INSURANCE ACT 1938

Soumendra Roy
 INTRODUCTION
 Insurance is the key to good financial planning. On one hand, it
safeguards your money and on the other, ensures its growth,
thus providing you with complete financial well being.
 Dictionary of business and Finance defines “Insurance as a
form of contract agreement under which one party agrees in
return for a consideration to pay an agreed amount of money to
another party to make good a loss, damage or injury to
something of value in which the insured has a interest as a
result of some uncertain event. It is a device by which loss likely
to be caused by an uncertain event is spread over a number of
persons who are exposed to it and who propose to insure
themselves against such an event”.
 DEFINITIONS
Definition of life Insurance:-
As per section 2(ii) of the Insurance Act 1938, “life insurance
business is the business of effecting contract upon human
life”.

Definition of General Insurance:-

General Insurance Corporation of India was formed in
pursuance of section 9 (1) of GIBNA. It was incorporated on 22
November 1972 under the Companies Act 1956 as a private
company limited by shares. GIC was formed for the purpose of
superintending , controlling and carrying on the business of
general insurance.
 
 IMPORTANCE OF INSURANCE
 Provides protection against occurrence of uncertain
events.
 Device for eliminating risks and sharing losses.
 Co-operative method of spreading risks.
 Facilitates international trade.
 Serves as an agency of capital formation.
 Financial support.
 Medical support.
 Source of employment.
TYPES OF INSURANCE
 PRINCIPLES OF INSURANCE

 Principle of Insurable interest.

 Principle of Utmost Good Faith.
 Principle of Indemnity.
 Principle of Subrogation.
 Principle of Contribution.
 Principle of Causa Proxima.
 Principle of Mitigation of Loss.
 LIFE INSURANCE PLANS
 Term Insurance.
 Endowment Insurance Plan.
 Money Back Policy.
 Group Life Insurance.
REGULATIONS OF INSURANCE BY IRDA
 Deposits.
 Investments.
 Valuation Of Assets.
 Submission of Returns.
 Insurance Advertisements.
 Foreign Exchange laws.
 ACTS GOVERNING INSURANCE
 The insurance Act, 1938 to govern all form of insurance and
to provide strict control over insurance business.
 Insurance Regulatory and authority act, 1999 (to provide)
for the establishment of an authority to protect the interest
of the holder of insurance policy, to regulate, promote and
ensure orderly growth of insurance industry and for matter
connected therewith or incidental thereto and future to
amend the Insurance Act, 1938, the Life Insurance
Corporation Act, 1956 and the general insurance business
(Nationalization) act, 1972.
 The Actuaries Act, 2006 (An Act to provide for regulating and
developing the profession of Actuaries and for matters
connected therewith or incidental thereto).
 INSURANCE LAW REGULATIONS
Insurance law regulations in India manage all the
matters related to various insurance companies in
the country. The concept of insurance in India dates
back to the ancient period.

 Entry of Private Companies.

 Regulatory Authorities.
 Insurance Regulatory and Development Authority.
INSURANCE REGULATORY & DEVELOPMENT
AUTHORITY
 Insurance Regulatory & Development Authority is
regulatory and development authority under
Government of India in order to protect the
interests of the policyholders and to regulate,
promote and ensure orderly growth of the
insurance industry.
 Powers and Functions of IRDA.
 Impact Of IRDA On Indian Insurance Sector.
 GUIDELINES FOR INSURANCE COMPANIES
• According to section 2C of the act, only certain business
entities may conduct insurance business in India.
• An insurance business must be a society registered under the
Co-operative Societies Act or be registered according to the
laws of any other state that relate to co-operative societies.
• A public company -- a company with shares that can be
owned by members of the public -- can be an insurance
company, and any business entity other than a private
company that is registered according to the appropriate laws
of another state can conduct insurance business in India.
• Since the Insurance Regulatory and Development Authority
Act of 1999, only Indian companies can conduct insurance
business in India.
 GUIDELINES FOR INSURANCE COMPANIES
• Registration
 Insurance companies in India must register as insurance
businesses to conduct insurance business.
 The Insurance Regulatory and Development Authority (IRDA) is
responsible for administering insurance business registration.
 The IRDA issues a certificate of authorization to each registered
insurance business, and this certificate of registration must be
renewed annually on March 31.
 Insurance businesses must apply for their renewal certificates
before Dec. 31 of the year prior to the renewal.
 According to section 3A of the act, the renewal fee varies, as it
is based on the amount of insurance premium business that
the company wrote in the year before the renewal application.
GUIDELINES FOR INSURANCE COMPANIES
• Separation of Accounts
 Some insurance businesses may conduct several types of
insurance business, such as life insurance, marine insurance
and fire insurance.
 Section 10 of the act states that when an insurance
business conducts multiple types of insurance business, the
insurer must keep a separate account for each type of
insurance business.
 If the insurer conducts life insurance business, the insurer
must not only keep separate accounts for the life insurance
business but also must keep these receipts separate from
receipts relating to other insurance business.
 The insurer must keep life insurance receipts in a fund
called the life insurance fund.
GUIDELINES FOR INSURANCE COMPANIES
• Winding Up
 The courts may order the winding up of an insurance business
under certain circumstances set out in section 53 of the act.
 Winding up means the disposal of the assets of the business
and using the proceeds to pay off outstanding debts.
 The courts may order the winding up of an insurance business
if the business has not maintained a certain level of funds with
the Reserve Bank of India.
 These funds differ from company to company and are designed
to ensure the solvency of an insurance business.
 The courts may also order the winding up of an insurance
business that has failed to comply with any provision contained
in the act and still fails to comply three months after
notification of the failure by the IRDA.
 GUIDELINES

Business Obligation
 Rural Sector
Life insurance 5% in 1st financial year
General Insurance 2% in 1st financial year

 Social Sector :- In respect of all insurer

1st year – 5000 lives
2nd year – 7500 lives
3rd year - 10000 lives
 OTHER IMPORTANT SECTION
• Section 50- An insurer must, within three months of
the lapsing of a life policy, give notice to the
policyholder in forming him of the options available
to him.
• Section 113-if premiums have been paid for three
Years under a policy where a definite number of
premiums is payable, the policy shall acquire a
surrender value and shall not lapse not with
standing any contract to the contrary, but shall be
kept in Force to the extent of its paid-up value
 OMBUDSMEN
• Appointed in accordance with the redressal of
public grievances rules 1998, to resolve all
complaints relating to settlement of claims in a
cost effective and efficient manner .
SECTION 27 :- INVESTMENT OF ASSETS
• Sec 27c :- According to this no insurer can invest the
fund of policyholders outside of India
• Sec 27D :- Manner and condition of investment
Sector Life Insurance general Insurance

Govt. Securities 25% Not less than20 %

Other approved Securities Not less then 25% More than 10 %

Infrastructure Not less than 15% Not less than 10 %

Housing and loan to govt - More than 5%

Prudential norms Maximum 20 % Maximum 30 %

 AMENDMENT OF 1950
• Large Number of Insurance companies
• High level of Competition
• Unfair trade practices
• 19th January, 1956 Nationalizing the life insurance
sector and LIC came in to existence
• LIC absorbed 154 Indian, 16 non Indian insurers
and 75 provident societies
• LIC had monopoly till the late 90 when the
insurance sector was reopened to the private sector
Major Amendments in Insurance act
• The General Insurance Business (Nationalization) Act, 1972 nationalized the
general insurance business in India with effect from 1 January 1973
• The General Insurance Business Act of 1972 was enacted to nationalize the
about 100 general insurance companies then and subsequently merging

1972 them into four companies..(Source:-

http://en.wikipedia.org/wiki/Insurance_in_India)

• The Insurance Regulatory and Development Authority Act, 1999

• The government then introduced the Insurance Regulatory and
Development Authority Act in 1999, thereby de-regulating the
insurance sector and allowing private companies.(Source:-
1999 http://en.wikipedia.org/wiki/Insurance_in_India)
 Section 45
• This section deals with the right of the insurer to
repudiate policy on the life of the insured-
“Policy not to be called in question on ground of
misstatement after 3 years”