CHAPTER 1

INTRODUCTION

1.1 THE INDIAN INSURANCE SECTOR:

 The Indian Insurance Sector is basically divided into two categories – Life Insurance and
Non-life Insurance. The Non-life Insurance sector is also termed as General Insurance. Both
the Life Insurance and the Non-life Insurance is governed by the IRDAI (Insurance
Regulatory and Development Authority of India).

The role of IRDA is to thoroughly monitor the entire insurance sector in India and also act
like a custodian of all the insurance consumer rights. This is the reason all the insurers have
to abide by the rules and regulations of the IRDAI.

The Insurance sector in India consists of total 57 insurance companies. Out of which 24
companies are the life insurance providers and the remaining 33 are non-life insurers. Out
which there are seven public sector companies.

Life insurance companies offer coverage to the life of the individuals, whereas the non-life
insurance companies offer coverage with our day-to-day living like travel, health, our car and
bikes, and home insurance. Not only this, but the non-life insurance companies provide
coverage for our industrial equipment’s as well. Crop insurance for our farmers, gadget
insurance for mobiles, pet insurance etc. are some more insurance products being made
available by the general insurance companies in India.

The life insurance companies have gained an investment prospectus in the recent times with
an idea of providing insurance along with a growth of your savings. But, the general
insurance companies remain reluctant to offer pure risk cover to the individuals.

Insurance industry in India has seen a major growth in the last decade along with an
introduction of a huge number of advanced products. This has led to a tough competition with
a positive and healthy outcome.
Insurance sector in India plays a dynamic role in the wellbeing of its economy. It
substantially increases the opportunities for savings amongst the individuals, safeguards their
future and helps the insurance sector form a massive pool of funds.

With the help of these funds, the insurance sector highly contributes to the capital markets,
thereby increasing large infrastructure developments in India.

1.2 History of Insurance in India in brief:

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu
( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The
writings talk in terms of pooling of resources that could be re-distributed in times of
calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to
modern day insurance. Ancient Indian history has preserved the earliest traces of
insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has
evolved over time heavily drawing from other countries, England in particular.
 
  In 1818 saw the advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In
1829, the Madras Equitable had begun transacting life insurance business in the Madras
Presidency. 1870 saw the enactment of the British Insurance Act and in the last three
decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and
Empire of India (1897) were started in the Bombay Residency. This era, however, was
dominated by foreign insurance offices which did good business in India, namely Albert
Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian
offices were up for hard competition from the foreign companies.
 
     In 1914, the Government of India started publishing returns of Insurance Companies
in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure
to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to
enable the Government to collect statistical information about both life and non-life
business transacted in India by Indian and foreign insurers including provident insurance
societies. In 1938, with a view to protecting the interest of the Insurance public, the
earlier legislation was consolidated and amended by the Insurance Act, 1938 with
comprehensive provisions for effective control over the activities of insurers.
 
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there
were a large number of insurance companies and the level of competition was high.
There were also allegations of unfair trade practices. The Government of India, therefore,
decided to nationalize insurance business.
 
      An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector
and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154
Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign
insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was
reopened to the private sector.
 
     The history of general insurance dates back to the Industrial Revolution in the west and
the consequent growth of sea-faring trade and commerce in the 17th century. It came to India
as a legacy of British occupation. General Insurance in India has its roots in the establishment
of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the
Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes
of general insurance business.
1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton
of India. The General Insurance Council framed a code of conduct for ensuring fair conduct
and sound business practices.
 
    In 1968, the Insurance Act was amended to regulate investments and set minimum
solvency margins. The Tariff Advisory Committee was also set up then.
 
    In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general
insurance business was nationalized with effect from 1st January, 1973. 107 insurers were
amalgamated and grouped into four companies, namely National Insurance Company Ltd.,
the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United
India Insurance Company Ltd. The General Insurance Corporation of India was incorporated
as a company in 1971 and it commence business on January 1sst 1973.
 

The Past of Insurance Sector In India

In the history of the Indian insurance sector, a decade back LIC was the only life insurance
provider. Other public sector companies like the National Insurance, United India Insurance,
Oriental Insurance and New India Assurance provided non-life insurance or say general
insurance in India.

However, with the introduction of new private sector companies, the insurance sector in India
gained a momentum in the year 2000. Currently, 24 life insurance companies and 30 non-life
insurance companies have been aggressive enough to rule the insurance sector in India.

But, there are yet many more insurers who are awaiting for IRDAI approvals to start both life
insurance and non-life insurance sectors in India.

The Present of Insurance Sector In India

So far as the industry goes, LIC, New India, National Insurance, United insurance and
Oriental are the only government ruled entity that stands high both in the market share as well
as their contribution to the Insurance sector in India. There are two specialized insurers –
Agriculture Insurance Company Ltd catering to Crop Insurance and Export Credit Guarantee
of India catering to Credit Insurance. Whereas, others are the private insurers (both life and
general) who have done a joint venture with foreign insurance companies to start their
insurance businesses in India.

1.3 Meaning and Definition of Insurance Fraud:

What is Insurance Fraud?

Insurance fraud is any act committed to defraud an insurance process. This occurs when a
claimant attempts to obtain some benefit or advantage they are not entitled to, or when an
insurer knowingly denies some benefit that is due. According to the United States Federal
Bureau of Investigation, the most common schemes include: premium diversion, fee
churning, asset diversion, and workers compensation fraud. Perpetrators in these schemes can
be insurance company employees or claimants.[1] False insurance claims are insurance claims
filed with the fraudulent intention towards an insurance provider.

Insurance fraud has existed since the beginning of insurance as a commercial enterprise.[2]
Fraudulent claims account for a significant portion of all claims received by insurers, and cost
billions of dollars annually. Types of insurance fraud are diverse, and occur in all areas of
insurance. Insurance crimes also range in severity, from slightly exaggerating claims to
deliberately causing accidents or damage. Fraudulent activities affect the lives of innocent
people, both directly through accidental or intentional injury or damage, and indirectly as
these crimes lead to higher insurance premiums. Insurance fraud poses a significant problem,
and governments and other organizations try to deter such activity.

Definition of Fraud in Insurance Sector:

Fraud can be generally defined as an act or omission intended to gain dishonest or
unlawful advantage for a party (the “frauster”)or other parties. This could be achieved, for
example, by:

1. Misappropriating assets;
2. Abusing responsibilities, position of trust or a fiduciary responsibilities;
3. Deliberately misrepresenting ,concealing ,suppressing or not disclosing material facts
relevant to a financial decision ,transaction or perception of an insurer’s status.

Section 17 of The Indian Contract Act, 1872 deals with fraud. It read as:

“Fraud” means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agent, with intent to deceive another party thereto or his agent,
or to induce him to enter into the contract:-

1. the suggestion, as a fact, of that which is not true, by one who does not believe it to
be true;
2. the active concealment of a fact by one having knowledge or belief of the fact;
3. a promise made without any intention of performing it;
4. any other act fitted to deceive;
5. any such act or omission as the law specially declares to be fraudulent.

1.4 Classification of Insurance Fraud:

Hard vs. soft fraud:

Insurance fraud can be classified as either hard fraud or soft fraud.

Hard fraud occurs when someone deliberately plans or invents a loss, such as a

collision, auto theft, or fire that is covered by their insurance policy so they can
claim payment for damages. Criminal rings are sometimes involved in hard fraud
schemes that can steal millions of dollars.

Soft fraud, which is far more common than hard fraud, is sometimes also referred
to as opportunistic fraud. This type of fraud consists of policyholders exaggerating
otherwise-legitimate claims. For example, when involved in an automotive
collision an insured person might claim more damage than actually occurred. Soft
fraud can also occur when, while obtaining a new health insurance policy, an
individual misreports previous or existing conditions to obtain a lower premium on
the insurance policy.

1.5 Types of insurance:

Life Insurance:

Life insurance is different from other insurance, in that sense, the subject matter of insurance
is the life of a human. The insurer will pay a certain amount of insurance at the time of death
or at the end of a fixed term. At present, life insurance enjoys the maximum scope, because
life is the most important asset of a person.

“Life insurance is a contract under which the insurance company – in consideration of a premium paid in
lump sum or periodical installments undertakes to pay a pre-fixed sum of money on the death of the
insured or on his attaining a certain age, whichever is earlier.”

Everyone needs insurance. This insurance provides protection to the family prematurely or
provides adequate amounts in old age when reducing the capacity. Under Personal Insurance,
the payment is made in the accident. Insurance is not only security but it is a type of
investment because a certain amount can return the assured to the end of death or term.

SL.NO NAME OF THE LIFE INSURANCE COMPANIES

1 BAJAJ ALLIANZ LIFE INSURANCE CO. LTD.
2 BIRLA SUN LIFE INSURANCE CO. LTD
3 HDFC STANDARD LIFE INSURANCE CO. LTD
4 ICICI PRUDENTIAL LIFE INSURANCE CO. LTD
5 EXIDE LIFE INSURANCE CO. LTD.
6 LIFE INSURANCE CORPORATION OF INDIA
7 MAX LIFE INSURANCE CO. LTD
8 PNB METLIFE INDIA INSURANCE CO. LTD.
9 KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE CO. LTD
10 SBI LIFE INSURANCE CO. LTD
11 TATA AIA LIFE INSURANCE CO. LTD.
12 RELIANCE NIPPON LIFE INSURANCE CO. LTD.
13 AVIVA LIFE INSURANCE COMPANY INDIA LIMITED
14 SAHARA INDIA LIFE INSURANCE CO. LTD.
15 SHRIRAM LIFE INSURANCE CO. LTD.
16 BHARTI AXA LIFE INSURANCE CO. LTD.
17 FUTURE GENERALI INDIA LIFE INSURANCE CO. LTD.
18 IDBI FEDERAL LIFE INSURANCE CO. LTD.
19 CANARA HSBC ORIENTAL BANK OF COMMERCE LIFE INSURANCE CO. LTD.
20 AEGON  LIFE INSURANCE CO. LTD.

General Insurance:

General insurance includes property insurance, liability insurance, and other forms of
insurance. Fire and marine insurance are strictly called property insurance. Motor, theft,
loyalty and machine insurance involve a certain extent of liability insurance. The strict form
of liability insurance is fidelity insurance, from which the insurer compensates the insured for
losses when he is subject to payment liability to the third party.

Sl.No NAME OF THE GENERAL INSURANCE COMPANIES.

1 BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD.
2 ICICI LOMBARD GENERAL INSURANCE CO. LTD.
3 IFFCO TOKIO GENERAL INSURANCE CO. LTD.
4 NATIONAL INSURANCE CO. LTD.
5 THE NEW INDIA ASSURANCE CO. LTD.
6 THE ORIENTAL INSURANCE CO. LTD.
7 UNITED INDIA INSURANCE CO. LTD.
8 RELIANCE GENERAL INSURANCE CO. LTD.
9 ROYAL SUNDARAM GENERAL INSURANCE CO. LIMITED
10 TATA AIG GENERAL INSURANCE CO. LTD.
11 CHOLAMANDALAM MS GENERAL INSURANCE CO. LTD.
12 HDFC ERGO GENERAL INSURANCE CO. LTD.
13 EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD.
14 AGRICULTURE INSURANCE CO. OF INDIA LTD.
15 STAR HEALTH AND ALLIED INSURANCE COMPANY LIMITED
16 APOLLO MUNICH HEALTH INSURANCE COMPANY LIMITED
17 FUTURE GENERALI INDIA INSURANCE COMPANY LIMITED
18 UNIVERSAL SOMPO GENERAL INSURANCE CO. LTD.
19 SHRIRAM GENERAL INSURANCE COMPANY LIMITED,
20 BHARTI AXA GENERAL INSURANCE COMPANY LIMITED

Property Insurance:

Under the property, the insured property of the person/person is insured against a certain
specified risk. Risk can damage property in fire or marine hazard, property theft or accident.
Property of any person and society is insured against the loss of insurance and marine
hazards, the unexpected decline in the crop reduction, the unexpected death of the animals
engaged in the trade, the destruction of the machines and property theft is insured and goods.

Marine Insurance:

The Marine insurance provides protection against the loss of sea threats. In threats are
confronting with a rock, or ship, enemies, fire, and captured by the pirate etc. There is no
reason for ship, goods and freight traffic and disappearances in these hazards. So, marine
insurance ship (plow), goods and freight.

“A contract of marine insurance is a contract under which the insurance company undertakes to indemnify
the insured against losses which are incidental to the marine adventure.”
Earlier only some minor risks were insured, but now the scope of marine insurance was
divided into two parts; Ocean marine insurance and inland marine insurance. The former only
ensures the sea threats, while later the insured perils are included which can produce by the
insured’s well-known delivery of the cargo (gods) and can increase the cargo by the buyer
(importer) Go down

Fire Insurance:

Fire insurance involves the risk of fire. In the absence of fire insurance, fire waste will not
only increase the person but also the society. With the help of fire insurance, damages caused
by fire are compensated and society is not much lost. The person is given prioritization of
such loss and his property or business or industry will remain in the same condition in which
it was before the loss. Fire insurance does not only protect the loss, but it also provides some
resulting loss, under this insurance war risk, upheaval, riots etc. can also insure.

“Fire insurance is a contract, under which the insurance company, in consideration of a premium payable
by the insured, agrees to indemnify the assured for the loss or damage to the property insured against fire,
during a specified period of time and up to an agreed amount.”

Liability insurance:

General insurance also includes liability insurance, from which the insured is liable to pay the
loss of property or to compensate for the loss of personality; Injury or death is seen as
insurance fidelity insurance, automobile insurance, and machine insurance etc.

Social insurance:

Social insurance is to provide security to the weaker sections of the society who are unable to
pay the premium for adequate insurance. Pension schemes, disability benefits, unemployment
benefits, sickness insurance, and industrial insurance are different forms of social insurance.
Insurance can classify into four categories from the risk point.

Personal Insurance:

Personal insurance includes insurance of human life which can cause damage due to death,
accident, and illness. Therefore, individual insurance is further classifying by life insurance,
personal accident insurance, and health insurance.

Guaranteed Insurance:

Guarantee insurance includes losses caused by dishonesty, disappearance, and employee or

other party’s loyalty. The party must be a party to the contract. Their failure damages the first
party. For example, in export insurance, the insurer will compensate the importer on the
failure to pay the amount of loan.

Miscellaneous insurance:

Property, goods, machines, furniture, automobiles, valuable articles etc. maybe insure against
damage or destruction due to accident or disappearance due to theft. There are different forms
of insurance for each type of property, which not only provides property insurance but also
liability insurance and personal injury is also insurers.

Other forms of insurance:

In addition to property and liability insurance, there is other insurance which is including in
general insurance. Examples of such insurance are export-credit insurance, state employee
insurance so that the insurer guarantees to pay a certain amount on certain events.

1.6 Principles of Insurance: