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Unit – IV
Topic : Insurance : Meaning
The Insurance Act, 1938
This Act was passed in 1938 and was brought into force from 1st July, 1939. This act applies
to the GIC and the four subsidiaries. The act was amended several times in the years 1950,
1968, 1988, 1999. This Act specifies the restrictions and limitations applicable as specified
by the Central Government under powers conferred by section 35 of the General Insurance
Business (Nationalization) Act. The important provisions of the Act relate to:
Registration: Every insurer is required to obtain a Certificate of Registration from the
Controller of Insurance, by making the payment of requisite fees. Registration should be
renewed annually.
Accounts and audit: An insurer is required to maintain separate accounts of the receipts and
payments in each class of insurance viz. Fire, Marine and Miscellaneous Insurance. Apart
from the regular financial statements, the companies are required to maintain the following
documents in respect of each class of insurance:
 Record of Cover notes specifying the details of the risk covered
 Record of policies
 Record of premiums
 Record of endorsements
 Record of Bank guarantees
 Record of claims
 Register of agency force and business procured by each with details of
commission
 Register of employees
 Cash Books
 Reinsurance details
 Claims register
Investments: Investments of insurance company are usually made in approved investments
under the provisions of the Act. The guidelines and limitations are issued by the Central
Government from time to time.
Limitation on management expenses: The Act prescribes the maximum limits of expenses
of management including commission that may be incurred by an insurer. The percentages
are prescribed in relation to the total gross direct business written by the insurer in India.
Prohibition of Rebates: The Act prohibits any person from offering any rebate of commission
or a rebate of premium to any person to take insurance. Any person found guilty would be
punished with a fine up to five hundred rupees.
Powers of Investigation: The Central Government may at any time direct the Controller or
any other person by order, to investigate the affairs of any insurer and report to the central
government.
Other Provisions: Other provisions of the Act deal with the licensing of agents, surveyors,
advance payment of premium and Tariff Advisory Committee (TAC).

Subject: Banking and Insurance Law Course Incharge: Dr.M.Sekar

Programme : III B.Com CA

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 Prohibition of rebates
 Powers of investigation
 Licensing of agents
 Advance payments of premiums
 Tariff Advisory Committee

GENERAL INSURANCE BUSINESS NATIONALIZATION ACT, 1972

This Act came into force on 1st January, 1973. This Act gave effect to clause (c) of Article 39
of the constitution of India. Article 39 (c) read as follows:
The State shall direct its policy towards securing that the operation of the economic system
does not result in concentration of wealth and means of production so as to prove harmful to
the common interest of the community‖.
Under this Act, there were no longer private insurers in the country. As a result general
insurance business became the domain of the State. The General Insurance Corporation of
India (GIC) became the holding company with four subsidiaries, namely United India
Insurance Company with Head Office in Madras, Oriental Insurance Company with Head
Office in New Delhi, National Insurance Company with Head Office in Calcutta and New
India Assurance Company with Head Office in Bombay. The ownership of all shares of both
the Indian insurance companies and the foreign insurers from then on vested in the Central
Government with effect from 1.1.1973. The services of all the personnel in the private sector
were also transferred to the holding company and subsidiaries based on factors such as
qualification, seniority, position and location.
Objectives of the Act
The object of the Act was primarily,
 To provide for the acquisition of the shares of the existing general insurance
companies
 To serve the needs of the economy by development of general insurance business
 To establish the GIC by the central government under the provisions of the
Companies
 Act of 1956, with an initial authorized share capital of seventy – five crores.
 To aid, assist, and advise the companies in the matter of setting up of standards in the
 conduct of general insurance business.
 To encourage healthy competition amongst the companies as far as possible
 To ensure that the operation of the economic system does not result in the
concentration
 of wealth to the common detriment.
 To ensure that no person shall take insurance in respect of any property in India with
an
 insurer whose principal registered office is outside India
 To carry on of any part of the general insurance business if it thinks it desirable to do
so.
The Mission of GIC
 To provide need-based and low cost general insurance covers to rural population
 To administer a crop insurance scheme for the benefit of the farmers
Subject: Banking and Insurance Law Course Incharge: Dr.M.Sekar

Programme : III B.Com CA

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 To develop and introduce covers with social security benefits

 To develop a marketing network throughout the country including areas with low
premium potential Promote balanced regional development irrespective of cost
 considerations
 To make benefits of insurance available to the masses.

INSURANCE REGULATORY AND DEVELOPEMNT AUTHORITY (IRDA):-

The Committee on reforms of the insurance sector under the chairmanship of Shri R N
Malhotra, ex-governor of Reserve Bank of India, recommended for the creation of a more
efficient and competitive financial system in tune with global trends. It recommended
amendments to regulate the insurance sector to adjust with the economic policies of
privatization. The government in pursuance of the recommendation of the committee,
decided to establish a Provisional Insurance Regulatory and Development Authority in 1996,
to replace the erstwhile authority called the Controller of Insurance constituted under the
Insurance Act, 1938, which initially worked under the Ministry of Commerce and later
transferred to the Ministry of Finance.
Finally, the decision to establish the Insurance Regulatory and Development Authority was
implemented by the passing of the Insurance Regulatory and Development Authority Act,
1999. In India, presently after the opening up of the insurance sector, the regulator for the
monitoring of the operations of the insurance companies is the IRDA, having its head office
in Hyderabad.
 The regulatory framework mainly aims to focus on three areas, viz.,
 The protection of the interest of the consumers
 To ensure the financial soundness of the insurance industry
 To pave the way to help a healthy growth of the insurance market where both the
 government and the private players play simultaneously.
The Consumer Protection Act, 1986:-
This Act was enacted to provide for the protection of the interest of the consumers and to
make provision for the establishment of the consumer councils and other authorities for the
settlement of consumer disputes.
Consumer Protection Act, 1986 is an act of Parliament of India enacted in 1986 to protect
interests of consumers in India. It makes provision for the establishment of consumer
councils and other authorities for the settlement of consumers' disputes and for matters
connected therewith.
A consumer dispute means a dispute where the person against whom a complaint has been
made denies and disputes the allegations contained in the complaint. For the purpose of the
Act, Consumer Disputes Redressed Agencies are established in each district and state and at
the national level.
Consumer Forum Orders :-
The Redressed Forums after detailed evaluation of the cases filed can issue direction to the
opposite party to do one of the following things namely:
 To remove the defect from the goods in question.
 To replace the goods which shall be free from any defect.
 To return to the complainant the price or charges paid by him/her.
Subject: Banking and Insurance Law Course Incharge: Dr.M.Sekar

Programme : III B.Com CA

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 To pay compensation for any loss or injury suffered by the consumer due to the
negligence of the opposite party.
 To remove the defects/ deficiencies in the services in question.
 To disallow the continuation of any unfair trade practice or the restrictive trade
practice.
 Not to offer any hazardous goods for sale.
 To withdraw hazardous goods from being offered for sale.
 To provide for adequate costs to parties.
Insurance as a “service‟
The business of insurance is defined as ‗service‘ under the provisions of this act. Most of the
consumer disputes relating to insurance fall in the following categories:
 Delay in settlement of claims
 Non- settlement of claims
 Repudiation of claims
 Quantum of loss
 Policy terms and conditions.
Note: The Consumer Protection Act also takes into consideration cases pertaining to Products
Liability insurances and Professional Indemnities. The cases may pertain to injuries, etc.
caused by defective products or negligence of professionals like doctors, lawyers and
accountants. In a study conducted on 114 consumer cases adjudicated by the National
Commission during the period 1991 to 1994, 65 cases were decided against insurers and 49
cases in their favor. Can also mention about Insurance Ombudsman, though it is not through
legislation but only through a govt. notification. It is like an arbitrator facilitating redressed of
customer grievances.

Central Consumer Protection Council: -

It is established by the Central Government which consists of the following members:
 The Minister of Consumer Affairs, – Chairman, and
 Such number of other official or non-official members representing such interests as
may be prescribed.
State Consumer Protection Council: -
It is established by the State Government which consists of the following members:
 The Minister in charge of consumer affairs in the State Government – Chairman.
 Such number of other official or non-official members representing such interests as
may be
 prescribed by the State Government.
 Such number of other official or non-official members, not exceeding ten, as may be
 nominated by the Central Government.
The State Council is required to meet as and when necessary but not less than two meetings
every year.

Subject: Banking and Insurance Law Course Incharge: Dr.M.Sekar

Programme : III B.Com CA