Understanding Insurance and Insurance Law

Presented by :
Archana Vaze
BE, MBA, LLB,DCL, DCIA, FIII
Assistant Professor
College of Insurance
Insurance Institute of India

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What is Risk
• The uncertainty part of any activity that cannot be
reasonably foreseen to happen within a particular
time or in a particular manner

• Dependent on the operation of various factors, some

real and some imaginary

• In all activities, enterprises, businesses, even life itself,

human beings come across various risks

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Risk Perception
• A person can decide to totally ignore the risk and do the
activity or avoid doing the activity itself
• depending on the options at his disposal and the possible
benefits of involving in the activity.
• Risk perception is the subjective judgment that people
make
• about the characteristics & severity of a risk.
• E.g. natural hazards/ environmental threats/ health risks/
nuclear power.

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Risk In Insurance Terminology
• Risk refers to the very subject matter of insurance.

• E.g. Building/ person protected by insurance can be called a

risk.

• The peril that the subject of insurance is exposed to can also

be called a risk.

• E.g. The peril of fire that can damage the insured building
can be called risk.

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 Perils and Hazards

• Any risk that can be quantified can theoretically/ potentially be insured.

• Specific kinds of risk that may give rise to claims are known as "perils".
• A ‘Peril’ is a cause of loss, e.g. fire, hail, earthquake, theft etc.
• Insurance policies specify in detail, the perils which are covered/ by the
policy and those which are not.
• Hazards are conditions that create or aggravate the chance of a loss arising
from a given peril or a particular condition.

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Perils and Hazards

Hazards
Physical
Moral

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Who needs to know about Risk ?

Regulators Employee

Businesses Financiers

Individuals Risk Clients

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Various Kinds of Risk

Physical Business Personal

Virtual/Liability

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Steps In Risk Management

Risk Identification

Risk Reduction

Risk Retention

Risk Transfer

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 Some Major Law applicable to Insurance sector

• Insurance Law 1938 and its subsequent amendments

• The Life Insurance Corporation (LIC) Act, 1956
• The General Insurance Business (GIB) (Nationalization) Act, 1972
• Motor Vehicle act 1988 and its subsequent amendments
• Insurance Regulatory and Development Authority (IRDA) Act, 1999 and subsequent
amendment in 2015
• Marine Insurance Act, 1963
• The Public Liability Insurance Act, 1991
• The Employee’s Compensation Act,1923 [as amended through
EC(Amendment)Act,2017]
• The provisions of the Indian Contract Act, 1872

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 Importance and Specialties of Insurance regulation
• Protecting Policyholders
• Enshrining National Interests & Governmental Policies
• Ensuring Long-term Financial Solvency of Insurers
• Evaluating Insurance Products Technically and Legally
• Establishing Systems for Scientific Pricing
• Setting Prudential Restrictions in Managing Public Funds
• Exercising Caution in Reinsurance
• Providing a Level Playground for the Insurance Industry
• Compiling and Sharing Information
• Developing the Market

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 Roles Functions and responsibilities of IRDAI
• To systematize, regularize, develop and regulate the insurance business
• To provide suggestions to the Government to formulate necessary policy for
systematizing, regularizing, developing and regulating the insurance business,
• To set out guidelines for insurers to invest their fund and prescribe the priority sectors
for such investment,
• To license/ register and renew the Insurer, Insurance Agent, Surveyor or Broker and to
cancel or cause to cancel such registration,
• To arbitrate in the disputes, which arises between the insurer and insured,
• To decide on complaints filed by the insured regarding settlement of liability,
• To issue necessary directives to the insurer from time to time on insurance business,
• To formulate necessary basis for protecting the interests of the insured,
• To do or cause to do other necessary functions regarding insurance business.

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 Various Law applicable to Insurance sector
Sr. No. Year of Notification Title of the IRDAI Regulations Type / Category of Regulation
1 2000 IRDA (Actuarial Report and Abstract) ReguIations,2000 Actuarial
2 2016 IRDAI (Qualification of Actuary) Regulations, 2016
3 2016 IRDAI (Assets, Liabilities, and Solvency Margin of General Insurance Business) Regulations, 2016
4 2016 IRDAI (Assets, Liabilities, and Solvency Margin of Life Insurance Business) Regulations, 2016
5 2017 IRDAI (Appointed Actuary) Regulations, 2017
6 2015 IRDAI (Places of Business) Regulations, 2015 As per Provisions of the
7 2016 IRDAI (Loans or Temporary advances to the Full-time Employees of the Insurers) Regulations, 2016 Insurance / IRDA Act.
8 2002 IRDA (Manner of Receipt of Premium) ReguIations,2002
9 2000 IRDA (Annual Report - Furnishing of Returns, Statements and Other Particulars) Regulations, 2000 Finance / Accounts
10 2002 IRDA (Distributions of Surplus) ReguIations,2002
11 2002 IRDA (Preparation of Financial Statements and Auditors' Report of Insurance Companies) Regulations, 2002
12 2011 IRDA (Issuance of Capital by Life Insurance Companies) Regulations, 2011
13 2011 IRDA (Scheme of Amalgamation and Transfer of General Insurance Business) 2011
14 2013 IRDA (Issuance of Capital by General Insurance Companies) Regulations, 2013
15 2013 IRDA (Scheme of Amalgamation and Transfer of Life Insurance Business) Regulations, 2013
16 2015 IRDAI (Other Forms of Capital) Regulations, 2015
17 2015 IRDAI (Transfer of Equity Shares of Insurance Companies) Regulations, 2015
18 2015 IRDAI (Minimum Limits for Annuities and other Benefits) Regulations, 2015
19 2015 IRDAI (Acquisition of Surrender and Paid up values) Regulations, 2015
20 2015 IRDAI (Issuance of Capital by Indian Insurance Companies transacting other than Life Insurance business) Regulations, 2015
21 2015 IRDAI (Issuance of Capital by Indian Insurance Companies transacting Life Insurance business) Regulations, 2015
22 2016 IRDAI (Expenses of Management of Insurers transacting life insurance business) Regulations, 2016
23 2016 IRDAI (Expenses of Management of Insurers transacting General or Health Insurance Business) Regulations, 2016
24 2016 IRDAI (Investment) Regulations, 2016 Investment
25 2017 IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 Market Conduct
26 2016 IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016
27 2017 IRDAI (Protection of Policyholders’ Interests) Regulations, 2017
28 2016 IRDAI Staff (Officers and Other Employees) Regulations, 2016 IRDAI Officers / Staff
29 2012 IRDA (Sharing of confidential information concerning domestic or foreign entity) Regulations, 2012 Operations
30 2015 IRDAI (Micro Insurance) Regulations, 2015

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 Various Law applicable to Insurance sector
Year of Type / Category of
Sr. No. Title of the IRDAI Regulations
Notification Regulation
31 2000 IRDA (The Insurance Advisory Committee) (Meeting) Regulations, 2000 As per Provisions of the
32 2000 IRDA (Meetings) ReguIations, 2000 Insurance / IRDAI Act.
33 2015 IRDAI (Obligations of Insurers to Rural and Social sectors) Regulations, 2015
34 2015 IRDAI (Obligation of Insurer in respect of Motor Third Party Insurance Business) ReguIations,2015
35 2019 IRDAI (Re-insurance Advisory Committee) Regulations, 2019
36 2015 IRDAI (Registration of Insurance Marketing Firm) Regulations, 2015 Registration /
37 2015 IRDAI (Insurance Services by Common Service Centres) Regulations, 2015 Intermediary
38 2016 IRDAI (Appointment of Insurance Agents) Regulations, 2016
39 2019 IRDAI (Insurance Services by Common Public Services Centers) Regulations, 2019
40 2019 IRDAI (Regulatory Sandbox) Regulations, 2019 Sandbox
41 2000 IRDA (Registration of Indian Insurance Companies) ReguIations,2000 Registration / Insu. Co.
42 2015 IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers other than Lloyd’s) Regulations, 2015. Registration / Insu. Co.
43 2016 IRDAI (Lloyd’s India) Regulations, 2016 Registration / Insu. Co.
44 2015 IRDAI (Insurance Surveyors and Loss Assessors) ReguIations, 2015 Registration /
45 2015 IRDAI (Registration of Corporate Agents) Regulations, 2015 Intermediary
46 2016 IRDAI (TPA- Health Services) Regulations, 2016
47 2017 IRDAI (Insurance Web Aggregators) Regulations, 2017
48 2018 IRDAI (Insurance Brokers) Regulations, 2018
49 2015 IRDAI (Insurance Advertisements and Disclosure) Regulations, 2015 Operations
50 2015 IRDAI (Maintenance of Insurance Records) Regulations, 2015
51 2015 IRDAI (Fee for granting written acknowledgement of the receipt of Notice of Assignment or Transfer) Regulations, 2015
52 2015 IRDAI (Fee for registering, cancellation or change of Nomination) Regulations, 2015
53 2015 IRDAI (Inspection and Fee for Supply of Copies of Returns) Regulations, 2015
54 2016 IRDAI (Health Insurance) Regulations, 2016
55 2016 IRDAI (Issuance of e-Insurance Policies) Regulations, 2016
56 2018 IRDAI (Standard proposal form for Life Insurers) (Repeal) Regulations, 2018
57 2018 IRDAI (Re-Insurance) Regulations, 2018
58 2019 IRDAI (Non-Linked Insurance Products) Regulations, 2019
59 2019 IRDAI (Unit Linked Insurance Products) Regulations, 2019
60 2020 IRDAI (Minimum Information Requird for Investigation and Inspection) Regulations, 2020
61 2010 IRDAI (Sharing of Database for Distribution of Insurance Products) ReguIations,2010

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Principle specific to Insurance law

• Principles of Insurance:
• Utmost Good Faith
• Insurable Interest
• Indemnity
• Proximate Cause
• Corollaries
• Subrogation
• Contribution
• Application
• Depreciation

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Utmost Good Faith

• The Insured is buying a promise based on certain

information declared by him
• The seller sells the promise/ charges consideration based
on and believing the information furnished by the
proposer.
• Non-disclosure of some facts can make the value of the
promise much costlier than the consideration charged
and
• Even change the fundamentals based on which the
insurer gave the promise.

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Utmost Good Faith

• The principle of utmost good faith is supported by three

important legal doctrines as follows:

• Representations

• Concealment

• Warranty

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Insurable interest
The principle of insurable interest states that the insured
must be in a position to lose financially if a loss occurs,
or to incur some other kind of harm if the loss takes
place.
All insurance contracts must be supported by an
insurable interest.
• To prevent gambling
• To reduce moral hazard
• To measure the amount of the insured’s loss in
property insurance

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Indemnity

• Why this principle?

• Two purposes:
• First， prevent the insured from profiting from a loss.
• Second, reduce moral hazard.

• How to do？
• Limits on the amount paid
• Other contract (Insurance) provisions

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Exceptions to Indemnity

Life Insurance：

• Life insurance contract is not a contract of indemnity.

• It is a valued policy that pays a stated sum to the beneficiary
upon the insured’s death.
• The actual cash value (replacement cost less depreciation) is
meaningless in determining the value of human life.

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Proximate Cause
In many cases, a loss is caused by several reasons, not a single
one. Thus, the “principle of proximate cause” is used to decide
on the admissibility under the existing insurance contract.

It means among several causes, the insurer tries to examine

whether the most effective and decisive cause for the loss is;
• The named peril of the insurance contract
Or
• is not excluded cause under the coverage of the insurance
contract.
• If answer is yes to both the above , the insurer will honor the
claim

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Proximate Cause
• Definition as per English case of Pawsey vs. South Union & National
Insurance Co. (1907):
• The “active efficient cause, that sets in motion a train of events
which bring about a result without the intervention of any force,
started and working actively from a new and independent source”.

• Definition as per English case of Leyland Shipping Company v

Norwich Union Fire Insurance Society Ltd. (1918) by Lord Shaw
• “The insurer is liable for a loss proximately caused by a peril
insured against. The cause which is truly proximate is that which is
proximate in efficiency”.

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 Subrogation
• Subrogation has three basic purposes:

• First, prevent the insured from collecting twice for the same loss.

• Second, hold the guilty person responsible for the loss.

• Third, help to hold down insurance rates.

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 Contribution

• “In the event of multiple policies covering the same subject matter of insurance, the
principle of contribution, provides for an equitable sharing of any loss between all the
insurers according to their respective insurances” (Denis Riley, 1967).

• Where a risk is insured vide more than one insurance policy (E.g. Loss of luggage on
both a travel and household policy), two insurers concerned may share the cost of any
claim.

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Contribution

• Multiple policies
• Covering same property/ risk
• Shared in the proportion of the sum insured
• Covers the same loss
• Why only one insurer should suffer

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 Depreciation
• A decrease in the value of any type of tangible property over a period of time
resulting from use, wear and tear or obsolescence.
• The periodic write-off of value of a capital asset (building, vehicle, piece of
equipment, etc.) over the asset’s useful life.
• Such allowance for value deduction for the assets is unconnected with the
financial allowance allowed under tax law and is purely a technical adjustment
over the asset’s useful life.

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Insurance Sector

Specialized
& Health

Insurance

Life Non Life

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 Health

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Various departments in insurance company

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Thank you

Archana Vaze
BE, MBA, LLB,DCL,DCIA, FIII
College of Insurance
Insurance Institute of India
Email: vaze@iii.org.in

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