00

crore mark of new business. But with re-organisation happening in the earlyeighties, by 1985-86 LIC had already crossed 7000.00 crore Sum Assured on

new policies.

Today LIC functions with 2048 fully computerized branch offices, 100

divisional offices, 7 zonal offices and the Corporate office. LIC’s Wide Area

Network covers 100 divisional offices and connects all the branches througha Metro Area Network. LIC has tied up with some Banks and Service

providers to offer on-line premium collection facility in selected cities. LIC’sECS and ATM premium payment facility is an addition to customer

convenience. Apart from on-line Kiosks and IVRS, Info Centres have been

commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad,Kolkata, New Delhi, Pune and many other cities. With a vision of providing



easy access to its policyholders, LIC has launched its SATELLITE SAMPARKoffices. The satellite offices are smaller, leaner and closer to the customer.

The digitalized records of the satellite offices will facilitate anywhereservicing and many other conveniences in the future.

LIC continues to be the dominant life insurer even in the liberalized scenarioof Indian insurance and is moving fast on a new growth trajectorysurpassing its own past records. LIC has issued over one crore policies

during the current year. It has crossed the milestone of issuing 1,01,32,955

new policies by 15th Oct, 2005, posting a healthy growth rate of 16.67%over the corresponding period of the previous year.

From then to now, LIC has crossed many milestones and has setunprecedented performance records in various aspects of life insurance

business. The same motives which inspired our forefathers to bring

insurance into existence in this country inspire us at LIC to take thismessage of protection to light the lamps of security in as many homes as

possible and to help the people in providing security to their families.

Some of the important milestones in the life insurance business in

India are:

1818: Oriental Life Insurance Company, the first life insurance company onIndian soil started functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurancecompany started its business.

1912: The Indian Life Assurance Companies Act enacted as the first statute

to regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable thegovernment to collect statistical information about both life and non-life

insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act

with the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies are taken over

by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from

the Government of India.



The General insurance business in India, on the other hand, can trace itsroots to the Triton Insurance Company Ltd., the first general insurance

company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business

in India are:

1907: The Indian Mercantile Insurance Ltd. set up, the first company to

transact all classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of

India, frames a code of conduct for ensuring fair conduct and sound businesspractices.

1968: The Insurance Act amended to regulate investments and set minimum

solvency margins and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalisation) Act, 1972nationalised the

general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. theNational

Insurance Company Ltd., the New India Assurance Company Ltd., theOriental Insurance Company Ltd. and the United India Insurance Company

Ltd. GIC incorporated as a company.



Mission "Explore and enhance the quality of life of people through financial

security by providing products and services of aspired attributeswith competitive returns, and by rendering resources for economic

development."

Vision"A trans-nationally competitive financial conglomerate of

significance to societies and Pride of India."

What Is Life Insurance?

Life insurance is a contract that pledges payment of an amount to the personassured (or his nominee) on the happening of the event insured against.

The contract is valid for payment of the insured amount during:

• The date of maturity, or

• Specified dates at periodic intervals, or

• Unfortunate death, if it occurs earlier.

Among other things, the contract also provides for the payment of premium

periodically to the Corporation by the policyholder. Life insurance isuniversally acknowledged to be an institution, which eliminates 'risk',

substituting certainty for uncertainty and comes to the timely aid of thefamily in the unfortunate event of death of the breadwinner.

By and large, life insurance is civilisation's partial solution to the problems

caused by death. Life insurance, in short, is concerned with two hazards thatstand across the life-path of every person:



1. That of dying prematurely leaving a dependent family to fend for itself.2. That of living till old age without visible means of support.



INTRODUCTION

Insurance = Collective bearing of Risk

Insurance is nothing but a system of spreading the risk of one onto the shoulders of many.

While it becomes somewhat impossible for a man to bear by himself 100% loss to his own

property or interest arising out of an unforeseen contingency, insurance is a method or

process which distributes the burden of the loss on a number of persons within the group

formed for this particular purpose.

Basic Human trait is to be averse to the idea of risk taking. Insurance, whether life or non-

life, provides people with a reasonable degree of security and assurance that they will be

protected in the event of a calamity or failure of any sort.

Insurance may be described as a social device to reduce or eliminate risk of loss to life and

property. Under the plan of insurance, a large number of people associate themselves by

sharing risks attached to individuals. The risks, which can be insured against, include fire,

the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be

insured against at a premium commensurate with the risk involved. Thus collective bearing

of risk is insurance.

• Insurance Indemnifies Assets & Income. Every Asset has a value and generates

Income to its Owner. There is a normally expected Life-time for the Asset during

which time it is expected to perform. If the Asset gets lost earlier, being destroyed or

made Non-functional through an Accident or other unfortunate event the Owner is

Prejudiced. Insurance helps to reduce CONSEQUENCES of such Adverse

Circumstances which are called Risks

• Insurance is the science of spreading of the risk . It is the system of spreading the

losses of an Individual over a group of Individuals



• Insurance is a Method of sharing of financial losses of a few from a common fund

formed out of Contribution of the many who are equally exposed to the same loss

• What is uncertainty for an Individual becomes a certainty for a Group. This

is the basis of All Insurance Operations. Thus insurance convert

uncertainties to certainty

DEFINITIONS

The definition of insurance can be made from two points:

1Functional definition.

2Contractual definition.

Functional definition

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 and who agree to insure themselves against the

risk.

General Definition

Insurance has been defined to be that in which a sum of money as a premium is paid in

consideration of the insurer’s incurring the risk of paying a large sum upon a given

contingency.

In the words of John Magee, “Insurance is a plan by themselves which large

number of people associate and transfer to the shoulders of all, risks that attach to

individuals.”

Fundamental Definition

In the words of D.S. Hansell, “Insurance accumulated contributions of all parties

participating in the scheme.”

Contractual Definition



In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to

the assured as consideration of insurer’s incurring the risk of paying a large sum upon a

given contingency.”

HISTORY OF INSURANCE

Worldwide History

To talk about the insurance companies, insurance in modern form had occurred after the

Great Fire in London in 1666 which destroyed myriad houses. Nicholas Barbon, following

the disaster, had established England's first fire insurance company (The Fire Office)

in1680. In the United States, the first insurance company which provided fire insurance

was formed in South Carolina; in 1732.The practice of perpetual insurance against fire was

popularized by Benjamin Franklin. In 1752, he founded the Philadelphia Contribution ship

for the Insurance of Houses. In India, the Oriental Life Insurance Company was started in

1818 by Europeans, much before independence. The first indigenous insurance company in

India was started in the year 1870 in the form of Bombay Mutual Life Assurance Society.

Babylonia

The roots of insurance might be traced to Babylonia, where traders were encouraged to

assume the risks of the caravan trade through loans that were repaid (with interest) only

after the goods had arrived safely—a practice resembling bottomry and given legal force in

the Code of Hammurabi (c.2100 B.C.). The Phoenicians and the Greeks applied a similar

system to their seaborne commerce. The Romans used burial clubs as a form of life

insurance, providing funeral expenses for members and later payments to the survivors.

Europe

With the growth of towns and trade in Europe, the medieval guilds undertook to protect

their members from loss by fire and shipwreck, to ransom them from captivity by pirates,

and to provide decent burial and support in sickness and poverty



London

In London, Lloyd's Coffee House (1688) was a place where merchants, ship-owners, and

underwriters met to transact business. By the end of the 18th cent. Lloyd's had progressed

into one of the first modern insurance companies. In 1693 the astronomer Edmond Halley

constructed the first mortality table, based on the statistical laws of mortality and

compound interest. The table, corrected (1756) by Joseph Dodson, made it possible to scale

the premium rate to age; previously the rate had been the same for all ages .

New York City

The New York fire of 1835 called attention to the need for adequate reserves to meet

unexpectedly large losses; Massachusetts was the first state to require companies by law

(1837) to maintain such reserves. The great Chicago fire (1871) emphasized the costly

nature of fires in structurally dense modern cities. Reinsurance, whereby losses are

distributed among many companies, was devised to meet such situations and is now

common in other lines of insurance. The Workmen's Compensation Act of 1897 in Britain

required employers to insure their employees against industrial accidents. Public liability

insurance, fostered by legislation, made its appearance in the 1880s; it attained major

importance with the advent of the automobile In recent

years insurance premiums (particularly for liability policies) have increased rapidly,

leaving unprecedented numbers of Americans uninsured. Many blame the insurance

conglomerates, contending that U.S. citizens are paying for bad risks made by the

companies. Insurance companies place the burden of guilt on law firms and their clients,

who they say have brought unreasonably large civil suits to court, a

trend that has become so common in the United States that legislation has been proposed to

limit lawsuit awards. Catastrophic earthquakes, hurricanes, and wildfires in late 1980s and

the 90s have also strained many insurance company's reserves.



Insurance Indian history

The history of life insurance in India dates back to 1818 when it was conceived as a means

to provide for English Widows. Interestingly in those days a higher premium was chargedfor Indian lives than the non-Indian lives as Indian lives were considered more riskier for

coverage.

The Bombay Mutual Life Insurance Society started its business in 1870. It was the first

company to charge same premium for both Indian and non-Indian lives. The Oriental

Assurance Company was established in 1880. The General insurance business in India, on

the other hand, can trace its roots to the Triton (Tital) Insurance Company Limited, the

first general insurance company established in the year 1850 in Calcutta by the British. Till

the end of nineteenth century insurance business was almost entirely in the hands of

overseas companies.

Insurance regulation formally began in India with the passing of the Life Insurance

Companies Act of 1912 and the provident fund Act of 1912. Several frauds during 20's and

30's sullied insurance business in India. By 1938 there were 176 insurance companies. The

first comprehensive legislation was introduced with the Insurance Act of 1938 that

provided strict State Control over insurance business. The insurance business grew at a

faster pace after independence. Indian companies strengthened their hold on this business

but despite the growth that was witnessed, insurance remained an urban phenomenon.

The Government of India in 1956, brought together over 240 private life insurers and

provident societies under one nationalized monopoly corporation and Life Insurance

Corporation (LIC) was born. Nationalization was justified on the grounds that it would

create much needed funds for rapid industrialization. This was in conformity with theGovernment's chosen path of State lead planning and development.

The (non-life) insurance business continued to thrive with the private sector till 1972. Their

operations were restricted to organized trade and industry in large cities. The general

insurance industry was nationalized in 1972. With this, nearly 107 insurers were



amalgamated and grouped into four companies- National Insurance Company, New India

Assurance Company, Oriental Insurance Company and United India Insurance Company.

These were subsidiaries of the General Insurance Company (GIC).

The general insurance business was nationalized after the promulgation of General

Insurance Business (Nationalizations) Act, 1972. The post-nationalization general insurance

business was undertaken by the General Insurance Corporation of India (GIC) and its 4

subsidiaries:

1. Oriental Insurance Company Limited;

2. New India Assurance Company Limited;

3. National Insurance Company Limited; and

4. United India Insurance Company Limited.

Some of the important milestones in the life insurance business in India are:

1850: Non life insurance debuts with triton insurance company.

1870 :Bombay mutual life assurance society is the first Indian owned life insurer

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the

life insurance business.

1928 :The Indian Insurance Companies Act enacted to enable the government to collect

statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the

objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over by the central

government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956,

with a capital contribution of Rs. 5 Crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the Triton

Insurance Company Ltd., the first general insurance company established in the year 1850

in Calcutta by the British.



Some of the important milestones in the general insurance business in India are:

1907 The Indian Mercantile Insurance Ltd. set up, the first company to transact all

classes of general insurance of India.

1957 General Insurance Council, a wing of the Insurance Association of India, frames a

code of conduct for ensuring fair conduct and sound business practices.

1968 The Insurance Act amended to regulate investments and set minimum solvency

margins and the Tariff Advisory Committee set up.

1972 The General Insurance Business (Nationalization) Act, 1972 nationalized the general

insurance business in India with effect from 1st January 1973. 107 insurers amalgamated

and grouped into four companies’ viz. the National Insurance Company Ltd., the New

India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United

India Insurance Company Ltd. GIC incorporated as a company.

Malhotra Committee

In 1993, Malhotra Committee- headed by former Finance Secretary and RBI Governor

R.N. Malhotra- was formed to evaluate the Indian insurance industry and recommend its

future direction. The Malhotra committee was set up with the objective of complementing

the reforms initiated in the financial sector. The reforms were aimed at creating a more

efficient and competitive financial system suitable for the requirements of the economy

keeping in mind the structural changes currently underway and recognizing that insurance

is an important part of the overall financial

System where it was necessary to address the need for similar reforms. In 1994, the

committee submitted the report and some of the key recommendations included:

i) Structure

Government should take over the holdings of GIC and its subsidiaries so that these

subsidiaries can act as independent corporations. All the insurance companies should be

given greater freedom to operate.



ii) Competition

Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter

the sector. No Company should deal in both Life and General Insurance through a single

entity. Foreign companies may be allowed to enter the industry in collaboration with the

domestic companies.

Postal Life Insurance should be allowed to operate in the rural market. Only one State

Level Life Insurance Company should be allowed to operate in each state.

iii) Regulatory Body

The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of

Insurance- a part of the Finance Ministry- should be made independent

iv) Investments

Mandatory Investments of LIC Life Fund in government securities to be reduced from

75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (there

current holdings to be brought down to this level over a period of time)

v) Customer Service

LIC should pay interest on delays in payments beyond 30 days. Insurance companies must

be encouraged to set up unit linked pension plans. Computerization of operations and

updating of technology to be carried out in the insurance industry

The committee emphasized that in order to improve the customer services and increase the

coverage of insurance policies, industry should be opened up to competition. But at the

same time, the committee felt the need to exercise caution as any failure on the part of new

players could ruin the public confidence in the industry.

The committee felt the need to provide greater autonomy to insurance companies in order

to improve their performance and enable them to act as independent companies with

economic motives. For this purpose, it had proposed setting up an independent regulatory

body- The Insurance Regulatory and Development Authority.



Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in

Parliament in December 1999. The IRDA since its incorporation as a statutory body in

April 2000 has fastidiously stuck to its schedule of framing regulations and registering the

private sector insurance companies. Since being set up as an independent statutory body

the IRDA has put in a framework of globally compatible regulations. The other decision

taken simultaneously to provide the supporting systems to the insurance sector and in

particular the life insurance companies was the launch of the IRDA online service for issue

and renewal of licenses to agents. The approval of institutions for imparting training to

agents has also ensured that the insurance companies would have a trained workforce of

insurance agents in place to sell their products.

PURPOSE OF INSURANCE

1.Insurance spreads the economic burden of losses by using funds contributed by

members of the group to pay for them. Thus, it is a loss spreading device.

2.The fundamental purpose of insurance however is neither the spreading nor the

prevention of losses. Rather, it is reduction of the uncertainty which is caused by

awareness of the possibility of loss.

3.An insurance scheme provides certainty for the individual members of the group by

averaging loss costs. The contribution made by the individual to the group is assumed,

on the basis of predictions, to be his share of losses suffered by the group.

In exchange for this contribution, he is assured that the group will assume any losses that

involve him. He transfers his risk to the group and averages his loss costs, thus substituting

certainty for uncertainty. He pays a certain premium instead of facing the uncertainty of

the possibility of large loss.

FUNCTION OF INSURANCE



The functions of Insurance can be bifurcated into three parts:

1. Primary Functions

2. Secondary Functions

3. Other Functions

The primary functions of insurance include the following:

Provide Protection

The primary function of insurance is to provide protection against future risk, accidents

and uncertainty. Insurance cannot check the happening of the risk, but can certainly

provide for the losses of risk.

Collective bearing of risk

Insurance is a mean by which few losses are shared among larger number of people. All the

insured contribute the premiums towards a fund and out of which the persons

Exposed to a particular risk is paid.

Assessment of risk

Insurance determines the probable volume of risk by evaluating various factors that give

rise to risk. Risk is the basis for determining the premium rate also .

Provide Certainty

Insurance is a device, which helps to change from uncertainty to certainty. Insurance is

device whereby the uncertain risks may be made more certain.

Research and publicity

Insurers also spend money in research and publicity in creating risk consciousness amongst

which has a far reaching effect on reduction in national waste.

The secondary functions of insurance include the following:



Prevention of Losses

Prevention of losses causes lesser payment to the assured by the insurer and this will

encourage for more savings by way of premium. Reduced rate of premiums stimulate for

more business and better protection to the insured.

Small capital to cover larger risks

Insurance relieves the businessmen from security investments, by paying small amount of

premium against larger risks and uncertainty.

Contributes towards the development of larger industries

Insurance provides development opportunity to those larger industries having more risks

in their setting up. Even the financial institutions may be prepared to give credit to sick

industrial units which have insured their assets including plant and machinery.

If improves efficiency

The insurance eliminates worries and miseries of loans at death and destruction of

property. The carefree person an devote his body and soul together for better achievement.

It improves not only his efficiency, but the efficiencies of the masses are also advanced.

It helps economic progress

The insurance by protecting the society from huge losses of damage, destruction and death,

provides an initiative to work hard for the betterment of the masses. The next factor of

economic progress. The capital is also immensely provided by the masses. The property, the

valuable assets, the man, the machine and the society cannot lose much at the disaster.

The other functions of insurance include the following:

Means of savings and investment

Insurance serves as savings and investment, insurance is a compulsory way of savings and

it restricts the unnecessary expenses by the insured's For the purpose of availing income-

tax exemptions also, people invest in insurance.



Source of earning foreign exchange

Insurance is an international business. The country can earn foreign exchange by way of

issue of marine insurance policies and various other ways.

Risk Free trade

Insurance promotes exports insurance, which makes the foreign trade risk free with the

help of different types of policies under marine insurance cover.

NATURE OF INSURANCE

Sharing of risk

Insurance is a device to share the financial losses which might be fall on an individual or his

family on the happening of specified event. The event may be death, incase of life

insurance, marine perils, marine insurance, fire in fire insurance and other certain events

in general insurance.

Co-operative Device

The most important feature of every insurance plan is the co-operation of large number of

persons who, agree to share the financial loss arising due to a particular risk which is

insured. All co-operative devices, there is no compulsion here on anybody to purchase the

insurance policy.

Value of risk

The risk is evaluated before inuring to charge the amount of share of an insured, here is

called, consideration or premium. If there is expectation of more loss, higher premium may

be charged. So, the probability of loss is calculated at the time of insurance.

Payment at Contingency



The payment is made at a certain contingency insured. If the contingency occurs, payment

is made. Since the life insurance is a contract of certainty, because the contingency, the

death or the expiry of term, will certainly occur, the payment is certain.

Amount of payment

The amount of payment depends upon the value of loss occurred due to the particular

insured risk provided insurance is there up to that amount. In case of life insurance, the

insurer promises to pay a fixed sum on the happening of an even. (Either death or the

expiry of the term).

Large number of insured persons

The co-operation of a small number of persons may also be insurance but in that case, the

cost of insurance to each number may be higher. In case of large number of persons

opposite condition is applicable.

Insurance is not gambling

The insurance is just opposite of gambling. In gambling by bidding the persons exposes

himself to risk of losing ,in the insurance the insured is always opposed to risk and will

suffer loss if he is not insured.

Insurance is not charity

Charity is given without consideration but security and safety provided by insurance is not

possible without consideration or premium. It provides security and safety to an individual

and to the society although it is a kind of business because inconsideration of premium it

guarantees the payment of loss.

PRINCIPLE OF INSURANCE

Principles of Co-operation.

Insurance is co-operative device. If one person is providing for his own losses, it can not be

strictly insurance because in insurance, the loss is shared by a group of persons who are



willing to co-operate. It is the duty and responsibility of the insurer to obtain adequate

funds from the members of the society to pay them at the happening of the insured risk.

Thus, the shares of loss took the form of premium. Today, all the insured

give a premium to join the scheme of insurance. Thus, the insured are co-operating to share

the loss of an individual be payment of a premium in advance.

Principles of Probability

The loss in the shape of premium can be distributed only on the basis of theory of

probability. The chances of loss are estimated in advance to affix the amount of premium.

Since the degree of loss depends upon various factors, the affecting factors are analyzed

before determining the amount of loss. With the help of this principle, the uncertainty of

loss is converted into certainty. The insurer will have not to suffer loss as well have to gain

windfall. Therefore, the insurer has to charge only so much of amount which is adequate to

meet the loss. The probability tells what the chances of loss are and what will be the

amount of losses.

The insurance, on the basis of past experience, present conditions and future prospects,

fixes the amount of premium. Without premium, no-operation is possible and the premium

can not be calculated without the help of theory of probability, and consequently no

insurance is possible. So, these two principles are the two main legs of insurance.

FORMATION OF INSURANCE REGULATION AND DEVELOPMENT

AUTHORITY ACT

The Insurance Act, 1938 had provided for setting up of the Controller of Insurance to act

as a strong and powerful supervisory and regulatory authority for insurance. Post

nationalization, the role of Controller of Insurance diminished considerably in significance

since the Government owned the insurance companies. But the scenario changed with the

private and foreign companies foraying in to the insurance sector. This necessitated the

need for a strong, independent and autonomous Insurance Regulatory Authority was felt.

As the enacting of legislation would have taken time, the then Government constituted



through a Government resolution an Interim Insurance Regulatory Authority pending the

enactment of a comprehensive legislation.

The Insurance Regulatory and Development Authority Act, 1999 is an act to provide for the

establishment of an Authority to protect the interests of holders of insurance policies, to

regulate, promote and ensure orderly growth of the insurance industry and for matters

connected therewith or incidental thereto and further to amend the Insurance Act, 1938,

the Life Insurance Corporation Act, 1956 and the General insurance Business

(Nationalization) Act, 1972 to end the monopoly of the Life Insurance Corporation of India

(for life insurance business) and General Insurance Corporation and its subsidiaries (for

general insurance business).

The act extends to the whole of India and will come into force on such date as the Central

Government may, by notification in the Official Gazette specify. Different dates may be

appointed for different provisions of this Act.

The Act has defined certain terms; some of the most important ones are as follows

appointed day means the date on which the Authority is established under the act.

Authority means the established under this Act.

Interim Insurance Regulatory Authority means the Insurance Regulatory Authority set up

by the Central Government through Resolution No. 17(2)/ 94-lns-V dated the 23rd

January, 1996. Words and expressions used and not defined in this Act but defined in the

Insurance Act, 1938 or the Life Insurance Corporation Act, 1956 or the General Insurance

Business (Nationalization) Act, 1972 shall have the meanings respectively assigned to them

in those Acts. A new definition of "Indian Insurance Company" has been inserted. "Indian

insurance company" means any insurer being a company

(a) which is formed and registered under the Companies Act, 1956

(b) in which the aggregate holdings of equity shares by a foreign company, either

by itself or through its subsidiary companies or its nominees, do not exceed twenty-

six per cent. Paid up capital in such Indian insurance company (c) whose sole

purpose is to carry on life insurance business, general insurance business or re-

insurance business.



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