Utmost Good Faith, Insurable Interest: Indemnity:

 Indemnity is a guarantee to restore the insured to the position he or she was in before
the uncertain incident that caused a loss for the insured. The insurer (provider) compensates
the insured (policyholder).
 The insurance company promises to compensate the policyholder for the amount of the loss
up to the amount agreed upon in the contract.
 Essentially, this is the part of the contract that matters the most for the insurance
policyholder because this is the part of the contract that says she or he has the right to
be compensated or, in other words, indemnified for his or her loss.
 The amount of compensation is in direct proportion with the incurred loss. The
insurance company will pay up to the amount of the incurred loss or the insured
amount agreed on in the contract, whichever is less. For instance, if your car is inured
for $10,000 but damages are only $3,000. You get $3,000 not the full amount.
Compensation is not paid when the incident that caused the loss doesn’t happen during the
time allotted in the contract or from the specific agreed upon causes of loss (as you will see in
The Principle of Proximate Cause). Insurance contracts are created solely as a means to
provide protection from unexpected events, not as a means to make a profit from a loss. 

CONTRIBUTION:

 Contribution establishes a corollary among all the insurance contracts involved in an incident
or with the same subject.
 Contribution allows for the insured to claim indemnity to the extent of actual loss from all the
insurance contracts involved in his or her claim.
 For instance, imagine that you have taken out two insurance contracts on your used
Lamborghini so that you are covered fully in any situation. Let’s say you have a
policy with Allstate that covers $30,000 in property damage and a policy with State
Farm that cover $50,000 in property damage. If you end up in a wreck that causes
$50,000 worth of damage to your vehicle. Then about $19,000 will be covered by
Allstate and $31,000 by State Farm.
 This is the principle of contribution. Each policy you have on the same subject matter
pays their proportion of the loss incurred by the policyholder. It’s an extension of
the principle of indemnity that allows proportional responsibility for all insurance
coverage on the same subject matter.
Subrogation
This principle can be a little confusing, but the example should help make it clear.
Subrogation is substituting one creditor (the insurance company) for another (another
insurance company representing the person responsible for the loss).
 After the insured (policyholder) has been compensated for the incurred loss on a piece of
property that was insured, the rights of ownership of this property go to the insurer.
So lets say you are in a car wreck caused by a third party and your file a claim with your
insurance company to pay for the damages on your car and your medical expenses. Your
insurance company will assume ownership of your car and medical expenses in order to step
 in and file a claim or lawsuit with the person who is actually responsible for the accident (i.e.
the person who should have paid for your losses).
The insurance company can only benefit from subrogation by winning back the money it paid
to its policyholder and the costs of acquiring this money. Anything paid extra from the third
party, is given to the policyholder. So lets say your insurance company filed a lawsuit with
the negligent third party after the insurance company had already compensated you for the
full amount of your damages. If their lawsuit ends up winning more money from the
negligent third party than they paid you, they’ll use that to cover court costs and the
remaining balance will go to you.

Proximate Cause (Causa Proxima):

 The loss of insured property can be caused by more than one incident even in succession to
each other.
 Property may be insured against some but not all causes of loss.
 When a property is not insured against all causes, the nearest cause is to be found out.
 If the proximate cause is one in which the property is insured against, then the insurer must
pay compensation. If it is not a cause the property is insured against, then the insurer doesn’t
have to pay.6t
When buying your insurance policies, you will most likely go through a process where you
select which instances you and your property will be covered for and which ones they will
not. This is where you are selecting which proximate causes are covered. If you end up in an
incident, then the proximate cause will have to be investigated so that the insurance company
validates that you are covered for the incident.
This can lead to disputes when you have suffered an incident you thought was covered but
your insurance provider says it’s not. Insurance companies want to make sure they are
protecting themselves but sometimes they can use this to get out of being liable for a
situation.

LOSS MINIMIZATION:
This is our final principle that creates an insurance contract and the simplest one probably.
 In an uncertain event, it is the insured’s responsibility to take all precautions to minimize
the loss on the insured property.
Insurance contracts shouldn’t be about getting free stuff every time something bad happens.
Therefore, a little responsibility is bestowed upon the insured to take all measures possible to
minimize the loss on the property.

NPA (NON-PERFORMING ASSESTS):

A nonperforming asset (NPA) refers to a classification for loans or advances that are in
default or in arrears. A loan is in arrears when principal or interest payments are late or
missed. A loan is in default when the lender considers the loan agreement to be broken and
the debtor is unable to meet his obligations. A loan is classified as a non-performing asset
when it is not being repaid by the borrower. It results in the asset no longer generating
income for the lender or bank because the interest is not being paid by the borrower. In such a
case, the loan is considered “in arrears.”
  Nonperforming assets (NPAs) are recorded on a bank's balance sheet after a
prolonged period of non-payment by the borrower.
 NPAs place financial burden on the lender; a significant number of NPAs over a
period of time may indicate to regulators that the financial fitness of the bank is in
jeopardy.
 NPAs can be classified as a substandard asset, doubtful asset, or loss asset,
depending on the length of time overdue and probability of repayment.
 Lenders have options to recover their losses, including taking possession of any
collateral or selling off the loan at a significant discount to a collection agency.
(Collections agencies are third-party companies charged with collecting
overdue debts. They'll call you, send letters and attempt to get you to pay back
the debt you owe. If they're successful, they'll take a cut of the recovered
amount.)
Nonperforming assets are listed on the balance sheet of a bank or other financial institution.
After a prolonged period of non-payment, the lender will force the borrower to liquidate any
assets that were pledged as part of the debt agreement. If no assets were pledged, the lender
might write-off the asset as a bad debt and then sell it at a discount to a collection agency. In
most cases, debt is classified as nonperforming when loan payments have not been made for
a period of 90 days. While 90 days is the standard, the amount of elapsed time may be
shorter or longer depending on the terms and conditions of each individual loan.
Types of Nonperforming Assets (NPA)
Although the most common nonperforming assets are term loans, there are other forms of
nonperforming assets as well.

 Overdraft and cash credit (OD/CC) accounts left out-of-order for more than 90
days
 Agricultural advances whose interest or principal installment payments remain
overdue for two crop/harvest seasons for short duration crops or overdue one
crop season for long duration crops
 Expected payment on any other type of account is overdue for more than 90 days.

Sub-Classification of Non-Performing Assets:

Standard Asset: It is a kind of performing asset which creates continuous income and
repayments as and when they become due. These assets carry a normal risk and are not NPA
in the real sense of the word. Hence, no special provisions are required for standard assets.
Sub-Standard Assest: Loans and advances which are non-performing assets for a period of
less than 12 months, fall under the category of Sub-Standard.
Doubtful Assets: The Assets considered as non-performing for a period of 12 or more than
12 months are known as Doubtful Assets.
Loss Assets: All those assets which cannot be recovered by the lending institutions are
known as Loss Assets. Writing off is the last resort. Banks are forced to accept that the loan
will never be repaid, and must record a loss on their balance sheet. The entire amount of the
loan must be written off completely.
It is important for both the borrower and the lender to be aware of performing versus non-
performing assets. For the borrower, if the asset is non-performing and interest payments
are not made, it can negatively affect their credit and growth possibilities. It will then
hamper their ability to obtain future borrowing.
For the bank or lender, interest earned on loans acts as a main source of income. Therefore,
non-performing assets will negatively affect their ability to generate adequate income and
thus, their overall profitability. It is important for banks to keep track of their non-performing
assets because too many NPAs will adversely affect their liquidity and growth abilities.
However, if the volume of NPAs continues to build over a period of time, it threatens the
financial health and future success of the lender.

POWERS AND FUNCTIONS OF IRDA: (promote, regulate and ensure orderly

growth of Insurance). Under the Jurisdiction of Ministry of Finance, GOI.

The concept of insurance dates back 6,000 years where individuals back then also sought
some kind of safety net. This need was realised and gave birth to the concept of insurance.
The dictionary meaning of insurance states “an arrangement by which an organisation
undertakes to provide a guarantee of compensation for specified loss, damage, illness, or
death in return for payment of a specified premium”. With the growing need of this
concept of security, it gave rise to life insurance at first followed by general insurance.

IRDA promotes all the insurance businesses in India. All the activities like monitoring the
market and ensuring the financial stability of insurances are carried out from the head
office in Hyderabad. IRDA or Insurance Regulatory and Development Authority of India is
the apex body that supervises and regulates the insurance sector in India. The primary
purpose of IRDA is to safeguard the interest of the policyholders and ensure the growth of
insurance in the country.

The duties, powers and functions of IRDA have been specified under Section 14 of
IRDA Act, 1999. The IRDA Authority has the duty to promote, regulate and ensure
orderly growth of the insurance and re-insurance businesses across India, subject to the
provisions of this Act and any other additional law that is being enforced. So, the powers and
functions of the Authority shall include the following:

DUTIES: A) To regulate, promote and ensure orderly growth of the insurance business
and re-insurance business, subject to the provisions of this Act and any other law for the time
being in force.
B) To protect of the interests of the policy holders in matters concerning assigning of
policy, nomination by policy holders, insurable interest, settlement of Insurance claim,
surrender value of policy and other terms and conditions of contracts of insurance.

POWERS AND FUNCTIONS:

A. To issue the applicant a certificate of registration, renewal, modification, withdrawal,
suspension or cancellation of such registration.
e. To call for information from, undertaking inspection of, conducting enquiries and
investigations including audit of the insurers, intermediaries, insurance intermediaries and
other organizations connected with the insurance business.
f. To specify requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents.
g. To control over management of insurers.
i. To promote and regulate of professional organizations conducting insurance business.
j. To regulate investment of funds by insurance companies.
k. To investigate and inspect the affairs of the insurers.
 l. To adjudicate of disputes between insurers and insurance intermediaries.

 Specifying the percentage of life- and general insurance business undertaken in the rural or
social sector
 Specifying the form and the manner in which books of accounts shall be maintained, and
statement of accounts shall be rendered by insurers and other insurer intermediaries.
m. To supervise functions of Tariff Advisory Committee and to frame regulations to carry
out purposes of the Insurance Act, 1938.
n. To specify the code of conduct for surveyors and loss assessors.
o. To promote efficiency in the conduct of insurance business.
q. To levy fees and other charges for carrying out the purposes of this Act.

COMPOSITION: The authority is a ten-member team consisting of

 A chairman;
 Five whole-time members;
 Four part-time members,
 (Mainly all are appointed by the Government of India)
The Insurance regulatory and development authority plays a significant role in ensuring that
the interests of the policyholders remain secured.it regularly issues advisories to all the
insurance companies about all the changes in any rule and regulations.
The prime minister of India announced an insurance repository system, helping policyholders buy
and maintain insurance policies in electronic form rather than on paper.