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(iii) Paper III - Insurance and Management

Part 1 - Insurance
c. Legal foundations of insurance, basics in Group/Health Insurance/Pensions;
Intermediation: role in mobilizing savings, evolution of various types and Bancassurance
in India;

Legal foundations of insurance:

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 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.

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. 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%. The Authority has the power to
frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000
onwards framed various regulations ranging from registration of companies for carrying
on insurance business to protection of policyholders’ interests.

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 24 general insurance companies including the ECGC and
Agriculture Insurance Corporation of India and 23 life insurance companies operating in
the country.

Beside IRDA Act 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.

Acts/Regulations common to General and Life Insurance Business in India:

The following Acts regulate the Insurance Business in India.
• Insurance Act, 1938
• IRDA Act, 1999
• Insurance Amendment Act, 2002
• Exchange Control Regulations (FEMA)
• Insurance Co-op Society
• Indian Stamp Act, 1899

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Following additional Regulations governing/ affecting Life Insurance Business in

India:
The following Acts govern /regulate the life insurance business in India:
• LIC Act, 1956
• Amendments to LIC Act

Following additional Regulations Affecting General Insurance Business in India:

The following Acts affect, circumscribe or regulate in some way or the other, some aspect
of the General Insurance Business in India:
• General Insurance Nationalization Act, 1972
• Amendments to GIN Act, 1972
• Multi-Modal Transportation Act, 1993
• Motor Vehicles Act. 1988
• Inland Steam Vessels Amendment Act, 1977
• Marine Insurance Act, 1963
• Carriage of Goods by Sea Act, 1925
• Merchant Shipping Act, 1958
• Bill of Lading Act, 1855
• Indian Ports (Major Ports) Act, 1963
• Indian Railways Act, 1989
• Carriers Act, 1865
• Indian Post Office Act, 1898
• Carriage by Air Act, 1972
• Workmens' Compensation Act, 1923
ESI Act, 1948
• Public Liability Insurance Act. 1991

Constitution of Insurance Regulatory and Development Authority (IRDA):

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 and to protect the interests of holders of
insurance policies. The IRDA was incorporated as a statutory body in April, 2000., which
has put in place regulations in line with global norms. IRDA has been framing regulations
and registering the insurance companies. It launched of the IRDA online service for issue
and renewal of licenses to agents. Any income of the Insurance Regulatory and
Development Authority established under the relevant Act 1999 is fully exempt from the
A. Y.2001-2002. IRDA has its headquarter at Hyderabad.

As per the section 4 of IRDAI Act' 1999, Insurance Regulatory and Development Authority
of India (IRDAI, which was constituted by an act of parliament) specify the composition of
Authority. The IRDA Act also carried out a series of amendments to the Act of1938 and
conferred the powers of the Controller of Insurance on the IRDA. The members of the IRDA
are appointed by the Central Government from amongst persons of ability, integrity and
standing who have knowledge or experience in life insurance, general insurance, actuarial
science, finance, economics, law, accountancy, administration etc. Every Chairperson and
member of IRDA appointed shall hold office for a term of five years. However,

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Chairperson shall not hold office once he or she attains 65 years while whole time
members shall not hold office beyond 62 years.

The Authority is a ten member team consisting of

(a) A Chairman; current chairman is Mr Debashish Panda
(b) Five whole-time members;
(c) Four part-time members,
all appointed by the Government of India

Power/Function of IRDA:

Under Section 14 of the IRDA Act, IRDA has the following powers:

(a) Issue of Certificate of Registration to insurance companies, renew, modify, withdraw,

suspend or cancel the certificate of registration.
(b) Protection of interests of policyholders in matters concerning assignment of policies,
nomination, insurable interest, claim settlement, surrender value and other terms and
conditions of insurance contract.
(c) Specification of requisite qualifications, practical training and code of conduct for
insurance agents and intermediaries.
(d) Specification of code of conduct for surveyors and loss assessors.
(e) Promoting efficiency in the conduct of insurance business.
(f) Promoting and regulating professional organizations connected with insurance and
reinsurance business.
(g) Levying fees and other charges for carrying out the purposes of the Act
(h) Calling for information from or undertaking inspection of insurance companies,
intermediaries and other organizations connected with insurance business.
(i) Control and regulation of rates, advantages, terms and conditions that may be offered
by general insurance companies.
(j) Specifying the form and manner in which books of account shall be maintained by
insurance companies and intermediaries.
(k) Regulation of investments of funds by insurance companies.
(l) Regulation of maintenance of margin of solvency.
(m) Adjudication of disputes between insurers and insurance intermediaries.
(n) Supervising the functioning of Tariff Advisory Committee.
(o) Specifying the percentage of premium income of the insurer to finance schemes for
promoting and regulating professional organizations.
(p) Specifying the percentage of insurance business to be undertaken by insurers in rural
or social sectors.
(q) Such other powers as may be prescribed.

Framework under the Insurance act 1938:

The Insurance Act, 1938, broadly provides the ground rules for the operating insurance
companies in India. The Act provides for the following:

The Insurance Act is the parent legislation which aimed at consolidating and amending
the law relating to the business of insurance in February 1938, when, during the British
Rule in India, there were many insurance companies which were operating. The Insurance
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Act, 1938, broadly provides the ground rules for the operating insurance companies in
India.

The Insurance Act, 1938 has been segregated into five parts:

1. Part I: (Section 1 to Section 2B)

Part I of Insurance Act, 1938 deals with Definitions, interpretation of Certain Words and
expressions and Appointment of Authority in India
2. Part II: (Section 2C to Section 64)
Part II of Insurance Act contains provisions relating to:
(a) Insurers
(b) Investment, Loans and Management
(c) Investigation
(d) Appointment of Staff
(e) Control over Management
(f) Amalgamation and Transfer of Insurance
(g) Assignment or Transfer of Policies and Nominations
(h) Commission and Rebates and Licensing of Agents
(i) Special Provisions of Law
(j) Management by Administrator
(k) Acquisition of the Undertakings of Insurers in certain cases (
(l) Winding up
(m) Special Provisions relating to External Companies
PART II A (Section 64A to Section 64T)
PART II A contains provisions relating to Insurance Association of India, Council of the
Association and Committees thereof (Section 64 to Section 64T)
PART IIB (Section 64U to Section 64UM)
PART II B contains provisions relating to TARIFF ADVISORY (Section 64U to Section
64UM)

PART IIC (Section 64 V to Section 64VC)

PART II C contains provisions relating to Solvency Margin, Advance Payment of Premium
and Restrictions on the Opening of A New Place of Business.

3. PART III (Section 65 to Section 94)

Part III contains provisions relating to Provident Societies PART IIIA (Section 94A)
Part III A contains provisions relating to Insurance Co-Operative Societies

4. PART IV (Section 95 to Section 101)

Part IV contains provisions relating to Mutual insurance Companies and cooperative life
insurance societies
PART IVA (Section 101A to Section 101C)
Part IV A contains provisions relating To Re-Insurance

5. PART V (Section 102 to Section 120)

Part V contains provisions relating to miscellaneous matters

THE DETAILS OF FEW OF THE IMPORTANT PROVISIONS OF INSURANCE ACT, 1938

ARE DESCRIBED BELOW:

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(a) Incorporation of insurance companies, issue of license and renewal of license
(Sections 2C to 5): Only Companies formed and registered under the Companies Act,
1956, where under the foreign equity is not more than 74% (the Insurance (Amendment)
Act, 2021), are allowed. Every insurer who proposes to do insurance business has to
register with IRDA and obtain a license before they start doing insurance business. Three
lines of businesses recognized within insurance – Life insurance, Non-life insurance and
Standalone Health insurance. In addition, re-insurance is also recognized as a separate
line of business. Insurance companies are allowed to pass on the risk which they assume
to other insurers, called re-insurers. Currently only one Reinsurer GIC is licensed in India
as the National Reinsurer. License is issued for a financial year and is renewable on an
yearly basis on payment of the required fees. The fee for renewal is 1% of the premium
income generated by the insurance company in the preceding financial year, subject to an
overall cap of Rs. 10 Crores.

(b) Requirements as to Capital, Transfer of shares, Voting Rights etc.(Sections 6, 6A):

Every insurer carrying on insurance business shall have a minimum paid up equity capital
of Rs100 Crores for life insurance and general insurance business and Rs200 crores for
an insurer carrying on reinsurance business. This capital shall be maintained after
preliminary expenses incurred upon formation of the insurance company and registration
of insurance business. The intention of prescribing a minimum capital is to ensure that
only serious players who look at a longer term for return of investment enter insurance
business.

Further the capital of an insurance company shall consist of only Equity Share capital
and no other forms of capital are allowed. All the equity shares shall have a single face
value. Further, notwithstanding the provisions contained in the Companies Act, 1956, the
voting rights on equity shares shall be strictly in proportion to the paid up amount of the
equity shares held.

(c) Deposits with Reserve Bank of India (Sections 7 to 9): Withdrawn

(d) Accounts, Audit and Actuarial report and Abstract (Sections 10, 11, 12):
Section 10 requires Separate books of account are required to be maintained for each
class of business. Since separate companies will have to be formed for Life, Non-Life or
Reinsurance, this provision is automatically taken care for formation of separate
companies and consequent maintenance of separate books of account. Further a separate
fund called Life insurance fund shall be formed, the assets of which shall be separate and
distinct from all other assets of the insurer.

Under Section 11, IRDA have framed Regulations for Financial Statements which
provides for forms of Revenue Account, Profit and Loss Account and Balance Sheet along
with the form of Management Report and some of the documents annexed to the financial
statements. The accounts and the statements referred to in Section 11 shall be signed by
the Chairman of the Board of the Insurance company and two other Directors, the
Principal Officer of the Company (CEO or Managing Director).

Section 12 provides for audit of the financial statements shall be audited by an auditor.

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Section 13 requires investigation of financial condition of the life insurance business
carried on by an actuary.

Provisions Relating to Investments (Sections 27, 27A, 27B, 27E)

Section 27 requires insurance companies to invest in the manner specified in the section
an amount equivalent to the amount of liabilities of the insurance companies on account
of matured claims and on account of liability on policies maturing for payment after
deducting the premiums due but grace period not expired and the amount of loans
outstanding against the policies issued by the insurer.

Prohibition of Loans: Section 29 prohibits grant of any loans or temporary advances to

any Director, Actuary or Auditor of the insurance company or to any company or firm in
which any such Director.

Minimum insurance business under Rural and Social Sectors: Section 32B and 32C
requires every insurer to undertake such minimum percentage of the insurance business
for covering risks associated with persons forming part of rural or social sector, workers
in the unorganized or informal sector or economically vulnerable or backward classes of
society or such classes as prescribed by IRDA.

Appointment of Managing or Whole Time Director or Chief Executive Officer requires

previous approval of IRDA (Section 34A).

Assignments and Nominations under Insurance policies (Section 38 & 39)

Assignments are transfer of insurance policies from Policyholder to another with or
without a valid consideration. Nomination is effected by the person taking the policy on
his own life, to decide the person who will receive the benefits upon the death of the
policyholder. For minor nominees, a Guardian (called “appointee”), other than the
policyholder himself, needs to be appointed. In order to effective, the name of the nominee
must be incorporated in the policy document itself, based on the name of the nominee
mentioned in the Proposal form (application for life insurance).

Indisputability of policies (Section 45): Insurance contracts are contracts of utmost

good faith, based on the principles of ‘ubberima fidae’. The person taking the insurance
policy is expected to disclose the information required in the application form concerning
his health, occupation, family history, habits and all other material questions truthfully
without withholding any information required.

Provisions relating to licensing of Insurance Agents and Insurance Intermediaries:

Section 42 provides for the eligibility conditions for obtaining a license by an insurance
agent, the disqualifications etc. A license granted under this section is valid for a period
of 3 years after which it can be renewed. Fees for renewal of licenses have been prescribed.

40B. Limitation of expenses of management in life insurance business. —No insurer shall,
in respect of insurance business transacted by him in India, spend as expenses of
management in any financial year any amount exceeding the amount as may be specified
by the regulations made under this Act

40C. Limitation of expenses of management in general, health insurance and re-insurance

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business. —Every insurer transacting insurance business in India shall furnish to the
Authority, the details of expenses of management in such manner and form as may be
specified by the regulations. (20% currently)

Note- In terms of Section 2(f) of IRDA Act, 1999, the term Intermediary or Insurance
Intermediary includes insurance brokers, reinsurance brokers, insurance consultants,
surveyors and loss assessors.

Powers of IRDA with reference to control of management of insurance companies,

takeover of management, mergers, acquisitions and winding up:

Section 52A empowers IRDA to make a report to Central Government if the affairs of a Life
insurance Company are carried on in any manner prejudicial to the interests of
policyholders. Based on the Report, the Central Government is empowered to appoint an
Administrator to manage the affairs of the life insurance company.

Section 52H empowers Central Government to acquire the undertaking of any insurer
based on a report from IRDA on failure to comply with directions or if the insurance
company is being managed in a manner detrimental to the public interest or in the
interests of public or policyholders it is appropriate to do so.

Section 53 empowers the Tribunal to order for winding up in accordance with the
Companies Act, 1956

Section 54 of the Act prohibits voluntary winding up of insurance companies, except for
the purpose of effecting an amalgamation or reconstruction of the company or on the
ground that by reason of its liabilities it cannot continue its business.

An appeal against the Tribunal formed under the Insurance Act shall lie with the National
Company Law Appellate Tribunal.

Section 64VC requires every insurance company to take a approval in advance in IRDA
for opening any place of business or for relocation of an existing place of business outside
the same city, town or village. The approval is required to be sought for opening of any
offices, whether called as Branch office, Head Office, Administrative office, Satellite office
or any other similar names.

Powers of IRDA for imposition of penalties for default in complying with the Act
(Section 102):
Section 102 empowers IRDA to impose a penalty not exceeding Rupees five lakhs for each
of the following failures by an insurance company:
(a) Failure to furnish any document, statement, account, return or report to IRDA
(b) Failure to comply with the directions (Section 34 empowers IRDA to issue directions if
it is satisfied to do so in the interests of public or for prevention of affairs being conducted
detrimental to policyholders or to secure proper management of any insurer).
(c) Failure to maintain the required solvency margin
(d) Failure to comply with the directions on the insurance treaties.

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Further Section 105B empowers IRDA to impose a penalty not exceeding Rupees Twenty
Five crore rupees for failure to comply with Section 32B, 32C and 32D.

Regulation/Guidelines relating to Licensing Audit and Supervisions of Insurance

Companies:

Before discussing the IRDA regulations and guidelines relating to licensing, audit and
supervision, we need to understand that there are many participants in Insurance
business namely:
A. Insurance Companies
B. Corporate Brokers
C. Individual Agents
D. Insurance Surveyors and Loss Assessors
E. Third Party Administrators

Insurance Regulatory and Development Authority (Registration of Indian Insurance

Companies) Regulations, 2000, contains the provisions relating to licensing of Insurance
companies in India. These provisions have been amended from time to time and provide
detailed guidelines for registration as Insurance Company in India.

Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and

Code of Conduct) Regulations, 2000, as amended by, Insurance Surveyors and Loss
Assessors (Licensing, Professional Requirements and Code of Conduct) (Amendment)
Regulations, 2013 contains provisions relating to registration, regulation and
supervision of Insurance and loss surveyors in India.

Insurance Regulatory and Development Authority (Health Insurance) Regulations,

2013 contains the provisions relating to registration and other requirement relating
to third party administrator in India.
In a bid to direct long term savings in infrastructure sector, Insurance Regulatory
Development Authority (IRDA) amended investment regulations in Year 2013. These
guidelines provide for the following:

1. Life Insurance Business:

Every insurer is required to invest and keep invest certain amount as determined under
the Insurance Act. The funds of the policy holders cannot be invested directly or indirectly)
outside India. An insurer 'Involved in the business of life insurance is required to invest
and keep invested at all times, assets, the value of which is not less than the sum of the
amount of its liabilities to holders of life insurance policies in India on account of matured
claims and the amount required to meet the liability on policies of life insurance maturing
for payments in India. The following table shows the Investment regulations of life
insurance business in India:

Investment Regulations of Life Insurance Business:

Type of Investment Percentage Type of

Investment
Percentage

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Central government securities At least 25%
Total investment in central government securities, state Not less than
government securities and other approved securities
50%
Housing and infrastructure bonds, with ratings of not less Not less than
than AA by credit rating agencies
15%
Other investments subject to exposure/prudential norms Not exceeding 15%

Approved investments subject to Exposure/Prudential Norms Not exceeding 50%

2. General Insurance Business:

An insurer carrying on general insurance business is required to invest and keep at all
times his total assets in approved securities in the following manner:

Investment Regulations of Non- life Insurance Business:

Type of Investment Percentage Type of

Investment
Percentage
Central government securities At least 20%
Total investment in central government securities, state Not less than
government securities and other approved securities
30%
Housing and infrastructure bonds, with ratings of not less Not less than
than AA by credit rating agencies
15%
Other investments subject to exposure/prudential norms Not exceeding15%

Approved investments subject to Exposure/Prudential Norms Not exceeding 70%

Equity: In the case of life and non life Insurance Company:

10% * of Outstanding Equity Shares (Face Value) Max 15%
Shares of any listed company on which not less than ten percent dividends have been
paid for at least two consecutive years immediately preceding.

Preference shares of any company which has paid dividends on its equity shares for at
least two consecutive years immediately preceding.

Limit for Investment in IPO-

In the case of ‘Life’ Insurance Company, the maximum bid amount (and not Margin Money)
to be invested in IPO shall be the least of the following:

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1. 10% of Subscribed Capital (Face Value) of the Investee Company (including the
proposed Equity issue through IPO) or
2. 10% of the ‘Fund’ (Fund shall refer to all Investments under management taken
together)
In the case of ‘General’ Insurance Company, the maximum amount (and not Margin
Money) to be invested in IPO shall be the least of the following:
1. 10% of Subscribed Capital (Face Value) of the Investee Company (including the
proposed Equity issue through IPO) or
2. 10% on the Investment Assets.

Note: No investment shall be made in IPO if the size of the issue of Equity Shares through
IPO, including offer for sale, is less than Rs.200 Crores.

Mutual Funds:

In the case of life and non life Insurance Company:

The Overall Expense Ratio shall not exceed 0.50%. Where any segregated fund (other than
discontinued policy fund under unit linked business) invest in either Mutual Fund,
Exchange Traded Fund (excluding CPSE ETF) or Bank Fixed Deposit (for a period less
than 91 days at the time of placing the investment), the value of funds invested therein,
shall be reduced for computing the fund management charges (FMC). This provision shall
not be applicable for either the first six months from the date of launch of the segregated
fund or the segregated fund reaches the size of Rs.5 Crores, for the first time, whichever
is earlier.

“Investment Assets” as per Regulation 2(i) of Life Insures Non-Life

IRDAI (Investment) Regulations, 2016 Insurers

Less than Rs.50,000 Cr 10% 10%

More than Rs. 50000 Crores and Less than 7% 7%
Rs.250000 Crores
More than Rs. 250000 Crores 5% 5%

IRDA Scheme of amalgamation and transfer of life insurance business regulations

2013 and Scheme of amalgamation and transfer of general insurance business
regulations 2011:

Under the provisions of the Act, a Scheme of amalgamation or transfer is possible only
between two life insurance companies or two general insurance companies, It is not
possible for a life insurance company to be acquired by a general insurance company or
vice versa, since separate insurance companies are required to be formed for transacting
life and general insurance businesses.

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In respect of amalgamation or transfer completed between two life insurance companies,
the transferee insurer shall file a certified true copy of the scheme, deed or agreement
under which the amalgamation or transfer has been effected along with a declaration from
the Chairman and the Principal Officer listing down the various payments made or to be
made to any person on account of the amalgamation or transfer effected.

IRDA GUIDELINES FOR GRIEVANCE REDRESSAL: In order to enforce timely reedressal

of Customer grievance, the Insurance Regulatory and Development
Authority (IRDA) has issued guidelines for grievance redressal by insurance companies. A
Grievance is defined as an expression of dissatisfaction by a customer on the action or
inaction on the standard of service or deficiency of service of an insurance company or
any intermediary and asks for remedial action. It is distinguished from inquiry or a request
which is seeking information or requesting for a service and are not considered as
Grievances. Every insurance company shall have a designated senior officer at the level of
CEO or Compliance Officer of the Company as the Grievance Officer. Further every office
of the insurer shall also have a designated Grievance officer for such office.

The process for handing a Grievance is as follows:

(a) Every grievance shall be acknowledged within 3 working days of receipt of grievance,
containing the name and designation of the person who will deal with the grievance.
(b) The Grievance redressal procedure including the time taken for resolution of disputes
shall be mentioned in the acknowledgement
(c) Normally a Grievance shall be resolved within 3 days. However, where it is not possible
to resolve within days, the insurer shall resolve the complaint within 2 weeks and shall
send a final letter of resolution.
(d) Where a complaint is rejected, the reasons shall be clearly stated along with the
recourse available if the customer is still dissatisfied.
(e) Further if the insurer shall inform the customer that if the customer does not come
back within 8 weeks from the date of providing resolution, the grievance shall be treated
as closed..
(f) A grievance can be closed only if the following conditions are satisfied:

1. Where the insurance company has acceded to customer’s grievance, upon acceding to
the request of the customer.
2. Where the insurance company rejects the customer’s grievance, upon receipt of a
communication from customer accepting the company’s resolution.
3. Where the insurance company rejects the customer’s grievance and the customer does
not respond within 8 weeks of receipt of resolution, upon completion of the 8 weeks.
4. In all the above instances, the Grievance Redressal Officer shall certify that the
Insurance company has discharged its contractual, statutory or regulatory obligations.

Every insurance company shall publish the Grievance Redressal Procedure in the website
of the insurance company. The Policyholders Protection Committee of the Insurance
Company shall receive reports concerning Grievances and shall monitor the process of
handling grievances.

IRDA (Obligations of Insurers to Rural and Social Sectors) Regulations, 2000 provides
that every insurance company is required to undertake a minimum percentage of
business providing insurance coverage to persons residing in rural areas and providing
coverage to persons who are engaged in social sector.
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Rural areas have been defined as those places which have been classified as rural areas
as per the latest census. The obligations of insurers under Rural Sector is calculated as a
percentage of the total number of policies sold by an insurance company and is dependent
on the age of the insurance company as follows:

The number of lives required to be covered under this sector as follows: (As per IRDAI
(Rural, Social Sector and Motor Third Party Obligations) Regulations, 2024)

Rural Areas

Life Insurer:

General Insurance (General Insurers other than stand-alone health insurer(SAHI),

Agriculture Insurance Co. Ltd (AIC) and ECGC)

Health Insurance (General Insurers including SAHI other than AIC and ECGC)

Social Sector (In respect of all Insurers (Life, General and Standalone Health,
excluding AIC and ECGC)

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IRDA micro insurance Regulations, 2015: A micro insurance product is designed to

meet the needs of persons, especially residing in rural areas, whose primary requirement
is basic insurance coverages in life, such as payment of insurance benefit upon death of
the bread winner, to the family or Health insurance etc. The intention is provide a low cost
product to such persons.

A life micro insurance product is therefore a pure term insurance product, or an

endowment assurance product or a health insurance product with or without accident
benefit.

A general micro insurance product includes health insurance, insurance coverage on

huts, livestock, tools or instruments or any personal accident contract.

As per the Regulations, the sum assured under an Insurance product offering Life or
pension or Health benefits shall not exceed an amount of Rs 200000.

As per the Regulations, Micro Insurance Agent means the following entities or individuals
who are appointed as Micro Insurance Agents in accordance to the regulations

 a Non-Government Organisation (NGO);

 a Self-Help Group (SHG);
 a Micro-Finance Institution (MFI)
 RBI regulated NBFC – MFIs
 District Cooperative Banks
 Regional Rural Banks
 Urban Co-operative banks
 Primary Agricultural Cooperative Societies
 Business correspondents

The Insurance Act 1938: This Act was passed in 1938 and was brought into force from
1st July, 1939. This act applies to the GIC and the four subsidiaries. The act was amended
several times in the years 1950, 1968, 1988, 1999. This Act specifies the restrictions and
limitations applicable as specified by the Central Government under powers conferred by
section 35 of the General Insurance Business (Nationalization) Act. The important
provisions of the Act relate to:

Registration: Every insurer is required to obtain a Certificate of Registration from the

Controller of Insurance, by making the payment of requisite fees. Registration should be
renewed annually.
Accounts and audit: An insurer is required to maintain separate accounts of the receipts
and payments in each class of insurance viz. Fire. Marine and Miscellaneous Insurance.

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Apart from the regular financial statements, the companies are required to maintain the
following documents in respect of each class of insurance:
• Record of Cover notes specifying the details of the risk covered
• Record of policies
• Record of premiums
• Record of endorsements
• Record of Bank guarantees
• Record of claims
• Register of agency force and business procured by each with details of commission
• Register of employees
• Cash Books
• Reinsurance details
• Claims register
Investments: Investments of insurance company are usually made in approved
investments under the provisions of the Act. The guidelines and limitations are issued by
the Central Government from time to time.
Limitation on management expenses: The Act prescribes the maximum limits of
expenses of management including commission that may be incurred by an insurer. The
percentages are prescribed in relation to the total gross direct business written by the
insurer in India.
Prohibition of Rebates: The Act prohibits any person from offering any rebate of
commission or a rebate of premium to any person to take insurance. Any person found
guilty would be punished with a fine up to five hundred rupees.

Powers of Investigation: The Central Government may at any time direct the Controller
or any other person by order, to investigate the affairs of any insurer and report to the
central government.
Other Provisions: Other provisions of the Act deal with the licensing of agents, surveyors,
advance payment of premium and Tariff Advisory Committee (TAC).
• Prohibition of rebates
• Powers of investigation
• Licensing of agents
• Advance payments of premiums
• Tariff Advisory Committee

The General Insurance Business (Nationalization) Act 1972:

This Act came into force on 1st January, 1973. Under this Act, there were no longer private
insurers in the country. As a result general insurance business became the domain of the
State. The General Insurance Corporation of India (GIC) became the holding company with
four subsidiaries, namely United India Insurance Company with Head Office in Madras,
Oriental Insurance Company with Head Office in New Delhi, National Insurance Company
with Head Office in Calcutta and New India Assurance Company with Head Office in
Bombay. The ownership of all shares of both the Indian insurance companies and the
foreign insurers from then on vested in the Central Government with effect from 1.1.1973.
The services of all the personnel in the private sector were also transferred to the holding
company and subsidiaries based on factors such as qualification, seniority, position and
location.

Objectives of the Act: The objective of the Act was primarily,

• To provide for the acquisition of the shares of the existing general insurance companies
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• To serve the needs of the economy by development of general insurance business
• To establish the GIC by the central government under the provisions of the Companies
Act of 1956,with an initial authorized share capital of seventy – five crores.
• To aid, assist, and advise the companies in the matter of setting up of standards in the
conduct of general insurance business
• To encourage healthy competition amongst the companies as far as possible
• To ensure that the operation of the economic system does not result in the concentration
of wealth to the common detriment.
• To ensure that no person shall take insurance in respect of any property in India with
an insurer whose principal registered office is outside India.
• To carry on of any part of the general insurance business if it thinks it desirable to do
so.
• To advice the companies in the matter of controlling their experience and investment of
funds.

THE MISSION OF GIC:

• To provide need-based and low cost general insurance covers to rural population
• To administer a crop insurance scheme for the benefit of the farmers
• To develop and introduce covers with social security benefits
• To develop a marketing network throughout the country including areas with low
premium potential
• Promote balanced regional development irrespective of cost considerations
• To make benefits of insurance available to the masses.

Other important Legislation Governing General Business in India:

Motor Vehicles Act, 1988: The Motor Vehicles Act, 1988 is an Act of the Parliament of
India which regulates all aspects of road transport vehicles. The Act came into force from
1 July 1989. It replaced the Motor Vehicles Act, 1938 which earlier replaced the first such
enactment Motor Vehicles Act, 1914. The Act provides in detail the legislative provisions
regarding licensing of drivers and conductors, registration of motor vehicles, control of
motor vehicles through permits, special provisions relating to state transport
undertakings, traffic regulations, insurance, liability, offences and penalties etc. Further,
in order to exercise the legislative provisions of the Act, the Government of India made the
Central Motor Vehicles Rules, 1989.
Marine Insurance Act 1963:
Marine Insurance covers the risks associated with marine adventures. For example,
transportation of cargo through ships. The consignment is exposed to the perils associated
with transportation through sea and hence requires an insurance cover against sea perils
such as tempest which could result in damage to the ship as well as the goods consigned.
However, as per Section 4 of the Act, a Marine insurance can cover the land as well as the
sea risks associated with the goods transported. However, such land risks must be
incidental to the sea voyage. For example, if goods will have to be consigned from Delhi to
Nagpur to Dubai. The nearest port is Mumbai.
Therefore the goods are sent by truck from Nagpur to Mumbai and from Mumbai to Dubai
through a ship. An insurance policy can be considered for coverage of Mixed Land and
Sea Risks.

Public Liability Insurance Act in 1991: Very often we can notice members of the public
are affected because of major accidents in establishments. This Act provides for mandatory
public liability insurance for installations handling hazardous substances to provide
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minimum relief to victims of accidents, other than employees. For example, the Bhopal
Gas Tragedy, which arose on account of leakage of the methyl isocynate gas from the
Union Carbide plant in Bhopal on 2 & 3 December 1984, resulting into a liability of US$
470 million for Union Carbide. In a way, this incident led to the enactment of Public
Liability Insurance Act in 1991.The Act imposes no fault liability, i.e. irrespective of any
wrongful act, neglect or default on the owner to pay relief in the event of (a) death of or
injury to any person (other than workman) or (b) damage to property of any person arising
out of accident while handling any hazardous substance. No fault liability means that the
claimant is not required to prove that the death, injury or damage was due to any wrongful
act, neglect or default of any person.

Consumer Protection Act, 1986: Consumer Protection Act is an act of Parliament

enacted in 1986 to protect interests of consumers in India. It makes provision for the
establishment of consumer councils and other authorities for the settlement of
consumers’ disputes and for mattes connected therewith. Consumer Protection Councils
are established at the national, state and district level to increase consumer awareness.
The Central Consumer Protection Council is established by the Central Government which
consists of the Minister of Consumer Affairs as the
chairman and such number of other official or non official members representing such
interests as may be prescribed. The State Consumer Protection Council consists of the
Minister in charge of consumer affairs in the State Government as the Chairman and such
other officials appointed by the Central and State Government.

The International Association of Insurance Supervisors (IAIS), was established in

1994.
• It is a voluntary membership organization of insurance supervisors and regulators from
more than 200 jurisdictions in nearly 140 countries.
• The IAIS issues global insurance principles, standards and guidance, including
application and issues papers, provides training and support on issues related to
insurance supervision, and organizes meetings and seminars for insurance supervisors.
• Insurance Core Principles (ICPs) framed by IAIS provide the globally accepted framework
for Insurance Sector and Insurance Core Principles (ICPs) provide a globally accepted
framework for the regulation of the insurance sector.
Basics in Group insurance: Under group insurance policy a large number of people are
covered under a single policy. These types of policies are generally taken by companies for
their employees or clubs for their members and so on.

GROUP INSURANCE vs INDIVIDUAL INSURANCE:

Individual insurance is a contract between the individual and the insurance company,
called the insurer. The decision to insure is voluntary and the terms on which the
insurance age cover is granted, depend upon the appraisal of risk in respect of the
individual by the insurer.
Group insurance, on the other hand, is one contract covering a group of lives. The terms
of the contract of insurance cover depend upon the characteristics of the group as a whole.

A master policy is issued as evidence of contract between the insurance company and
another legal entity, which may be an employer, trustees, or an association. The master
policy defines the group of lives to be covered, benefit it confers, the amount of contribution
to be paid and other conditions and privileges of the participating group members.

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CHARACTERISTICS OF A ‘GROUP’:

(i) It should be homogeneous by nature of occupation. Therefore members of a social club,

a political party or religious establishment cannot constitute a group for insurance
purpose.
(ii) Insurance must be incidental i.e, the group must not be formed mainly for the purpose
of obtaining insurance.
(iii) The group must have a single central administrative machinery to act on behalf of all
members.
(iv) The group should be such that there is a steady stream of new entrants from year to
year, so that the group is not stagnant and is not likely to lapse as a result of
depletion of members. This requirement also ensures that over a period of time, the
average age of the group does not become so high as to render it completely uninsurable.
(v) Another important requirement is that a large proportion of the eligible members of the
group should join the group scheme. This would insure that no adverse selection is
exercised against the insurance company and the proportion of impaired lives is not
unduly high.
(vi) A minimum size of the group is generally prescribed.
DIFFERENT TYPES OF GROUPS:
Employer-Employee Group :
In this case the employer takes out the master policy for the benefit of its employees and
a trust is formed normally to administer the scheme. At times the employer takes such
group insurance to meet the statutory need. The examples are
Employee’s Gratuity Benefits, Employees Deposit Linked Insurance Schemes.
The scheme can be contributory or non-contributory or jointly contributed by the employer
and employees. In the scheme, where the employees do not contribute and the employer
bears the total cost, all eligible employees must join the scheme. If however, the scheme
is contributory i.e. either employees alone or jointly with the employer finance the scheme,
a high level of participation of the eligible employees at commencement and compulsory
participation of all new employees, thereafter, is essential.

Creditor - Debtor group:

The master policy is taken out by the creditors to cover the outstanding amount of loans
granted to the debtors. In case of the death of a debtor, the claim amount would be applied
towards repayment of loan outstanding in his/her name. Here the creditor may be an
employer, an organization giving housing loans, a cooperative credit society, a credit card
company etc.

Professional group:
These may be association of professionals like doctors, lawyers, accountants, engineers,
journalists, pilots, insurance agents etc.

Other groups:
There may be other forms of groups which may be considered eligible for group insurance,
i.e. cooperative societies, welfare funds, members of resident society, bank depositors etc.
The group should have a reliable identity and should have been formed for some purpose
other than group insurance. Now days, many nodal agencies, such as central and state
government departments and welfare organizations are being allowed to take group
insurance schemes covering some specific groups of weaker sections of the society.
Examples of such schemes are the Landless Agricultural Labourers Group Insurance
Scheme (LALGI) implemented through the state governments, IRDP Loaner’s Group

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Insurance Scheme implemented through District Rural Development Agencies (DRDAs),
milk producers group Insurance scheme, implemented through milk cooperatives etc.

GROUP SAVINGS LINKED INSURANCE SCHEME: The Central and State Governments
had formulated an insurance-cum-savings scheme nomenclature. Group Insurance
Scheme for the benefit of Central & State Government employees. However the employees
of Public Sector, Quasi Govt. Undertakings, Universities, autonomous bodies such as
Municipalities, Zilla Parishads etc. were not covered under the Govt. Scheme. The Life
Insurance Corporation of India designed the Group Saving Linked Insurance Scheme for
the above sectors as
detailed below:-
Objectives of the scheme:

To provide low cost-life insurance.

Inculcate saving habits so that nominal amount compulsorily set aside during the service
period grows into a sizeable fund of savings and accrued interest compounding yearly,
which on retirement acts as a cushion for financial security.

In the event of untimely death during service period, the insurance amount with
accumulated saving assist the bereaved family to tide over the financial crisis.

Premium: It is decided on the basis of group size and the occupation of the group.
Premium has two components i.e. Risk Premium and Savings Premium. Risk Premium is
utilized to offer life cover and the Savings Premium is accumulated in members account.

Tax benefit: Total monthly contribution entitled to Income Tax rebate under
Section 80C. Receipts of saving accumulation/insurance amount are tax free.

Benefits: In case of resignation/retirement: The accumulated savings with interest

compounding yearly will be paid. In case of unfortunate death during the service:
The insurance amount together with accumulated savings and interest will be paid to the
beneficiary.

Other conditions:
Membership: 75% of total staff strength or minimum 25 whichever is more.
Insurability condition : Not absent from duty on grounds of medical/ sick leave at the
time of introduction of the scheme.
Payment of premium: Monthly contribution to be deducted from salary and remitted by
the employer.

GROUP INSURANCE SCHEME IN LIEU OF EDLI: All employees to whom the Employee's
Provident Fund and Miscellaneous Provision Act , 1952 applies, have a Statutory liability
to subscribe to Employee's Deposit Linked Insurance Scheme, 1976 to provide for the
benefit of Life insurance to all their employees. EDLI or employee deposit linked scheme is
an insurance policy to give life cover to the employees of organized sector. It is a group
term insurance. The family of employee gets the sum assured if an employee dies during
the service period. The scheme is applicable to all the organization which are part of the
EPF. The term and condition of this scheme is set by the employees provident fund
organization.

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What is the Need of EDLI?
Employee deposit linked insurance scheme is a social security scheme. It gives necessary
cover to the family of employees. The scheme is an effort to protect the large population
from the hardship. In India, people are not aware of the insurance planning and retirement
planning. If not forced, rarely an employee takes an insurance cover. Hence, for the
economic health of the society at large, the government introduced social security
schemes. The employee provident fund, Employee pension scheme and Employee deposit
linked insurance scheme are such schemes. These schemes are for the organized sector
employee.

Similarly, the government has also launched many social security schemes for
the unorganised sector. For example, Atal Pension yojana, Pradhan Mantri Jeevan Jyoti
Bima Yojana, Pradhan Mantri Jan Suraksha yojana, PPF account are such schemes.

How To Subscribe EDLI: Employee deposit linked insurance scheme is clubbed with the
employee provident fund scheme and employee pension scheme. An employee has to
subscribe these three schemes altogether. The subscription to EDLI is automatic with
employee provident fund scheme. It is the responsibility of the employer to get its
employee subscribed for the EPF schemes. An employee can’t selectively choose a scheme
among these three. He/she has to subscribe all the three schemes. These schemes can be
transferred with the change in job.

Contribution to Employee Deposit Linked Insurance Scheme

The employee does not contribute to this scheme directly. Rather, the contribution to this
scheme is done by the employers. The contribution to EDLI is also clubbed with the EPF
contribution. The contribution to these three schemes is done according to a formula. The
fixed percentage of salary plus DA is routed for this scheme.

Scheme Employee Employer

EPF 12% 3.67%

EPS Nil 8.33% (Maximum Rs
1250)
EDLI Nil 0.5% (Maximum Rs 75)

Rules of EDLI:
Employee Deposit linked insurance scheme is a comprehensive group term insurance. It
covers the death of employee irrespective of the cause.

 Every employee who is the member of Provident fund gets covered under EDLI.
 The coverage is for 24 hours. It is not related to the working hours.
 The coverage is for the whole earth. Being at the workplace is not necessary.
 There are no exclusions under this policy.
 The insurance coverage is linked to the pay of the employee.
 The coverage and premium is similar to every employee. Age or any individual factor
does not make any effect.

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 There is no minimum limit of service to avail the EDLI benefit. Earlier, to be eligible
for EDLI, minimum 12 months service with the present employer was required.

The Insurance Claim Amount: The claim amount of the EDLI is decided by the last drawn
salary of the employee. The claim amount would be the 35 times of the salary. Along
with this, you would also get a bonus. This bonus would be 50% of the balance in your
EPF account. The maximum bonus would be Rs 1.75 lakh. The maximum sum insured
would be Rs 7 lacs. For this calculation salary is ‘basic pay plus DA’.

General features of various Group Insurance Schemes:

1. Premium: The premium under such scheme may be wholly paid by the employer or
the Nodal Agency. However, the scheme may be contributory i.e. the members may also
contribute.
2. Double Accident Benefit: Double Accident Benefit, i.e. payment of double the sum
assured on death due to accident (without permanent disability benefit), may be allowed
under Group Insurance Schemes for an extra premium.

3. Eligibility : For Group Insurance Scheme in lieu of EDLIS the insurability condition is
that the employee should be a member of the Provident Fund Scheme of the employer. For
other GI Schemes of employer-employee groups the insurability condition is that the
member should not be absent on ground of sickness on the entry date. For all non-
employer-employee Group Schemes the basic insurability condition is that the member
should be in good health on the date of entry.

Group Insurance (As per IRDA):

A group insurance policy gives you advantages of standardized coverage and very
competitive premium rates. You can avail of group insurance policies that a group you
belong to takes.
Groups – for this purpose - can be employer-employee groups or non employer-employee
groups as defined by IRDA’s group insurance guidelines. (Examples are holders of the
same credit card, savings bank account holders of a bank or members of the same social
or cultural association and so on.)
Here are some things to be careful about when you participate in a group policy:

 Only one master policy will be issued to the Manager of the group and will be in the
name of the group (eg: the association)
 You are entitled to get a certificate of insurance if you participate in a non employer-
employee group policy for your records.

 This certificate should contain

o the schedule of benefits
o premium charged and
o terms and conditions of the cover
 Your cover could cease if you leave the group

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 When you leave the group the insurer should offer you continued coverage under
an individual policy
 The Manager of the group should disclose the premium rate and terms of the policy
including the premium discounts offered to the group and should pass on the
discounts to all members
 The manager of the group has to disclose any administrative or other charges he is
collecting from members over and above the premium charged by the insurance
company.

Group Health Insurance is also provided in India. It provides healthcare coverage to a

group of people belonging to a common community (typically as employees of a company).
These plans are generally uniform in nature, offering the same benefits to all employees
or members of the group.
Most professionally run companies today provide Group Health Insurance as a part of
their Employee Welfare program. Each company however gets the plan customized based
on the employee demographics.

A feature which is sometimes common in group insurance is that the premium cost on an
individual basis is not individually risk-based. Instead it is the same amount for all the
insured persons in the group.

No Group Health Insurance Policy shall be issued by any Insurer where a Group is formed
with the main purpose of availing itself of insurance. There shall be a clearly evident
relationship as specified by the Authority from time to time between the members of the
group and the group policy holder.

The Group shall have a size as determined by the Insurer which shall be applicable for all
its group policies, subject to a minimum of 7, to be eligible for issuance of a Group
Insurance Policy. Further, Insurer shall follow the Guidelines specified by the Authority
on Group Insurance, from time to time.

A pension scheme is quite simply an arrangement that provides for payments to be made
to a worker on retirement from paid work, or to his/her dependants in the event of death.

GROUP PENSION SCHEME: To provide regular income to an employee after retirement.

With continuous improvement in longevity the economic problem of old age is now as
serious as the calamity of premature death. Retirement benefits received in lump sum are
frittered away and not invested prudently; as a result the post retirement life without
financial security and regular income may become an unbearable burden. Either the
employer or both employer and employee.

Pension Schemes are basically of two types:

(i) Benefit purchase (Defined Benefit) Scheme, where the amount of pension and other
benefits are defined in the Rules of the scheme and the contribution required to finance
the benefits are determined after actuarial valuation.
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(ii) Money purchase (Defined Contribution) Scheme, where the contribution rates or
amounts in respect of the members are defined in the Rules of the scheme. Ultimate
benefits will depend upon accumulation of the contribution actually made from time to
time.
Benefits to the employer
􀂙 Retain key personnel.
􀂙 Attract better talent for organizational growth.
􀂙 Extend tax free perquisites to employees and win their loyalty and boost their morale.
􀂙 Employers get 100% tax benefits on contributions to superannuation fund.
􀂙 High Return on contribution.

Benefits to the employees:

􀂙 Regular income after retirement with a variety of options to suit individual need.
􀂙 Tax free compulsory savings.
􀂙 Tax rebate under section 80C if contribution made by employee.

Other Features: Apart from retirement pensions, defined benefit schemes usually include
the option for the retiring employee to exchange some of his/her pension for a lump sum.
Lump sum benefits for dependants on death are common features. Many schemes also
provide pensions payable to spouses and/or other dependants. Lump sums are payable
income tax free and are often expressed as a multiple of salary.
How Is The Contribution Fixed?
Generally, the employer‘s contribution is decided in advance by the employer. Employee
contributions will be in addition to the employer‘s fixed rate of contribution.

What happens when the contributions are paid in?

Once contributions are received by the pension scheme trustees, they are invested
through an insurance company or other investment manager. They are usually invested
separately for each individual member, so that the member‘s share of the fund can be
easily tracked.

Pensionable service:
This will be defined in the rules of the scheme. It may be service as an employee, or service
as a member of the scheme. It may be expressed in complete years, years and months or
even years and days. It may be continuous, or could include periods of broken service.
Service with other companies in a group may also be included.
Pensionable Salary:
This is the part of your salary which is taken into account for pension purposes. It could
be your gross annual pay but is usually something lower than that. The usual starting
point for calculating this is basic salary. It may be that salary taken at
the date of your retirement or at some date close to that, or it could be an average over
several years.

Retirement Benefits
Benefits payable in lump sum form on retirement (up to certain limits)are not subject to
income tax.

Death Benefits
Similarly, benefits which are allowed to be paid in lump sum form on the death of a
member are not subject to income tax. The rules of the majority of pension schemes specify
that the lump sum death in service benefits are payable to a broad category of dependants.
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These will normally include a member‘s wife or husband and children under 18. The
trustees may give you the option of completing a form of nomination of dependants.

Dependants’ Pensions: The scheme rules will provide for specific dependants pensions
to be paid on your death after retirement. These benefits may be payable immediately on
the death of a pensioner.

Role of Intermediaries in the mobilizing savings Process:

Intermediaries are institutions that intermediate between ultimate lenders and ultimate
borrowers. Funds flow from ultimate lenders to ultimate borrowers either directly or
indirectly through financial institutions. FIs are commercial banks, cooperative credit
societies and banks, mutual savings banks, mutual funds, savings and loan associations,
building societies and housing loan associations, insurance companies, merchant banks,
unit trusts, and other financial institutions.

Financial intermediaries transmute funds between savers who lend and investors who
borrow. They mobilize savings and channel them into the hands of investors who need
more funds than they have on hand. In other words, they are conduits through which
savers can lend their excess funds to investors.

FIs are commercial banks, cooperative societies and banks, mutual savings banks, mutual
funds, savings and loan associations, insurance companies, merchant banks, unit trusts,
and other types of financial institutions. They act as middlemen by transferring funds
from savers to investors.

By lending their surplus funds, savers stand to gain because they earn interest or dividend
on their funds. On the other hand, investors stand to benefit when they borrow to carry
out their investment plans. Without financial intermediaries, savers would hoard their
surplus funds, and investors (borrowers) would not carry out their investment plans
except those who can finance internally.

The essential function of FIs is to satisfy simultaneously the portfolio preference of both
savers and investors. Savers are ultimate lenders whose assets are bank deposits,
insurance policies, pensions, etc. Investors are ultimate borrowers or non-financial units
who wish to expand their holdings of such real assets as inventories, real estate, plant
and equipment, etc. They finance these by issuing primary securities which are bonds,
corporate equities, debts of individuals and businesses, mortgages, bills, etc. These are
their liabilities.

Savers deposit funds with FIs instead of directly purchasing bonds, mortgages or equities,
and FIs, in turn, lend funds to ultimate borrowers. FIs acquire primary securities issued
by ultimate borrowers, and in turn, issue their own secondary securities for the portfolio
of ultimate lenders (savers).

In other words, investors sell securities to banks and receive newly created demand
deposits in return in banks. These deposits are then spent on current output and
ultimately accrue to the savers in the community as financial assets. Investors also sell
securities to non-bank financial intermediaries. These, in turn, sell claim on themselves
to the savers.

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They give lenders a wide variety of financial assets particularly suited to their needs. They
also make it less necessary for borrowers to issue those types of securities which are ill-
adapted to their own businesses. Thus FIs by liquifying and diversifying the securities
issued by the lenders encourage saving or discourage dissaving.

Insurance as financial intermediary:

Financial intermediaries perform the function of channelizing saving into domestic

investment. They facilitate efficient allocation of capital resources, which in turn improve
productivity and economic efficiency which result in reduced capital output ratio. The
insurance companies perform extremely useful function in economy as financial
intermediaries

Saving involves refraining from present consumption. The investment can take place only
when there are savings. The relationship between saving, investment and growth of GDP
can be explained as:
G = S / K. Where G – Rate of GDP growth, S – Saving Ratio and K – Capital output ratio.
Insurance companies lead to economic development by mobilizing savings and investing
them into productive activities. Indian insurance companies are able to mobilize long-term
savings to support economic growth and also facilitate economic development by providing
insurance cover to a large segment of our people as well as to business enterprise
throughout India.

Evolution of various types and Bancassurance in India :

Bancassurance is a buzzword in today’s financial markets. In simple terms it is the

distribution of insurance products by banks. All the major markets of the world have
moved towards this concept; some are well into it, others are gravitating towards it, yet
others are still contemplating it.

Bancassurance simply means selling of insurance products by banks. In this

arrangement, insurance companies and banks undergo a tie-up, thereby allowing banks
to sell the insurance products to its customers.

This is a system in which a bank has a corporate agency with one insurance company to
sell its products. By selling insurance policies bank earns a revenue stream apart from
interest. It is called as fee-based income. This income is purely risk free for the bank since
the bank simply plays the role of an intermediary for sourcing business to the insurance
company.

It has its genesis decades ago in France, where this channel today is the predominant
source of insurance business. It has grown at different places and taken shapes and forms
in different countries depending upon demography, economic and legislative prescription
in that country. In some countries, bancassurance is still largely prohibited, but it was
recently legalized in countries such as the United States.

It originated in India in the year 2000. Following the recommendations of First

Narasimham Committee, the contemporary financial landscape has been reshaped. The
regulator, Insurance Regulatory Development Authority, finally permitted Indian banks to

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distribute insurance products in late 2002.Thus, present-day banks have become far more
diversified than ever before. Therefore, their entering into insurance business is only a
natural corollary and is fully justified too as ‘insurance’ is another financial product
required by the bank customers.

In India, the banking and insurance sectors are regulated by two different entities
(banking by RBI and insurance by IRDA) and bancassurance being the combinations of
two sectors comes under the purview of both the regulators.
Each of the regulators has given out detailed guidelines for banks getting into insurance
sector. Highlights of the guidelines are reproduced below:

RBI guideline for banks entering into insurance sector provides three options for
banks. They are:

 Joint ventures will be allowed for financially strong banks wishing to undertake
insurance business with risk participation;

 For banks which are not eligible for this joint-venture option, an investment option
of up to 10% of the net worth of the bank or Rs.50 crores, whichever is lower, is
available;

 Banks can sell products from one life, one general, and one health insurance
company each. (As a broker, Corporate Agent)

The Insurance Regulatory and Development Authority (IRDA) guidelines for the
bancassurance are:

 Each bank that sells insurance must have a chief insurance executive to handle all
the insurance activities.

 All the people involved in selling should under-go mandatory training at an institute
accredited by IRDA and pass the examination conducted by the authority.

 Commercial banks, including cooperative banks and regional rural banks, may
become corporate agents for one insurance company.

Some of the Bancassurance tie-ups in India are:

Insurance Company Bank

Bank of Rajasthan, Andhra Bank, Bank of

Birla Sun Life Insurance Co. Ltd. Muscat, Development Credit Bank, Deutsche
Bank and Catholic Syrian Bank
Dabur CGU Life Insurance Canara Bank, Lakshmi Vilas Bank, American
Company Pvt. Ltd Express Bank and ABN AMRO Bank

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HDFC Standard Life Insurance
Union Bank of India
Co. Ltd.
Lord Krishna Bank, ICICI Bank, Bank of India,
ICICI Prudential Life Insurance Citibank, Allahabad Bank, Federal Bank,
Co Ltd. South Indian Bank, and Punjab and
Maharashtra Co-operative Bank.

Corporation Bank, Indian Overseas Bank,

Centurion Bank, Satara District Central Co-
Life Insurance Corporation of
operative Bank, Janata Urban Co-operative
India
Bank, Yeotmal Mahila Sahkari Bank, Vijaya
Bank, Oriental Bank of Commerce.

Karnataka Bank, Dhanalakshmi Bank and

Met Life India Insurance Co. Ltd.
J&K Bank
SBI Life Insurance Company Ltd. State Bank of India
Bajaj Allianz General Insurance
Karur Vysya Bank and Lord Krishna Bank
Co. Ltd.
National Insurance Co. Ltd. City Union Bank
Royal Sundaram General Standard Chartered Bank, ABN AMRO Bank,
Insurance Company Citibank, Amex and Repco Bank.
United India Insurance Co. Ltd. South Indian Bank

The Three Development Models

Bancassurance takes different forms that vary from one country to the next. There are
different development models, which can be divided into 3 main categories. Below, we sum
up their main criteria and their advantages and disadvantages.

Description Advantages Disadvantages

Bank acts as an Operation start Lack of flexibility to

Distribution intermediary for an quickly. No capital launch new products.
insurance company investment (less Possibility of differences
agreement costly) in corporate culture

Bank in partnership
Joint with one or more Transfer of Difficult in manage in
insurance experience long the term
Venture companies

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Full
Creation of a new Same corporate Substantial investment
Integration
subsidiary culture

Bancassurance – The Indian Experience So Far:

In India, there was a lot of excitement regarding this concept right from 2000 onwards, as
the country was in a position to learn and imbibe the globally successful concept. The
regulator, Insurance Regulatory Development Authority, finally permitted Indian banks to
distribute insurance products in late 2002. Till this period, insurance companies mainly
operated through a large tied agency force. What followed was a series of distribution tie-
ups between banks and insurance companies.

Globally, bancassurance has displayed the tendency to evolve models based on the
country’s overall financial culture. Models that emerged were both on the integrated and
non-integrated side. In India, it was more a case of distribution and arrangements and
the tie-ups were mainly as

I] Corporate Agency – distributing the entire range of products of the insurer starting
from elementary term assurance plans to complex pension plans on an as is where is
basis, after training and licensing the employees – a sort of non-integrated model ;

II] Referral Model – the insurer company officials / representatives are provided leads
by bank employees to target specific customers; and

III] Wrapper Products – distribution of insurance products wrapped around the bank’s
savings and loan products – a type of an integrated model. While the corporate agency
and the wrapper models have been reasonably successful, the referral model has not met
with much success.

Advantage for the Banks:

 Revenue diversification
 Satisfaction of more financial needs under the same roof
 Customer retention-Increase in customer loyalty
 More profitable resource utilization
 Enriched work environment
 Establish sales oriented culture

Advantage for the Insurance Companies:

 Revenue and channel diversification
 Quality customer access
 Quicker geographical reach creation of brand equity
 Increase in volume and profit
 Improved brand equity

Advantage for the Consumer:

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 Enhanced convenience
 One stop shopping for all financial services
 Innovative and better product ranges
 More credible solution

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