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LAWS GOVERNING INSURANCE POLICIES IN INDIA

1. GENERAL INSURANCE 2. LIFE INSURANCE The first statutory measure in India to regulate the life insurance business was in 1912 with the passing of
THE INDIAN LIFE ASSURANCE COMPANIES ACT, 1912 (which

was based on the English Act of 1909).

Non-life insurance is regulated by THE INSURANCE ACT, 1938. The governing bodies under the Insurance Act, 1938, are: 1. INSURANCE ASSOCIATION OF INDIA, COMPRISING: A) THE LIFE INSURANCE COUNCIL B) THE GENERAL INSURANCE COUNCIL 2. TARIFF ADVISORY COMMITTEE In 1956, the Central Government nationalized the life insurance business in India. The Life Insurance Corporation (LIC) was formed in 1956 by THE LIFE INSURANCE CORPORATION ACT, 1956. The General Insurance Corporation was created in 1973 under the Companies Act, 1956, in accordance with THE GENERAL INSURANCE BUSINESS (NATIONALISATION) ACT, 1972. Previously existing companies were amalgamated into four subsidiary companies of the GIC, namely: 1. The National Insurance Company Ltd. 2. The New India Assurance Company Ltd. 3. The Oriental Insurance Company Ltd. 4. The United India Assurance Company Ltd. In 1993, as a consequence of the efforts towards liberalization of the Indian economy, a Committee chaired by the former Governor of the R.B.I. R. N. Malhotra submitted its report to the Central Government, to review the structure of regulation of the insurance sector in India. The Committee recommended: 1. The privatization of the insurance industry; 2. Allowing foreign companies to enter the industry in collaboration with domestic companies; 3. The establishment of an Insurance Regulatory Authority.

Adjudication of disputes between insurers and intermediaries. There are two councils of the Insurance Association. Additionally.I. THE INSURANCE REGULATORY AND DEVELOPMENT ACT. 1938 2. 1956 3. foreign investment in insurance companies (or joint ventures) has been restricted to ownership of twenty-six percent. The Insurance Act. Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector. 1972. Prescribing regulations on the investments of funds by insurance companies.R. THE INSURANCE ASSOCIATION OF INDIA All insurers and provident societies incorporated or domiciled in India are members of the Insurance Association of India. The Marine Insurance Act. and all insurers and provident societies incorporated or domiciled elsewhere than in India are associate members of t he Insurance Association. 1982 4. Regulating maintenance of the margin of solvency. was passed by Parliament with a view to establish THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY.As per government regulations in India today. THE TARIFF ADVISORY COMMITTEE controls and regulates the rates. 1999. REGULATORY PROVISIONS 1. Supervising the functioning of the Tariff Advisory Committee. 1963 5. 5. The Motor Vehicles Act.B. subject to R. advantages. permission and a license from the I. . and 6.D. The Life Insurance Corporation Act.A. 2. namely the Life Insurance Council and the General Insurance Council. terms and conditions offered by insurers in the general insurance business. 3. The functions of this body include: 1. 4. Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations. The General Insurance Business (Nationalisation) Act. 1988 Most aspects of the insurance contract are dealt with by the relevant provisions of THE INDIAN CONTRACT ACT.

I. The dynamics of the capital market have a direct bearing on the performance of the ULIPs. it must obtain a CERTIFICATE OF REGISTRATION from the IRDA. The main intent of the guidelines was to ensure that they lead to greater transparency and understanding of these products among the insured. Moreover. and must also be a company registered under the Companies Act. or the members of whose governing body to the extent of one-third consists of members domiciled elsewhere than in India. especially since the investment risk is borne by the policyholder. Unit linked guidelines were notified by IRDA on 21st December 2005. The insurer is permitted to offer unit linked policies only where the units are linked to categories of assets that are both marketable and easily realizable. REQUIRED SOLVENCY MARGIN The Required Solvency Margin is an excess of the value of the insurer¶s assets over the amount of his liabilities which is to be maintained by the insurer. shall be deemed to be included in the amount invested in Government securities). Every Insurer shall invest and at all times keep invested his segregated fund of unit linked life insurance business as per pattern of investment offered to and approved by the policy-holders. The investment risk is borne by the investor. A ULIP is a life insurance policy which provides a combination of risk cover and investment. the insurer shall be deemed to be . the assets required to be invested should. UNIT LINKED POLICIES ULIP is an abbreviation for Unit Linked Insurance Policy. 1938. Every insurer is required to deposit a certain percentage of the total gross premium in India (percentages applicable vary for Life Insurance or General Insurance respectively).B. requires that insurers invest certain amounts of assets in Government securities or other approved securities within India (the above-mentioned amount deposited with the R. the Insurance Act.Ombudsmen are appointed under THE REDRESSAL OF PUBLIC GRIEVANCES RULES. (except to the extent of any part which consists of foreign assets held outside India) be held in India by way of a trust for the discharge of the liabilities. 1998. Before an insurance company can carry on the insurance business in India. failing which. 1956. In case of an insurer incorporated or domiciled outside India or an insurer incorporated in India whose share capital to the extent of one-third is owned by. whereby complaints relating to settlement of claims by insurance companies can be dealt with.

2000 No person resident in India is permitted to take any general or life insurance policy issued by an insurer outside India. 2000. an exemption has . However. However. Authorised dealers are also permitted t o settle claims in foreign currency on general insurance policies subject to certain conditions such as the claim has been made for the loss occurred during the policy period. workers in the unorganised or informal sector or for economically vulnerable or backward classes of society. however. IRDA (OBLIGATIONS OF INSURERS TO RURAL OR SOCIAL SECTORS) REGULATIONS. FOREIGN EXCHANGE LAWS Insurance companies that are registered with the IRDA. Insurance Advertisements are governed by the provisions of THE IRDA (INSURANCE ADVERTISEMENTS) REGULATIONS. intermediary or insurance agent. Every insurer is also required to submit returns annually to the IRDA. THE FOREIGN EXCHANGE MANAGEMENT (INSURANCE) REGULATIONS. during the first five years. to persons residing in the rural sector or social sector. aviation insurance for aircrafts imported from outside India on lease/hire basis for the purpose of air taxi operations etc. 2000. which seeks to regulate and control insurance advertisements issued by the insurer. the RBI may allow the same for sufficient reasons. have been complied with. LIABILITIES AND SOLVENCY MARGIN OF INSURERS) REGULATIONS. Moreover.insolvent. The requirements relating to the Required Solvency Margin are provided for by THE IRDA (ASSETS. and may be wound up by the Court. and such insurance policies shall include insurance for crops. in the case of resident beneficiaries. are permitted to issue general insurance policies denominated in foreign currency and are also permitted to receive premiums in foreign currency without the prior approval of the RBI. requires that all insurers provide life insurance or general insurance policies. the claim has been settled as per t he surveyors report and other substantiating documents. claims on account of reinsurance are being lodged with the reinsurers and will be received as per the reinsurance agreement. showing that the requirements of the Insurance Act. this is permitted only for certain kinds of cases such as marine insurance for vessels owned by foreign shipping companies and chartered by Indian companies. 2000. 1938. the claim is required to be settled in rupee equivalent of the foreign currency due and under no circumstances can payment be made in foreign currency to a resident beneficiary. the remittance is being made to the non-resident beneficiary under the policy etc.

1963. under THE INDIAN INCOME TAX ACT. 2000. in the absence of reliable data. and was set-up in collaboration with Dabur in 1995. The American International Group. INSURANCE AGENTS All persons who desire to act as an insurance agent for any insurer would have to be registered as such under the provisions of THE INSURANCE ACT AND THE IRDA (LICENSING OF AGENTS) REGULATIONS. equity and good conscience. In addition to the express provisions of the various statutes that govern insurance companies operating in India. Inc. Aviva was the first foreign insurance company in India. which contains provisions for the following insurance companies: 1.recently been made only for units located in Special Economic Zones for general insurance policies taken by such units. In case of non-resident companies carrying on the business of insurance in India. 2. Companies carrying on any other kind of insurance business. Therefore. the profits and gains is taken to be that proportion of the world income which corresponds to the proportion of the premium income derived from India. and 3. Companies carrying on life insurance business which are resident in India. principles of Common Law may also be applied in consideration of justice. . remittances towards premium for general insurance policies taken out by units located in SEZs from insurers outside India are permit ted provided that the premiums are paid out of the foreign exchange balances. Non-resident persons carrying on the business of insurance in India through a branch. ICICI Bank and Prudential PLC is another example. APPLICABILITY OF TAX LAWS Insurance companies and insurance agents in India are subject to tax for the premiums and the commissions received by them respectively. which are resident in India. was set up in collaboration with the Tata Group.