LEGAL ENVIRONMENT OF BUSINESS

Principle of Insurance, & IRDA, Should Insurer Compensate Loss from Riots?
Presented By Group 2:Richa Anjali Pawan Kanchan G Alok Sachin Yash G Sipak

Insurance Definition
Insurance is a contract whereby, in return

for the payment of premium by the insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events.

Principles of Insurance
Risk Utmost Good Faith Insurable Interest Indemnity

Subrogation Contribution
Proximate Cause
Mitigation of loss

Risk
The term Risk is used to describe all the

accidental happenings which produce a monetary loss. For e.g.: A factory catching fire, a ship sinking etc.

Utmost Good Faith

Good faith- Let the buyer beware

Declaration of all material Information about

the subject mater of insurance

Contd
Material Information is that information which enables the

insurer to decide: whether he will accept the risk and; if so, at what rate of premium and subject to what terms and conditions
Breach of duty of utmost good faith arises in two ways:

Non-disclosure of material facts- oversight, proposer thought its not essential etc. Misrepresentation- Intentional.

Insurable Interest
The legal right enjoyed by the owner of a

property to insure is called Insurable Interest. The insurance will become null and void, without the insurable interest.

Insurable Interest
For example :- The owner of a taxicab has insurable

interest in the taxicab because he is getting income from it. But, if he sells it, he will not have an insurable interest left in that taxicab.
From above example, we can conclude that, ownership

plays a very crucial role in evaluating insurable interest. Every person has an insurable interest in his own life.

Indemnity
The principle of Indemnity states that under

the policy of insurance, the insured has to be placed after the loss in the same financial position in which he was immediately before the loss.

Contd
Applicability:

When the losses suffered by the insured can be measured in terms of money It is practicable to place the insured in the same financial position which he occupied before the loss In Marine Cargo where valued polices are issued, there is only commercial indemnity- the value declared for insurance is accepted at the time of loss.

Limitation of Insurers liability:

If the sum insured is less than the indemnity, only

the sum insured is payable. Property insurances- Condition of average- If there is under insurance only proportionate value is payable. Exceptions for Indemnity: Personal Accident

Subrogation
Transfer of rights and remedies from the

insured to the insurer who has indemnified the insured in respect of the loss.

Contribution
The right of insurers who have paid a loss

under a policy to recover a proportionate amount from other insurers, who are liable for the same loss.

Proximate Cause
The active efficient cause that sets in motion a train of events which brings about a result without intervention of any force started and working actively from a new source.

Mitigation of loss
According to the Principle of Loss Minimization, insured

must always try his level best to minimize the loss of his insured property
In case of uncertain events like a fire outbreak or blast, etc.

The insured must take all possible measures and necessary steps to control and reduce the losses in such a scenario.

Case
A man travelling in a crowded train falls down and gets injured badly. Because of his hurt and bleeding he becomes unconscious and lying by the side of the track. Someone finds him takes him home. He develops fever which ultimately leads to Tetanus and is hospitalised. He is treated in the hospital for ten days then finally he dies! His wife realising he has a personal accident policy makes a claim with the insurance company. Is this claim payable?

The 15 private players together saw their business grow 32 % to Rs 848 crore with a market share of 28.44 %.

ICICI Prudential Bajaj Allianz SBI Life HDFC Standard Max New York Life Tata AIG Aviva

271.00 124.00 90.00 70.00 69.00 48.00 39.00

Reliance Life
Birla Sunlife Kotak Mahindra Old

33.00
28.00 26.00 22.00 19.00 4.50 1.70 0.72

Mutual ING Vysya Met Life Shriram Life Sahara Life Bharti Axa Life

Study : India's insurance sector to see 500 per cent growth

India's insurance sector - 500 % growth over the next three

years - 60 billion-dollar industry India's more than one billion people are uninsured, the study by the Associated Chambers of Commerce and Industry A large part of rural India is still untapped due to poor distribution and large distances said MD Anil K Agarwal He said the study had revealed that rural & semi-urban India would contribute 35 billion dollars to the Indian insurance industry by 2010. The study added that the urban sector insurance was estimated to reach 25 billion dollars by 2010, life insurance 15 billion and non- life insurance 10 billion dollars.

indian insuranCe industry: new avenues for growth 2012

The potential of the Indian insurance industry is huge. HOW???
.. It has an annual growth rate of 15-20% &

..the largest number of life insurance policies in force.

Total value of the Indian insurance market (2004-05) is at Rs.

450 billion (US$10 billion). Insurance & Banking Services contribution to the country's gross domestic product (GDP) is 7% The funds available with the state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP.

Contd
The year 1999 saw a revolution in the Indian insurance

sector------the ending of government monopoly -----the passage of the Insurance Regulatory and Development Authority (IRDA) Bill
A foreign partner can hold 26% equity in an insurance

company, but there was a proposal to increase this limit to 49%.

Foreign investments of Rs. 8.7 billion have poured into the

Indian market & 21 private companies have been granted licenses.

What is IRDA?
Insurance Regulatory & Development Authority (IRDA) is

regulatory and development authority under Government of India in order to protect the interests of the policyholders and to regulate, promote and ensure orderly growth of the insurance industry.
It is basically a ten members' team comprising of a Chairman,

five full time members and four part-time members, all appointed by Government of India.
Came into being in 1999 after the bill of IRDA was passed in

the Indian parliament.

Mission of IRDA
To protect the interests of the policyholders,

to regulate, promote and ensure orderly growth of the insurance industry and for matters connected there with or incidental there to

Composition of Authority under IRDA Act, 1999

As per the section 4 of IRDA Act' 1999, Insurance

Regulatory and Development Authority (IRDA, which was constituted by an act of parliament) specify the composition of Authority The Authority is a ten member team consisting of (a) a Chairman; (b) five whole-time members; (c) four part-time members,

(all appointed by the Government of India)

Expectations
The law of India has following expectations from IRDA To protect the interest of and secure fair treatment to policyholders; To bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy; To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates; To ensure that insurance customers receive precise, clear and correct information about products and services and make them aware of their responsibilities and duties in this regard;

Contd.
To ensure speedy settlement of genuine claims, to prevent

insurance frauds and other malpractices and put in place effective grievance redressal machinery; To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players; To take action where such standards are inadequate or ineffectively enforced; To bring about optimum amount of self-regulation in day to day working of the industry consistent with the requirements of prudential regulation.

Duties, Powers & Functions of IRDA

It issues the applicants in insurance arena, a certificate of

registration as well as renewal, modification, withdrawal, suspension or cancellation of such registrations. It protects the interests of the policy holders in any insurance company in the matters related to the assignment of policy, nomination by policy holders, insurable interest, and resolution of insurance claim, submission value of policy and other terms and proposals in the contract. It also specifies obligatory credentials, code of conduct and practical instructions for mediator as well as the insurance company. Apart from this, it also defines the code of conduct for the surveyors and loss assessors involved with the insurance business.

Contd.
One of the major functions of IRDA includes endorsing

competence in the insurance business. Apart from this, upholding and regulating professional organizations in insurance and re-insurance business is also a major duty of IRDA.
IRDA is also entitled to for asking information, undertaking

inspection and investigating the audit of the insurers, mediators, insurance intermediaries and other organizations related to the insurance sector.
It is also concerned with the regulation of the rates, profits,

provisions and conditions that may be offered by insurers in respect of general insurance business if it is not controlled or regulated by the Tariff Advisory Committee.

Contd
It is also entitled to supervise the functioning of the Tariff

Advisory Committee.
IRDA specifies the terms and pattern in

which books of accounts are to be maintained and statement of accounts shall be provided by insurers and other insurance mediators.
It also regulates investment of funds by

insurance companies as well as the maintenance of margin of solvency.

Contd
It is also empowered to be involved in the arbitration

of disagreements between insurers and intermediaries or insurance intermediaries.

It is meant to specify the proportion of premium

income of the insurer to finance policies.

IRDA also specifies the share of life insurance

business and general insurance business to be accepted by the insurer in the rural or social sector.

Claims for compensation under the Riot (Damages) Act 1886

The Riot (Damages) Act 1886 is designed to compensate

people and businesses which suffer losses following riots.

It also enables insurance companies which have paid out

claims under policies to recover the cost of such claims from the relevant police authority in charge at the place of the riots.

the aCt states

Where a house, shop, or building in a police area has been injured or destroyed, or the property therein has been injured, stolen, or destroyed, by any persons riotously and tumultuously assembled together, such compensation as hereinafter mentioned shall be paid out of the police fund of the area to any person who has sustained loss by such injury, stealing, or destruction Claims for compensation under this Act shall be made to the compensation authority of the police area in which the injury, stealing or destruction took place, and such compensation authority shall inquire into the truth thereof, and shall, if satisfied, fix such compensation as appears to them.

Conclusion
Insurance can be summed up as Praying for the best being PREPARED for the WORST.