THE INSURANCE ACT

,1938
MANALISA MEDHI
ASSISTANT PROFESSOR
DR. R.K.B.LAW COLLEGE, DIBRUGARH
History

 The Insurance Act was introduced to regulate the activities of insurance companies. This Act
prevents companies from being speculative and forces them to Act on sound actuarial
principles. Before the original Insurance Act 1938, a life insurance company’s Act was passed
in 1912. The drawback of this Act was that there was discrimination between Indian and
foreign companies.
 Indian companies were required to make deposits with the government. But the foreign
companies were exempted from this rule. This led to resentment amongst the Indian
companies against the British government. The success of the independence and non-
cooperation movement helped the Indian insurance companies. The Indian insurance
companies then became the face of the swadeshi movement. The total insurance business
grew from 22.44 crores in 1914 to 298 crores in 1938. India also saw an increase in the
number of insurance companies from 44 to 176 in the same period.
 A committee was appointed by the government of India to study this problem and find
solutions. The result of this investigation was the Insurance Act 1938. It was the first
comprehensive legislation passed by the government. This Act governed both life and non-life
companies providing strict control over the insurance business.
INTRODUCTION

 THE ACT CAME INTO FORCE FROM 1 ST JULY 1939.

 THE ACT CONTAINS PROVISIONS REGARDING LICENCING OF AGENTS AND THEIR
REMUNERATION, PROHIBITIONS OF REBATES, AND PROTECTION OF POLICY
HOLDER’S INTEREST.
 IT ALSO HAS PROVISIONS PLACING LIMITS ON THE EXPENSES OF INSURERS, USE
OF FUNDS AND PATTERNS OF INVESTMENTS, MAINTAINING SOLVENCY LEVELS,
AND CONSTITUTIONS OF INSURANCE ASSOCIATIONS AND INSURANCE COUNCILS
AND THE TARIFF ADVISORY COMMITTEE FOR GENERAL INSURANCE.
The salient features of the Insurance Act
1938

 Forming a department of insurance to overlook all the insurance business.

 Mandatory registration of insurance companies.
 Compulsory submission of annual financial returns of insurance companies.
 A provision for initial deposits was made to allow only genuine companies in the
insurance sector.
 Other important provisions such as the prohibition on rebate, restriction on
licensing, and commission payment were introduced in order to instill
professionalism into the business.
 Insurance companies had to go through a periodical evaluation to assess their
financial stability.
 Policies with a standardized format were introduced.
 Certification of the premium tables through an actuary was made compulsory.
Some important provisions are as
follows:

 Sec. 40(1) prohibition of payments by way of commission or otherwise for

procuring business.
 Sec. 41(1) Prohibition of rebates.
 Sec.42 Licensing of insurance agents
 Sec. 44 Prohibition of cessation of payments of commission