Insurance is an arrangement providing individual protection against the risk of loss through the

pooling of risks. Insurance in India refers to the market for insurance in India which covers both
the public and private sector organizations. There are two fundamental types of insurance.
General insurance: General insurance is a general term used for all the insurance plans that
safeguard things other than life, such as your health and valuables against theft, natural
disasters, accidents, etc. Timely premiums are to be paid for the value of protection chosen by
you. The insurance company is then liable to pay you the assured sum if any damage or theft
happens to the insured entity.
Life insurance: As the name suggests, life insurance covers your life. In case of a
policyholder's premature demise within the policy term, the insurance company pays the sum
assured to the nominee. One of the most essential financial instruments, life insurance helps
your family to stay financially independent, square off liabilities taken in the form of loans,
maintain the lifestyle provided, and keep essential goals on track.
Indian Insurance Industry comprises of 54 Insurance Companies out of which 24 insurers are in
Life Insurance business offering life products, and 30 insurers are in General Insurance
business providing non-life/general insurance products to the customers countrywide.
History of General Insurance
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 Association 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 commenced business on January 1sst 1973. In December, 2000, the
subsidiaries of the General Insurance Corporation of India were restructured as independent
companies and at the same time GIC was converted into a national re-insurer. Parliament passed
a bill de-linking the four subsidiaries from GIC in July, 2002.
History of Life Insurance
Life Insurance in its modern form came to India from England in the year 1818. Oriental Life
Insurance Company started by Europeans in Calcutta was the first life insurance company on
Indian Soil. All the insurance companies established 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.In 1818 Oriental Life Insurance Company, the first life insurance
company on Indian soil started functioning.In the year 1870 Bombay Mutual Life Assurance
Society, the first Indian life insurance company started its business.In 1992The Indian Life
Assurance Companies Act enacted as the first statute to regulate the life insurance business.
In 1928 The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses. In1938 Earlier
legislation was consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insured public. In 1956 245 Indian and foreign insurers and
provident societies were 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 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
In 1907 the Indian Mercantile Insurance Ltd. set up the first company to transact all classes of
general insurance business. In 1957 General Insurance Council, a wing of the Insurance
Association of India, framed a code of conduct for ensuring fair conduct and sound business
practices After that in 1968 the Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up and in 1972 the General Insurance
Business (Nationalisation) Act, 1972 nationalised 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.
Functions of Insurance
Provides Certainty
Insurance provides certainty of payment at the uncertainty of loss. The uncertainty of loss can be
reduced by better planning and administration. But, insurance relieves the person from such
difficult tasks. Moreover, if the subject matters are not adequate, the self-provision may prove
costlier.
Provides Protection
The main function of the insurance is to provide protection against the probable chances of loss.
The time and amount of loss are uncertain and at the happening of risk, the person will suffer
loss in absence of insurance. The insurance guarantees the payment of loss and thus protects the
assured from sufferings. The insurance cannot check the happening of risk but can provide for
losses at the happening of the risk.
Risk sharing
The risk is uncertain, and therefore, the loss arising from the risk is also uncertain. When risk
takes place, the loss is shared by all the persons who are exposed to the risk. The risk-sharing in
ancient times was done only at time of damage or death; but today, on the basis of probability of
risk, the share is obtained from each and every insured in the shape of premium without which
protection is not guaranteed by the insurer.
Prevention of Loss
The insurance joins hands with those institutions which are engaged in preventing the losses of
the society because the reduction in loss causes lesser payment to the insured and so more saving
is possible which will assist in reducing the premium. Lesser premium invites more business and
more business causes lesser share to the assured.
Provides Capital
The insurance provides capital to the society. The accumulated funds are invested in productive
channels. The dearth of capital of the society is minimised to a greater extent with the help of
investment of insurance. The industry, the business and the individual are benefited by the
investment and loans of the insurers.
Improves efficiency
The insurance eliminates worries and miseries of losses at death and destruction of property. The
carefree person can devote his body and soul together for better achievement.
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.

Principles of Insurance
Principle of Utmost Good Faith

The fundamental principle is that both the parties in an insurance contract should act in good
faith towards each other, i.e. they must provide clear and concise information related to the terms
and conditions of the contract. The Insured should provide all the information related to the
subject matter, and the insurer must give precise details regarding the contract.

Principle of Insurable interest

This principle says that the individual (insured) must have an insurable interest in the subject
matter. Insurable interest means that the subject matter for which the individual enters the
insurance contract must provide some financial gain to the insured and also lead to a financial
loss if there is any damage, destruction or loss.

Principle of Indemnity

This principle says that insurance is done only for the coverage of the loss; hence insured should
not make any profit from the insurance contract. In other words, the insured should be
compensated the amount equal to the actual loss and not the amount exceeding the loss. The
purpose of the indemnity principle is to set back the insured at the same financial position as he
was before the loss occurred. Principle of indemnity is observed strictly for property insurance
and not applicable for the life insurance contract.

Principle of Contribution

Contribution principle applies when the insured takes more than one insurance policy for the
same subject matter. It states the same thing as in the principle of indemnity, i.e. the insured
cannot make a profit by claiming the loss of one subject matter from different policies or
companies.
Establishment of IRDAI
Prior to 1999, the insurance industry was strictly under the jurisdiction of the Indian government,
with only government-owned companies authorized to sell insurance. The Malhotra Committee
was created by the government in 1993 to propose reforms in the insurance sector in order to
make it more profitable.
The Committee recommended that the insurance industry be liberalized, enabling private firms
to join the market. However, if private firms join the insurance industry, an authorized body will
be required to oversee and regulate the insurance companies' operations.
The Insurance Regulatory and Development Authority Act of 1999 created IRDAI as an
independent body responsible for regulating insurance companies. The Insurance Regulatory and
Development Authority of India (IRDAI) was later established as a statutory body for the
insurance sector in April 2000. Mr. Subhash Chandra, the chairman of IRDAI, is headquartered
in Hyderabad.
Objective of implementing IRDAI
To create IRDAI, the Insurance Regulatory and Development Authority Act was passed.
● Policyholders' rights will be safeguarded.
● It is possible to regulate and encourage the insurance industry.
● Without any ambiguity, the insurance industry will expand in a controlled manner.
Duties and powers of IRDAI –
Section 14 of the IRDA Act 1999 entrusts IRDAI with a range of roles, duties, and powers.
These are the powers and responsibilities:

1. Certificates of registration are issued and renewed to insurance companies so that they can
offer insurance. Furthermore, the IRDAI has the authority to suspend, cancel, remove, or
change the registration certificate it has received.
2. In matters of assignment, appointment, claim settlements, insurable interest, surrender
value that policyholders will obtain, and other terms and conditions of the insurance
policy, IRDAI must protect policyholders' interests.
3. The IRDAI establishes the eligibility criteria, as well as the preparation and test
requirements for insurance agents. It also defines the code of ethics that insurance agents
must obey.
4. The IRDAI also provides a code of conduct for damage assessors and surveyors working
for insurance companies.
5. IRDAI's goal is to promote efficient insurance growth.
6. IRDAI performs checks, audits, and gathers relevant data from insurance firms and other
entities active in the insurance industry.
7. IRDA defines how insurance firms and their intermediaries can plan their books of
accounts and financial statements.
8. IRDAI is responsible for ensuring that insurance companies spend their funds in
accordance with the Insurance Act of 1938.
9. IRDAI also controls insurers' solvency margins. It ensures that insurers comply with the
Insurance Act of 1938's minimum solvency margin standards. The point at which an
insurer's assets outweigh its liabilities is known as the solvency margin.
10. IRDA defines a minimum percentage of insurance company that must come from the
rural and social sectors. Insurance firms, both life and general.

Principal-Agent Problem

A conflict in interests between an individual or group and the representative approved to act
on their behalf is known as the principal-agent issue. An agent can act in a way that is not in
the principal's best interests.

The principal-agent dilemma is as diverse as the principal and agent functions. It may happen
in any case where the owner of an asset, or a principal, gives another person, or agent, direct
control over that asset.

For example, a company's stock investors, as part-owners, are principals who rely on the
company's chief executive officer (CEO) as their agent to carry out a strategy in their best
interests. That is, they want the stock to increase in price or pay a dividend, or both. If the
CEO opts instead to plow all the profits into expansion or pay big bonuses to managers, the
principals may feel they have been let down by their agent.