History of General Insurance, Reform in the sector, General Insurance Products, Non –Life Insurance companies and IRDA
1) History of Insurance Business
This was similar to the system of insurance known as bottomry which existed in Phoenicia in 1200 B.C.In this system, backers loaned money to merchants to finance voyages. Merchants offered their ships (the hull was known as the ship’s ‘bottom’) as collateral for such loans. When a trip succeeded, the merchant would pay the trip’s backer the original loan plus interest, the equivalent of a premium. If a ship went down on its voyage, the trip’s backer would cancel the merchant’s loan. The Greeks and Romans developed the earliest systems of life insurance. They formed societies which paid dues that went toward paying for the burial of members. Sometimes these societies also paid for the living expenses of deceased members’ families. During the Middle Ages (5th to 15th centuries A.D.), workers joined together in craft. Many guilds, particularly in England and Italy, provided benefits to workers and their families in the event of illness or death.
Insurance as we know it today took its shape in 17th century England. There was a place called Lloyd’s Coffee House in London, owned by Edward Lloyd, where merchants, ship-owners and underwriters met to discuss and transact business. The Lloyd’s Act was passed in 1871 incorporating the members of the association into a single corporate body with perpetual succession and corporate seal. It extended from marine insurance to other insurance and guarantee business. Today, Lloyd’s has become the world’s best known insurance brand. It is commonly misunderstood that Lloyd’s is an insurance company. Actually, it is a society of members, known as ‘underwriters’, both corporate and individual, who underwrite in syndicates on whose behalf professional underwriters accept risk. Thus, supporting capital is provided by investment institutions, specialist investors, international insurance companies and individuals.
Any insurer who wants to become a member of the association has to deposit a certain fee as security for the regular payment of his liabilities. The association will inquire about the financial position of the concern, business reputation and experience. The business is conducted by these insurers called underwriters, syndicates etc. Anybody desirous of taking insurance will approach the ‘underwriters’ and not the ‘association’. Each underwriter will be responsible for his business underwritten. Usually, the policy is underwritten by several underwriters and their share or portion is fixed individually. If there is claim on the policy, the insured gets the money from all the underwriters according to their respective shares. If an underwriter fails to pay, the amount is realized from the security taken at the time of enrolment from the underwriter. Lloyd’s as a corporation is never liable on any policy.
Lloyd’s brokers bring business to the market. The risks placed with underwriters originate from clients and other brokers and intermediaries all over the world. Together, the syndicates underwriting at Lloyd’s form one of the world’s largest commercial insurers and a leading reinsurer.
History of India’s Insurance Business
We find the term ‘Yogakshemam Bahamayam’ in our ancient texts. This suggests that a form of “community insurance” was prevalent around 1000 BC and practised by the Aryans. In modern times, Triton Insurance Co. Ltd. was the first general insurance company to be established in India in 1850. 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. Thereafter, many players emerged. By 1956, there were around 240 private life insurers and more than 100 general insurers. The Government of India, concerned by the unethical standards adopted by some players against the consumers, nationalised the industry in two phases in 1956 (life) and in 1972 (non-life). The government brought together life insurers under one nationalised monopoly corporation and LIC was born. The general insurance business remained in the private sector till 1972. Then, 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. They were subsidiaries of the General Insurance Company (GIC).
2) Insurance sector reforms
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. Financial sector reforms were initiated and it was felt that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms. Some of the recommendations of the Malhotra committee included:
Ö Government stake in the insurance Companies to be brought down 50%.
Ö Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations
Ö All the insurance companies should be given greater freedom to operate
Ö Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry
Ö No Company should deal in both Life and General Insurance through a single entity
Ö Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.
Ö The Insurance Act should be changed. An Insurance Regulatory
body should be set up.
Ö Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%
Ö GIC and its subsidiaries are not to hold more than 5% in any company
Ö Customer Service
Ö LIC should pay interest on delays in payments beyond 30 days
Ö Computerisation of operations and updating of technology to be carried out in the insurance industry.
The committee emphasized that it was essential that the sector was open to competition to improve the customer services and increase the coverage of the insurance industry. However, enough precaution should be exercised to prevent failure of the new entrants .Hence a minimum capital requirement of Rs.100 crores was stipulated. To provide greater autonomy to insurance companies and enable them to act as independent companies, it proposed setting up an independent regulatory body.
3) The Insurance Regulatory and Development Authority (IRDA)
Reforms were initiated with the passage of Insurance Regulatory and Development Authority (IRDA) Bill in 1999. IRDA was set up as an independent regulatory authority, which has put in place regulations in line with global norms.
IRDA has been framing regulations and registering the private sector insurance companies. It launched of the IRDA online service for issue and renewal of licenses to agents. So far, there are 13 life insurance companies and 14 general insurance companies. Premium rates of most general insurance policies come under the purview of the government appointed Tariff Advisory Committee.
Powers, Duties & Functions of IRDA
The IRDA Act, 1999 lays down the duties, powers and functions of IRDA. The Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.
The powers and functions of the Authority shall include,
(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;
(b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance;
(c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss assessors;
(e) promoting efficiency in the conduct of insurance business;
(f) promoting and regulating professional organisations connected with the insurance and re-insurance business;
(g) levying fees and other charges ;
(h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business;
(i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee
(j) specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries;
(k) regulating investment of funds by insurance companies;
(l) regulating maintenance of margin of solvency;
(m) adjudication of disputes between insurers and intermediaries or insurance intermediaries;
(n) supervising the functioning of the Tariff Advisory Committee;
(o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations engaged in insurance and reinsurance business;
(p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and
(q) exercising such other powers as may be prescribed
IRDA’s Cell for redressal of grievances of Policyholders
The IRDA has a cell that receives and looks into complaints from policyholders—Life and Non-life grievances are handled separately. The Cell plays a facilitative role by taking up such complaints with the respective insurers.
Cases of delay/non-response: Cases of delay/non-response in matters relating to policies and claims are taken up with the insurers for speedy disposal.
Claims/policy contracts in dispute: Complaints relating to these are analysed and insurers are advised to examine the same. If required, their attention is called to specific issues for examination/re-examination. However, if the insurer does not change its stand even after examination/re-examination, the complainant is informed of the same. The Authority does not carry out any adjudicaton. For this, the complainant would have to approach the appropriate judicial channel.
Complaints against Non-life insurance companies:
Y.Priya Bharath,Deputy Director/ LVS Sunitha, Junior Officer,
Insurance Regulatory and Development Authority,
Parisrama Bhavanam, 5-9-58/B,
Basheerbagh: 500 004
Phone: 040- 55820964, 55787938: Ext: 128/119
E-mail: email@example.com, firstname.lastname@example.org
Complaints against Life Insurance Companies:
Officer on Special Duty,
Insurance Regulatory and Development Authority,
Parisrama Bhavanam. 5-9-58/B,
Basheerbagh: 500 004
Phone: 040- 55820964, 55787938 Ext: 131
4) Non –life insurance companies
At present there are 14 non- life insurance companies in India.
|Name of the Company
|Bajaj Allianz General Insurance Company Limited
|ICICI Lombard General Insurance Company Limited
|Export Credit Guarantee Corporation Limited
|HDFC-Chubb General Insurance Company Limited
|Cholamandalam General Insurance Company Limited
|Tata AIG Life Insurance Company Limited
|United India Insurance Company Limited
|Royal Sundaram General Insurance Co. Ltd.
|Reliance General Insurance Company Limited
|IFFCO Tokio General Insurance Company Limited
|The Oriental Insurance Company Limited
|New India Assurance Company Limited
|National Insurance Company Limited.
|Agriculture Insurance Company of India Limited
5) General Insurance Products
Non –life Policies can be broadly classified into :
Plans for Corporate/ Business
Plans for Individuals
These are the policies catered to meet special needs or needs of specific industries. Some of them are
Ö Aviation Insurance
Ö Marine Hull Insurance
Ö Freight Forwarders Insurance
Ö Port Liabilities
Ö Film Insurance,
Ö Credit Insurance,
Ö Event Insurance
Ö Jewellers Block Policy
Ö Bankers Indemnity Policy
Ö Shopkeepers Policy
Ö Marine Cargo Policy
Ö Multi Peril Policy for L.P.G. Dealers
B. Employee policies
Various policies available for employer to take care of employees or to meet legal obligations.
Ö Group Personal Accident
Ö Group critical illness
Ö Group Travel
Ö Workmen’s Compensation
Ö Keyman Insurance
Ö Overseas Travel insurance
C.Policies for Office /manufacturing units
For protection of business , industrial units from contingencies
Ö Fidelity Guarantee Insurance Policy
Ö Special Contingency Policy
Ö Plate Glass Insurance
Ö Neon Sign Insurance
Ö Fire Policy
Ö Burglary Policy
Ö Machinery Breakdown Policy
Ö Electronics Equipment Policy
Ö Consequential Loss Policy
Ö Contractors All Risk Policy
Ö Advanced Loss of Profit / Delay in Startup Policy
Ö Contractor Plant and Machinery Policy
Ö Mega Package Policies
Ö Marine cum Erection / Storage cum Erection Policy
D. Health Insurance
Policies for Individuals
There is a wide range of policies and packages available. They cover more than you’re your home and its contents. Some of the perils covered are:
Explosion / Implosion
Riot, Strike, Malicious Damage cover
Damages due to Impact by rail / road vehicle or animal
Bursting and / or overflowing of water tanks, apparatus and pipes
Missile Testing operations
Leakage from Automatic Sprinkler Installations
Loss caused by Storm, Cyclone, Hurricane, Tornado, Flood and Inundation
Destruction by subsidence of part of the site on which the property stands or landslide
Earthquakes and Terrorism are usually provided as add-ons due to the increase in frequency.
The other perils included in some feature rich policies are:
Rent for alternative accommodation
Loan repayment for home/car
Home Appliances cover
Loss of cash in transit
Tata AIG’s policy Home Secure ‘Supreme’ is a comprehensive policy for home insurers.
There are various policies which cover International travel, domestic train travel, student’s overseas travel, travel to specific countries. Bajaj Allianz has a unique plan ‘Shubh Yatra’ which insures the home against burglary during travel.
Auto Insurance Policies
Ö Repair / replacement of the parts of the vehicle
Ö Payment for the market value of the vehicle in case of a total loss, provided that the loss occurs due to an accident, theft, earthquake, flood, riot, strike and malicious acts.
Ö It covers the legal liability of insured towards third party personal injury and property damage arising out of an accident involving the insured vehicle.
Health Insurance Policies
Health Insurance Policies may provide cover for:
Ö expensive medical care including pre & post hospitalisation expenses.
Ö provide a daily allowance for each day of hospitalization.
Ö Protection against the major life threatening illness like Cancer, Heart Attack, Paralysis, Kidney failure, Stroke, etc
Ö accidental death
Ö permanent disability
Ö hospital confinement allowance
Bajaj Allianz has a health insurance plan called Personal Guard which provides children’s education bonus.
Other Insurance Policies
Authored by : CA Rajkumar S Adukia , Email: email@example.com