INSURANCE

CONTENT
Introduction to Insurance:
Definition and types of insurance;
History and evolution of insurance in India;
Role and importance of insurance in economic
development; Key players in the insurance sector

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WHAT IS
INSURANCE
Insurance is form of contract or an arrangement where
one party agrees in return for a consideration to pay an
agreed amount of money to another party to make good
the loss, damage or injury to something of value in
which the insured has an interest.
Being a contract of indemnity, it is based on the principle
of utmost good faith.

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WHAT IS
INSURANCE
In today’s world, insurance companies offer retail
insurance policies of varied nature including life, health,
fire, marine, etc.
Individuals purchase such policies either in their
individual capacity or the employee friendly
organizations may extend such cover as perks of the
employment.
The business of insurance extends to protection of the
economic value of assets. The owner of an asset attaches
a value to the property since it gives them some benefit
in the form of income or the loss of which could cause
irreparable loss to the owner.

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THE FIRST KNOWN WRITTEN
INSURANCE POLICY WAS ON
BABYLONIAN OBELISK
MONUMENT WITH THE CODE OF
KING HAMMURABI. THE
HAMMURABI CODE WAS ONE OF
THE FIRST FORMS OF WRITTEN
LAWS. THE BASIC INSURANCE
GAVE THE BABYLONIAN
TRADERS PROTECTION
AGAINST LOSS OF CARGO
• A contract of insurance is an agreement whereby one party, called the
insurer, undertakes, in return for an agreed consideration, called the
premium, to pay the other party, namely the insured, a sum of money or
its equivalent in kind, upon the occurrence of a specified event resulting
in a loss to him.
• The policy is a document, containing the terms and conditions, which is
an evidence of the contract of insurance.
• A contract is an agreement enforceable at law made between two or more
persons by which rights are acquired by one more persons to certain acts
or forbearance on the part of other or others.
• The Indian Contract Act, 1872, sets forth the basic requirements of a
Contract. As per Section 10 of the Act:
- “All agreements are contracts if they are made by the free consent
of parties competent to contract, for a lawful consideration and with a
lawful object, and are not hereby expressly declared to be void…..”.
- An Insurance policy is also a contract entered into between two
parties, viz., the Insurance Company and the Policyholder and fulfills the
requirements enshrined in the Indian Contract Act.

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HISTORY OF INSURANCE IN
INDIA
• In India, insurance has a deep-rooted history. It finds mention in the
writings of Manu (Manusmrithi), Yagnavalkya ( Dharmasastra ) and
Kautilya ( Arthasastra ).
• The writings talk in terms of pooling of resources that could be re-
distributed in times of calamities such as fire, floods, epidemics and
famine.
• This was probably a pre-cursor to modern day insurance. Ancient Indian
history has preserved the earliest traces of insurance in the form of
marine trade loans and carriers’ contracts. Insurance in India has evolved
over time heavily drawing from other countries, England in particular.

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LIFE INSURANCE
Year 1818 saw the advent of life insurance business in India with the
establishment of the Oriental Life Insurance Company in Calcutta. This
Company however failed in 1834.
In 1829, the Madras Equitable had begun transacting life insurance
business in the Madras Presidency.
1870 saw the enactment of the British Insurance Act and in the last
three decades of the nineteenth century, the Bombay Mutual (1871),
Oriental (1874) and Empire of India (1897) were started in the Bombay
Residency. This era, however, was dominated by foreign insurance
offices which did good business in India, namely Albert Life
Assurance, Royal Insurance, Liverpool and London Globe Insurance
and the Indian offices were up for hard competition from the foreign
companies.

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LIFE INSURANCE

The Indian Life Assurance Companies Act, 1912 was the first statutory
measure to regulate life business. In 1928, the Indian Insurance Companies
Act was enacted to enable the Government to collect statistical information
about both life and non-life business transacted in India by Indian and
foreign insurers including provident insurance societies. In 1938, with a
view to protecting the interest of the Insurance public, the earlier legislation
was consolidated and amended by the Insurance Act, 1938 with
comprehensive provisions for effective control over the activities of
insurers.

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LIFE INSURANCE

The Insurance Amendment Act of 1950 abolished Principal Agencies.

However, there were a large number of insurance companies and the level
of competition was high. There were also allegations of unfair trade
practices. The Government of India, therefore, decided to nationalize
insurance business.
An Ordinance was issued on 19th January 1956 nationalizing the Life
Insurance sector and Life Insurance Corporation came into existence in the
same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75
provident societies—245 Indian and foreign insurers in all. The LIC had
monopoly till the late 90s when the Insurance sector was reopened to the
private sector.

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GENERAL INSURANCE

• The history of general insurance dates back to the Industrial

Revolution in the west and the consequent growth of sea-faring
trade and commerce in the 17th century. It came to India as a
legacy of British occupation. 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.

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GENERAL INSURANCE

• In 1972 with the passing of the General Insurance Business

(Nationalization) 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 commence business on January 1st
1973.
• Recently, the Central Government has proposed merger of 3
Public Sector General Insurance Companies, except New India
Assurance Company Limited, paving the way for consolidation
in Government-run general insurance companies.

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REGULATION OF INSURANCE BUSINESS IN INDIA

• This millennium has seen insurance come a full circle in a journey extending to nearly
200 years. The process of re-opening of the sector had begun in the early 1990s and the
last decade and more has seen it been opened up substantially. In 1993, the Government
set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to
propose recommendations for reforms in the insurance sector. The objective was to
complement the reforms initiated in the financial sector. The committee submitted its
report in 1994 wherein, among other things, it recommended that the private sector be
permitted to enter the insurance industry. They stated that foreign companies be allowed to
enter by floating Indian companies, preferably a joint venture with Indian partners.

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REGULATION OF INSURANCE BUSINESS IN INDIA

Following the recommendations of the Malhotra Committee report, in 1999, the

Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000. The key objectives of the IRDA
include promotion of competition so as to enhance customer satisfaction through
increased consumer choice and lower premiums, while ensuring the financial
security of the insurance market.

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REGULATION OF INSURANCE BUSINESS IN INDIA

The IRDA opened up the market in August 2000 with the invitation for application for
registrations. Foreign companies were allowed ownership of up to 26% in the equity share
capital of the Insurer. This limit was later raised to 49% during the year 2016. The limit of
foreign investments in intermediaries has increased from 49% to 100% in year 2019. The
Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938
and has from the year 2000 onwards various regulations ranging from registration of
companies for carrying on insurance business to protection of policyholders’ interests were
framed.

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REGULATION OF INSURANCE BUSINESS IN INDIA

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. Today there are 31 General Insurance Companies including 7 Health Insurance
Companies and 24 Life Insurance Companies operating in the country. Beside IRDA Act,
1999 and Insurance Act, 1938, there are some common Act/Regulation to the General and
Life Insurance Business in India and some Acts have been made for specific requirement of
Life Insurance/ General Insurance.

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FEATURES OF AN INSURANCE CONTRACT

Aleatory
If one party to a contract might receive considerably
more in value than he or she gives up under the
terms of the agreement, the contract is said to be
aleatory. Insurance contracts are of this type because,
depending upon chance or any number of uncertain
outcomes, the insured (or his or her beneficiaries) may
receive substantially more in claim proceeds than was
paid to the insurance company in premium. On the other
hand, the insurer could ultimately receive significantly
more money than the insured party if a claim is never
filed.
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FEATURES OF AN INSURANCE CONTRACT
Adhesion
In a contract of adhesion, one party draws up the
contract in its entirety and presents it to the other party
on a ‘take it or leave it’ basis; the receiving party does
not have the option of negotiating, revising, or
deleting any part or provision of the document. Insurance
contracts are of this type, because the insurer writes the
contract and the insured either ‘adheres’ to it or is denied
coverage. In a court of law, when legal determinations
must be made because of ambiguity in a contract of
adhesion, the court will render its interpretation
against the party that wrote the contract. Typically,
the court will grant any reasonable expectation on the part
of the insured (or his or her beneficiaries) arising from an 18
FEATURES OF AN INSURANCE CONTRACT
Utmost good faith
• Although all contracts ideally should be executed in
good faith, insurance contracts are held to an even
higher standard, requiring the utmost of this quality
between the parties.
• Due to the nature of an insurance agreement, each
party needs - and is legally entitled - to rely upon the
representations and declarations of the other.
• Each party must have a reasonable expectation that
the other party is not attempting to defraud,
mislead, or conceal information and is indeed
conducting themselves in good faith.
• In a contract of utmost good faith, each party has a duty
to reveal all material information, and if any such
data is not disclosed, the other party will usually have 19
FEATURES OF AN INSURANCE CONTRACT
Executory
An executory contract is one in which the covenants of
one or more parties to the contract remain partially
or completely unfulfilled. Insurance contracts
necessarily fall under this strict definition; of course, it’s
stated in the insurance and agreement that the insurer
will only perform its obligation after certain events
take place (in other words, losses occur).

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FEATURES OF AN INSURANCE CONTRACT
Unilateral
• A contract may either be bilateral or unilateral.
• In a bilateral contract, each party exchanges a
promise for a promise. However, in a unilateral
contract, the promise of one party is exchanged for
a specific act of the other party. Insurance contracts
are unilateral in nature; the insured performs the act of
paying the policy premium, and the insurer promises to
reimburse the insured for any covered losses that may
occur.
• It must be noted that once the insured has paid the
policy premium, nothing else is required on his or her
part; no other promises of performance were made.
• Only the insurer has covenanted any further
action, and only the insurer can be held liable for 21
FEATURES OF AN INSURANCE CONTRACT
Conditional
A condition is a provision of a contract which limits the
rights provided by the contract. In addition to being
executory, aleatory, adhesive, and of the utmost good
faith, insurance contracts are also conditional. Even when
a loss is suffered, certain conditions must be met
before the contract can be legally enforced.

For example, the insured individual or beneficiary must

satisfy the condition of submitting to the insurance
company sufficient proof of loss, or prove that he or she
has an insurable interest in the person insured

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FEATURES OF AN INSURANCE CONTRACT
Personal contracts
Insurance contracts are usually personal agreements
between the insurance company and the insured
individual, and are not transferable to another person
without the insurer’s consent. (Life insurance and
some maritime insurance policies are notable exceptions
to this standard.)
As an illustration, if the owner of a car sells the vehicle and
no provision is made for the buyer to continue the existing
car insurance (which, in actuality, would simply be the
writing of the new policy), then coverage will cease with
the transfer of title to the new owner.

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FEATURES OF AN INSURANCE CONTRACT
Warranties and Representations
A warranty is a statement that is considered guaranteed to
be true and, once declared, becomes an actual part of the
contract. Typically, a breach of warranty provides
sufficient grounds for the contract to be voided.
Conversely, a representation is a statement that is
believed to be true to the best of the other party’s
knowledge. In order to void a contract based on a
misrepresentation, a party must prove that the information
misrepresented is indeed material to the agreement.
According to the laws of most states and in most
circumstances, the responses that a person gives on an
insurance application are considered to be a
representations, and not warranties
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FEATURES OF AN INSURANCE CONTRACT
As an example, consider an individual seeking life
insurance coverage. He or she would routinely be required
to complete an application, on which the applicant’s sex
and age would be requested. The accuracy of this
information is necessary for the insurer to correctly
ascertain its risk and determine the policy premium. If the
applicant gives these responses incorrectly, they would
likely be deemed (in the absence of outright fraud) as
misrepresentations, and could possibly be used by the
insurance company as grounds for voiding the policy.

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FEATURES OF AN INSURANCE CONTRACT
Misrepresentations and Concealments
A misrepresentation is a statement, whether written or
oral, that is false. Generally speaking, in order for an
insurance company to void a contract because of
misrepresented information, the information in question
must be material to the decision to extend coverage.
Concealment, on the other hand, is the failure to disclose
information that one clearly knows about. To void a
contract on the grounds of concealment, the insurer
typically must prove that the applicant willfully and
intentionally concealed information that was of a material
nature

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FEATURES OF AN INSURANCE CONTRACT
Impersonation (false pretenses) When one person
assumes the identity of another for the purpose of
committing a fraud, that person is guilty of the offense of
impersonation (also known as false pretenses). For
instance, an individual that would likely be turned down
for insurance coverage due to questionable health might
request a friend to stand in for him (or her) in order to
complete a physical examination.

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FEATURES OF AN INSURANCE CONTRACT
Parol (or Oral) evidence rule
This principle limits the effects that oral statements
made before a contract’s execution can have on the
contract. The assumption here is that any oral
agreements made before the contract was written were
automatically incorporated into the drafting of the
contract. Once the contract is executed, any prior oral
statements will therefore not be allowed in a court of law
to alter or counter the contract.

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LIFE ASSURANCE PRODUCTS
Term Insurance Product
These are pure life insurance
products where the benefit (lump
sum) is payable only on the
happening of death during the term
of the life insurance policy. These
policies cover the risk of dying early
and provide a lump sum to the
Nominee (usually a Family member)
to take care of their future needs.

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LIFE ASSURANCE PRODUCTS
In case the Life assured survives the Term of the Policy,
nothing is payable. However, there are options available
for return of premiums paid in case the Life assured
survives the term of the Policy. These Policies are taken for
a fixed term. Premiums under Term insurance products are
relatively the lowest as they do not have any savings
component. This is the cheapest of all the Life insurance
policies. Premium depends upon the age of the life
insured. Higher the age, higher the premium, as the risk
taken by the life insurance company increases with age.

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LIFE ASSURANCE PRODUCTS
Term insurance policies are still not popular as the level of
insurance awareness in India is very low. Generally,
Policyholders expect a benefit payable during their
lifetime. Since Term insurance products do not provide any
benefit during survival of the Life assured (except for
Return of premiums upon survival till the end of the term
of the Policy), these products are still unpopular

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LIFE ASSURANCE PRODUCTS
Whole Life Insurance Products
As the name suggests, whole life insurance products cover the risk of dying
early till the person’s death, as compared to a Term where the risk coverage
is available only till the expiry of the term mentioned in the Policy, say 5
years, 10 years, 15 years etc., as chosen by the Policyholder.

Essentially, Whole Life insurance products are extensions of Term insurance

products and also provide benefits (usually lump sum) payable only on the
death of the life assured. But the coverage is available through out the life.

However, generally across various life insurance companies, where the life
assured attains the age of 85, the Sum assured is paid to the Policyholder if
he/she survives age 85. In case of Participating products, bonuses are also
paid. For the reasons mentioned under Term insurance products, even Whole
Life insurance products are also not popular.
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LIFE ASSURANCE PRODUCTS
Endowment Products
Under Endowment products, the benefits (Sum assured) are payable
either upon death during the term of the Policy or if the Life assured
survives the maturity of the Policy, upon maturity of the policy,
whichever is earlier. Therefore, at the end of the Policy term, in case
the Life assured survives, the Policyholder gets a lump sum benefit. In
case of Participating products, the Bonuses declared are also paid
upon the death or maturity (reversionary bonuses).

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LIFE ASSURANCE PRODUCTS
Money Back Products
These are extensions of Endowment products where under, the
Policyholder is entitled to periodic payouts, if he survives specified
terms during the tenure of the Policy.

For example, if the Life assured survives 10 years from the date of
taking the Policy, 25% of the Sum Assured shall be paid, 50% at the
end of 15 years and the balance on Maturity. Under these products,
the Sum Assured, instead of being paid only upon survival on
maturity, is accelerated and paid in installments. However, in the
event of death anytime during the term of the Policy, full Sum Assured
is paid, irrespective of the installments that may have been paid
already.
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LIFE ASSURANCE PRODUCTS
Linked Life Insurance Products
These are Life insurance products which are a combination of Term
insurance plus Investments. Under Linked insurance products, after
deducting the premium towards mortality (risk premium) for covering
the benefit payable on death, the Life insurer allocates the balance
premium available for investments in market-linked instruments (like
Mutual fund) and declare Net Asset Value of the investment portion.

On death, the Nominee usually gets the Sum Assured + Fund value on
date of death. However, there are other options available. Upon
maturity, usually only the Fund value is paid.

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LIFE ASSURANCE PRODUCTS
Variable Life Insurance Products
These are also called Universal Life Products, which provide a
guaranteed interest credits (like a Bank account) in addition to Life
insurance cover. These are in the nature of Deposit-linked-life
insurance products. However these products are not popular in India.

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HEALTH INSURANCE PRODUCTS
Health Insurance policy
Health insurance policies reimburse the medical expenses incurred for the policy holder and
identified family members who are covered under the policy. This policy provides for
reimbursement of hospitalization or domiciliary treatment expenses for illness or accidental
injury up to the sum insured under the policy. The expenses that can be claimed, such as
consultation fees, medicine and treatment costs, room costs, are specified in the
policy and sub-limits may be fixed for each head. Claim is typically allowed only for “In-
patient” (patients who are admitted in a hospital for treatment that requires at least overnight
or 24 hours of stay in hospital) treatments and domiciliary treatments (patients can be treated
at home when they are not in a condition to be moved to the hospital), according to the terms
of the policy.

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HEALTH INSURANCE PRODUCTS
Critical illness insurance
This policy provides for a lump sum benefit to be paid if the insured contracts certain specified
diseases such as cancer, heart attack, stroke, kidney failure or multiple sclerosis. It differs
from life insurance in that there is no payment on death. Reimbursement is usually subject to
a minimum survival period of 30 days after diagnosis of the critical illness. The lump sum
payment under the critical illness policy can be used in whatever way the claimant chooses. It
could be used for example, for generating income, or for repaying a
mortgage.

Overseas Travel Insurance

Travel insurance provides medical, financial and other assistance in case of an emergency
during international travel. The cover will typically be provided for instances such as medical
help required, delay in baggage clearance, accident and any additional cover required. The
cover will be in the form of reimbursement upto the maximum amount mentioned in the
policy. Travel insurance may be mandatory for travel to some countries.

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GENERAL INSURANCE PRODUCTS
Personal Accident Insurance
This type of policy provides that if the insured shall sustain any bodily injury resulting solely
and directly from accident caused by external violent and visible means, then the company
shall pay to the insured or his legal personal representative, as the case may be, the sum
defined in the policy. Following types of disablement are covered under this policy:
● Permanent total disablement
● Permanent Partial disablement
● Temporary total disablement

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GENERAL INSURANCE PRODUCTS
Fire insurance policies cover the risk of loss arising out of unforeseen fire
accidents with the limit of the Sum assured. These products are more popular
in Corporates than with individuals. They are designed to provide financial
protection for property against loss or damage by fire and other specified
perils. Reinstatement value clauses are attached to Fire policies under which
the amount payable is the cost of reinstating property of the same kind or
type, by new property.

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GENERAL INSURANCE PRODUCTS
Marine insurance policies comprise of Cargo insurance and hull insurance.
Cargo insurance provides insurance cover in respect of loss of or damage to
goods during transit by rail, road, sea or air. Hull insurance on the other
hand, concerns the insurance of ships (hull, machinery etc.)

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GENERAL INSURANCE PRODUCTS
Motor Insurance
Under this insurance, the company indemnifies the insured in the event of
accident caused by, or arising out of the use of the motor vehicle, anywhere
in India against all sums including claimant’s cost and expenses which the
insured shall become legally liable to pay in respect of (i) death or bodily
injury to any person, (ii) damage to the property other than property
belonging to the insured or held in trust or custody or control of the insured.

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This Photo by Unknown Author is licensed under CC BY-ND
GENERAL INSURANCE PRODUCTS
Insurance of Motor Vehicles are covered under the Motor Vehicles Act 1939.
Insurance of motor vehicles against damage is not made compulsory, but
the insurance against third party liability arising out of the use of motor
vehicles in public places is made compulsory. Insurance Cover against
damage is known as “Own Damages” and against injury or death to a third
party is known as “Third Party” claim. No motor vehicle can ply in a public
place without such insurance. Recently, pursuant to a Supreme Court
decision, all Insurers are mandated to issue Long term policy for Third Party
risks- Three years for new private cars and five years for new two wheelers.

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GENERAL INSURANCE PRODUCTS
Insurance of Motor Vehicles are covered under the Motor Vehicles Act 1939.
Insurance of motor vehicles against damage is not made compulsory, but
the insurance against third party liability arising out of the use of motor
vehicles in public places is made compulsory. Insurance Cover against
damage is known as “Own Damages” and against injury or death to a third
party is known as “Third Party” claim. No motor vehicle can ply in a public
place without such insurance. Recently, pursuant to a Supreme Court
decision, all Insurers are mandated to issue Long term policy for Third Party
risks- Three years for new private cars and five years for new two wheelers.

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GENERAL INSURANCE PRODUCTS
Property Insurance
Property insurance provides protection against most risks to property such
as fire, theft etc. Property insurance generally means insuring the structure
and the contents of the building against natural and man-made disasters.
Wilful destruction of property, loss/ damage due to normal wear and tear is
generally not covered. Valuables such as jewellery and art and antiques
typically require an add-on or separate insurance policy.

This Photo by Unknown Author is licensed under CC BY-ND 45

GENERAL INSURANCE PRODUCTS
Rural Insurance
Rural insurance includes the following categories of products:
(a) Cattle Insurance
(b)Sheep and Goat Insurance
(c) Poultry Insurance
(d)Dog Insurance
(e) Silk Worm Insurance
(f) Honey Bee Insurance
(g)Horticulture/Plantation Insurance Scheme
(h)Comprehensive Floriculture Insurance
(i) Agriculture Pump set Policy
(j) Salt Works Insurance
(k) Cycle Rickshaw Policy
(l) Animal Driven Cart Insurance
(m) Gobar Gas Insurance
(n)Hut Insurance
(o) Weather/Crop Insuranc

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