DECLARAION

I hereby declare that this work entitled “Potential of Life Insurance

Industry in Surat Market” is my work carried out under the guidance
of my faculty guide Mr. Vikas Singh and my company guide Mr. Jignesh
Madhavani. This report neither full nor in past has ever been submitted
for award of any other degree of either this University or any other
University.

Chirag Patel
(5NB3430)
Brief History Of Insurance

The story of insurance is probably as old as the story of mankind. The same
instinct that prompts modern businessmen today to secure themselves
against loss and disaster existed in primitive men also. They too sought to
avert the evil consequences of fire and flood and loss of life and were willing
to make some sort of sacrifice in order to achieve security. Though the
concept of insurance is largely a development of the recent past, particularly
after the industrial era – past few centuries – yet its beginnings date back
almost 6000 years.

Life Insurance in its modern form came to India from England in the year
1818. Oriental Life Insurance Company started by Europeans in Calcutta was
the first life insurance company on Indian Soil. All the insurance companies
established during that period were brought up with the purpose of looking
after the needs of European community and Indian natives were not being
insured by these companies. However, later with the efforts of eminent
people like Babu Muttylal Seal, the foreign life insurance companies started
insuring Indian lives. But Indian lives were being treated as sub-standard
lives and heavy extra premiums were being charged on them. Bombay
Mutual Life Assurance Society heralded the birth of first Indian life insurance
company in the year 1870, and covered Indian lives at normal rates.
Starting as Indian enterprise with highly patriotic motives, insurance
companies came into existence to carry the message of insurance and social
security through insurance to various sectors of society. Bharat Insurance
Company (1896) was also one of such companies inspired by nationalism.
The Swadeshi movement of 1905-1907 gave rise to more insurance
companies. The United India in Madras, National Indian and National
Insurance in Calcutta and the Co-operative Assurance at Lahore were
established in 1906. In 1907, Hindustan Co-operative Insurance Company
took its birth in one of the rooms of the Jorasanko, house of the great poet
Rabindranath Tagore, in Calcutta. The Indian Mercantile, General Assurance
and Swadeshi Life (later Bombay Life) were some of the companies
established during the same period. Prior to 1912 India had no legislation to
regulate insurance business. In the year 1912, the Life Insurance Companies
Act, and the Provident Fund Act were passed. The Life Insurance Companies
Act, 1912 made it necessary that the premium rate tables and periodical
valuations of companies should be certified by an actuary. But the Act
discriminated between foreign and Indian companies on many accounts,
putting the Indian companies at a disadvantage.

The first two decades of the twentieth century saw lot of growth in insurance
business. From 44 companies with total business-in-force as Rs.22.44 crore,
it rose to 176 companies with total business-in-force as Rs.298 crore in
1938. During the mushrooming of insurance companies many financially
unsound concerns were also floated which failed miserably. The Insurance
Act 1938 was the first legislation governing not only life insurance but also
non-life insurance to provide strict state control over insurance business. The
demand for nationalization of life insurance industry was made repeatedly in
the past but it gathered momentum in 1944 when a bill to amend the Life
Insurance Act 1938 was introduced in the Legislative Assembly. However, it
was much later on the 19th of January, 1956, that life insurance in India was
nationalized. About 154 Indian insurance companies, 16 non-Indian
companies and 75 provident were operating in India at the time of
nationalization. Nationalization was accomplished in two stages; initially the
management of the companies was taken over by means of an Ordinance,
and later, the ownership too by means of a comprehensive bill. The
Parliament of India passed the Life Insurance Corporation Act on the 19th of
June 1956, and the Life Insurance Corporation of India was created on 1st
September, 1956, with the objective of spreading life insurance much more
widely and in particular to the rural areas with a view to reach all insurable
persons in the country, providing them adequate financial cover at a
reasonable cost.

LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart
from its corporate office in the year 1956. Since life insurance contracts are
long term contracts and during the currency of the policy it requires a
variety of services need was felt in the later years to expand the operations
and place a branch office at each district headquarter. re-organization of LIC
took place and large numbers of new branch offices were opened. As a result
of re-organisation servicing functions were transferred to the branches, and
branches were made accounting units. It worked wonders with the
performance of the corporation. It may be seen that from about 200.00
crores of New Business in 1957 the corporation crossed 1000.00 crores only
in the year 1969-70, and it took another 10 years for LIC to cross 2000.00
crore mark of new business. But with re-organisation happening in the early
eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum Assured on
new policies.

Today LIC functions with 2048 fully computerized branch offices, 100
divisional offices, 7 zonal offices and the Corporate office. LIC’s Wide Area
Network covers 100 divisional offices and connects all the branches through
a Metro Area Network. LIC has tied up with some Banks and Service
providers to offer on-line premium collection facility in selected cities. LIC’s
ECS and ATM premium payment facility is an addition to customer
convenience. Apart from on-line Kiosks and IVRS, Info Centres have been
commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad,
Kolkata, New Delhi, Pune and many other cities. With a vision of providing
easy access to its policyholders, LIC has launched its SATELLITE SAMPARK
offices. The satellite offices are smaller, leaner and closer to the customer.
The digitalized records of the satellite offices will facilitate anywhere
servicing and many other conveniences in the future.

LIC continues to be the dominant life insurer even in the liberalized scenario
of Indian insurance and is moving fast on a new growth trajectory
surpassing its own past records. LIC has issued over one crore policies
during the current year. It has crossed the milestone of issuing 1,01,32,955
new policies by 15th Oct, 2005, posting a healthy growth rate of 16.67%
over the corresponding period of the previous year.

From then to now, LIC has crossed many milestones and has set
unprecedented performance records in various aspects of life insurance
business. The same motives which inspired our forefathers to bring
insurance into existence in this country inspire us at LIC to take this
message of protection to light the lamps of security in as many homes as
possible and to help the people in providing security to their families.

Some of the important milestones in the life insurance business in

India are:

1818: Oriental Life Insurance Company, the first life insurance company on
Indian soil started functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurance
company started its business.

1912: The Indian Life Assurance Companies Act enacted as the first statute
to regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the

government to collect statistical information about both life and non-life
insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act

with the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies are taken over
by the central government and nationalised. LIC formed by an Act of
Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from
the Government of India.
The General insurance business in India, on the other hand, can trace its
roots to the Triton Insurance Company Ltd., the first general insurance
company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business

in India are:

1907: The Indian Mercantile Insurance Ltd. set up, the first company to
transact all classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of

India, frames a code of conduct for ensuring fair conduct and sound business
practices.

1968: The Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalisation) Act, 1972

nationalised the
general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the
National
Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.
Mission
"Explore and enhance the quality of life of people through financial
security by providing products and services of aspired attributes
with competitive returns, and by rendering resources for economic
development."

Vision
"A trans-nationally competitive financial conglomerate of
significance to societies and Pride of India."

What Is Life Insurance?

Life insurance is a contract that pledges payment of an amount to the person

assured (or his nominee) on the happening of the event insured against.

The contract is valid for payment of the insured amount during:

• The date of maturity, or

• Specified dates at periodic intervals, or
• Unfortunate death, if it occurs earlier.

Among other things, the contract also provides for the payment of premium
periodically to the Corporation by the policyholder. Life insurance is
universally acknowledged to be an institution, which eliminates 'risk',
substituting certainty for uncertainty and comes to the timely aid of the
family in the unfortunate event of death of the breadwinner.
By and large, life insurance is civilisation's partial solution to the problems
caused by death. Life insurance, in short, is concerned with two hazards that
stand across the life-path of every person:
1. That of dying prematurely leaving a dependent family to fend for itself.
2. That of living till old age without visible means of support.
 INTRODUCTION
Insurance = Collective bearing of Risk

Insurance is nothing but a system of spreading the risk of one onto the shoulders of many.
While it becomes somewhat impossible for a man to bear by himself 100% loss to his own
property or interest arising out of an unforeseen contingency, insurance is a method or
process which distributes the burden of the loss on a number of persons within the group
formed for this particular purpose.

Basic Human trait is to be averse to the idea of risk taking. Insurance, whether life or non-
life, provides people with a reasonable degree of security and assurance that they will be
protected in the event of a calamity or failure of any sort.

Insurance may be described as a social device to reduce or eliminate risk of loss to life and
property. Under the plan of insurance, a large number of people associate themselves by
sharing risks attached to individuals. The risks, which can be insured against, include fire,
the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be
insured against at a premium commensurate with the risk involved. Thus collective bearing
of risk is insurance.

• Insurance Indemnifies Assets & Income. Every Asset has a value and generates
Income to its Owner. There is a normally expected Life-time for the Asset during
which time it is expected to perform. If the Asset gets lost earlier, being destroyed or
made Non-functional through an Accident or other unfortunate event the Owner is
Prejudiced. Insurance helps to reduce CONSEQUENCES of such Adverse
Circumstances which are called Risks

• Insurance is the science of spreading of the risk . It is the system of spreading the
losses of an Individual over a group of Individuals
 • Insurance is a Method of sharing of financial losses of a few from a common fund
formed out of Contribution of the many who are equally exposed to the same loss
• What is uncertainty for an Individual becomes a certainty for a Group. This
is the basis of All Insurance Operations. Thus insurance convert
uncertainties to certainty

DEFINITIONS

The definition of insurance can be made from two points:

1Functional definition.
2Contractual definition.

Functional definition

Insurance is a co-operative device to spread the loss caused by a particular risk over a
number of persons who are exposed to it and who agree to insure themselves against the
risk.

General Definition

Insurance has been defined to be that in which a sum of money as a premium is paid in
consideration of the insurer’s incurring the risk of paying a large sum upon a given
contingency.
In the words of John Magee, “Insurance is a plan by themselves which large
number of people associate and transfer to the shoulders of all, risks that attach to
individuals.”
Fundamental Definition

In the words of D.S. Hansell, “Insurance accumulated contributions of all parties

participating in the scheme.”

Contractual Definition
In the words of justice Tindall, “Insurance is a contract in which a sum of money is paid to
the assured as consideration of insurer’s incurring the risk of paying a large sum upon a
given contingency.”

HISTORY OF INSURANCE

Worldwide History

To talk about the insurance companies, insurance in modern form had occurred after the
Great Fire in London in 1666 which destroyed myriad houses. Nicholas Barbon, following
the disaster, had established England's first fire insurance company (The Fire Office)
in1680. In the United States, the first insurance company which provided fire insurance
was formed in South Carolina; in 1732.The practice of perpetual insurance against fire was
popularized by Benjamin Franklin. In 1752, he founded the Philadelphia Contribution ship
for the Insurance of Houses. In India, the Oriental Life Insurance Company was started in
1818 by Europeans, much before independence. The first indigenous insurance company in
India was started in the year 1870 in the form of Bombay Mutual Life Assurance Society.

Babylonia

The roots of insurance might be traced to Babylonia, where traders were encouraged to
assume the risks of the caravan trade through loans that were repaid (with interest) only
after the goods had arrived safely—a practice resembling bottomry and given legal force in
the Code of Hammurabi (c.2100 B.C.). The Phoenicians and the Greeks applied a similar
system to their seaborne commerce. The Romans used burial clubs as a form of life
insurance, providing funeral expenses for members and later payments to the survivors.

Europe

With the growth of towns and trade in Europe, the medieval guilds undertook to protect
their members from loss by fire and shipwreck, to ransom them from captivity by pirates,
and to provide decent burial and support in sickness and poverty
London

In London, Lloyd's Coffee House (1688) was a place where merchants, ship-owners, and
underwriters met to transact business. By the end of the 18th cent. Lloyd's had progressed
into one of the first modern insurance companies. In 1693 the astronomer Edmond Halley
constructed the first mortality table, based on the statistical laws of mortality and
compound interest. The table, corrected (1756) by Joseph Dodson, made it possible to scale
the premium rate to age; previously the rate had been the same for all ages.

New York City

The New York fire of 1835 called attention to the need for adequate reserves to meet
unexpectedly large losses; Massachusetts was the first state to require companies by law
(1837) to maintain such reserves. The great Chicago fire (1871) emphasized the costly
nature of fires in structurally dense modern cities. Reinsurance, whereby losses are
distributed among many companies, was devised to meet such situations and is now
common in other lines of insurance. The Workmen's Compensation Act of 1897 in Britain
required employers to insure their employees against industrial accidents. Public liability
insurance, fostered by legislation, made its appearance in the 1880s; it attained major
importance with the advent of the automobile In recent
years insurance premiums (particularly for liability policies) have increased rapidly,
leaving unprecedented numbers of Americans uninsured. Many blame the insurance
conglomerates, contending that U.S. citizens are paying for bad risks made by the
companies. Insurance companies place the burden of guilt on law firms and their clients,
who they say have brought unreasonably large civil suits to court, a

trend that has become so common in the United States that legislation has been proposed to
limit lawsuit awards. Catastrophic earthquakes, hurricanes, and wildfires in late 1980s and
the 90s have also strained many insurance company's reserves.
Insurance Indian history

The history of life insurance in India dates back to 1818 when it was conceived as a means
to provide for English Widows. Interestingly in those days a higher premium was charged
for Indian lives than the non-Indian lives as Indian lives were considered more riskier for
coverage.

The Bombay Mutual Life Insurance Society started its business in 1870. It was the first
company to charge same premium for both Indian and non-Indian lives. The Oriental
Assurance Company was established in 1880. The General insurance business in India, on
the other hand, can trace its roots to the Triton (Tital) Insurance Company Limited, the
first general insurance company established in the year 1850 in Calcutta by the British. Till
the end of nineteenth century insurance business was almost entirely in the hands of
overseas companies.

Insurance regulation formally began in India with the passing of the Life Insurance
Companies Act of 1912 and the provident fund Act of 1912. Several frauds during 20's and
30's sullied insurance business in India. By 1938 there were 176 insurance companies. The
first comprehensive legislation was introduced with the Insurance Act of 1938 that
provided strict State Control over insurance business. The insurance business grew at a
faster pace after independence. Indian companies strengthened their hold on this business
but despite the growth that was witnessed, insurance remained an urban phenomenon.

The Government of India in 1956, brought together over 240 private life insurers and
provident societies under one nationalized monopoly corporation and Life Insurance
Corporation (LIC) was born. Nationalization was justified on the grounds that it would
create much needed funds for rapid industrialization. This was in conformity with the
Government's chosen path of State lead planning and development.

The (non-life) insurance business continued to thrive with the private sector till 1972. Their
operations were restricted to organized trade and industry in large cities. The general
insurance industry was nationalized in 1972. With this, nearly 107 insurers were
amalgamated and grouped into four companies- National Insurance Company, New India
Assurance Company, Oriental Insurance Company and United India Insurance Company.
These were subsidiaries of the General Insurance Company (GIC).

The general insurance business was nationalized after the promulgation of General
Insurance Business (Nationalizations) Act, 1972. The post-nationalization general insurance
business was undertaken by the General Insurance Corporation of India (GIC) and its 4
subsidiaries:
1. Oriental Insurance Company Limited;
2. New India Assurance Company Limited;
3. National Insurance Company Limited; and
4. United India Insurance Company Limited.

Some of the important milestones in the life insurance business in India are:
1850: Non life insurance debuts with triton insurance company.
1870 :Bombay mutual life assurance society is the first Indian owned life insurer
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the
life insurance business.

1928 :The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies taken over by the central
government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956,
with a capital contribution of Rs. 5 Crore from the Government of India.

The General insurance business in India, on the other hand, can trace its roots to the Triton
Insurance Company Ltd., the first general insurance company established in the year 1850
in Calcutta by the British.
Some of the important milestones in the general insurance business in India are:

1907 The Indian Mercantile Insurance Ltd. set up, the first company to transact all
classes of general insurance of India.

1957 General Insurance Council, a wing of the Insurance Association of India, frames a
code of conduct for ensuring fair conduct and sound business practices.
1968 The Insurance Act amended to regulate investments and set minimum solvency
margins and the Tariff Advisory Committee set up.
1972 The General Insurance Business (Nationalization) Act, 1972 nationalized the general
insurance business in India with effect from 1st January 1973. 107 insurers amalgamated
and grouped into four companies’ viz. the National Insurance Company Ltd., the New
India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United
India Insurance Company Ltd. GIC incorporated as a company.

Malhotra Committee

In 1993, Malhotra Committee- headed by former Finance Secretary and RBI Governor
R.N. Malhotra- was formed to evaluate the Indian insurance industry and recommend its
future direction. The Malhotra committee was set up with the objective of complementing
the reforms initiated in the financial sector. The reforms were aimed at creating a more
efficient and competitive financial system suitable for the requirements of the economy
keeping in mind the structural changes currently underway and recognizing that insurance
is an important part of the overall financial

System where it was necessary to address the need for similar reforms. In 1994, the
committee submitted the report and some of the key recommendations included:

i) Structure

Government should take over the holdings of GIC and its subsidiaries so that these
subsidiaries can act as independent corporations. All the insurance companies should be
given greater freedom to operate.
ii) Competition

Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter
the sector. No Company should deal in both Life and General Insurance through a single
entity. Foreign companies may be allowed to enter the industry in collaboration with the
domestic companies.

Postal Life Insurance should be allowed to operate in the rural market. Only one State
Level Life Insurance Company should be allowed to operate in each state.

iii) Regulatory Body

The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of
Insurance- a part of the Finance Ministry- should be made independent

iv) Investments

Mandatory Investments of LIC Life Fund in government securities to be reduced from

75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (there
current holdings to be brought down to this level over a period of time)

v) Customer Service

LIC should pay interest on delays in payments beyond 30 days. Insurance companies must
be encouraged to set up unit linked pension plans. Computerization of operations and
updating of technology to be carried out in the insurance industry

The committee emphasized that in order to improve the customer services and increase the
coverage of insurance policies, industry should be opened up to competition. But at the
same time, the committee felt the need to exercise caution as any failure on the part of new
players could ruin the public confidence in the industry.

The committee felt the need to provide greater autonomy to insurance companies in order
to improve their performance and enable them to act as independent companies with
economic motives. For this purpose, it had proposed setting up an independent regulatory
body- The Insurance Regulatory and Development Authority.
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in
Parliament in December 1999. The IRDA since its incorporation as a statutory body in
April 2000 has fastidiously stuck to its schedule of framing regulations and registering the
private sector insurance companies. Since being set up as an independent statutory body
the IRDA has put in a framework of globally compatible regulations. The other decision
taken simultaneously to provide the supporting systems to the insurance sector and in
particular the life insurance companies was the launch of the IRDA online service for issue
and renewal of licenses to agents. The approval of institutions for imparting training to
agents has also ensured that the insurance companies would have a trained workforce of
insurance agents in place to sell their products.

PURPOSE OF INSURANCE

1.Insurance spreads the economic burden of losses by using funds contributed by

members of the group to pay for them. Thus, it is a loss spreading device.

2.The fundamental purpose of insurance however is neither the spreading nor the
prevention of losses. Rather, it is reduction of the uncertainty which is caused by
awareness of the possibility of loss.

3.An insurance scheme provides certainty for the individual members of the group by
averaging loss costs. The contribution made by the individual to the group is assumed,
on the basis of predictions, to be his share of losses suffered by the group.

In exchange for this contribution, he is assured that the group will assume any losses that
involve him. He transfers his risk to the group and averages his loss costs, thus substituting
certainty for uncertainty. He pays a certain premium instead of facing the uncertainty of
the possibility of large loss.
FUNCTION OF INSURANCE
The functions of Insurance can be bifurcated into three parts:

1. Primary Functions
2. Secondary Functions
3. Other Functions

The primary functions of insurance include the following:

Provide Protection
The primary function of insurance is to provide protection against future risk, accidents
and uncertainty. Insurance cannot check the happening of the risk, but can certainly
provide for the losses of risk.

Collective bearing of risk

Insurance is a mean by which few losses are shared among larger number of people. All the
insured contribute the premiums towards a fund and out of which the persons
Exposed to a particular risk is paid.

Assessment of risk
Insurance determines the probable volume of risk by evaluating various factors that give
rise to risk. Risk is the basis for determining the premium rate also .

Provide Certainty
Insurance is a device, which helps to change from uncertainty to certainty. Insurance is
device whereby the uncertain risks may be made more certain.

Research and publicity

Insurers also spend money in research and publicity in creating risk consciousness amongst
which has a far reaching effect on reduction in national waste.
The secondary functions of insurance include the following:
Prevention of Losses
Prevention of losses causes lesser payment to the assured by the insurer and this will
encourage for more savings by way of premium. Reduced rate of premiums stimulate for
more business and better protection to the insured.

Small capital to cover larger risks

Insurance relieves the businessmen from security investments, by paying small amount of
premium against larger risks and uncertainty.

Contributes towards the development of larger industries

Insurance provides development opportunity to those larger industries having more risks
in their setting up. Even the financial institutions may be prepared to give credit to sick
industrial units which have insured their assets including plant and machinery.

If improves efficiency
The insurance eliminates worries and miseries of loans at death and destruction of
property. The carefree person an devote his body and soul together for better achievement.
It improves not only his efficiency, but the efficiencies of the masses are also advanced.

It helps economic progress

The insurance by protecting the society from huge losses of damage, destruction and death,
provides an initiative to work hard for the betterment of the masses. The next factor of
economic progress. The capital is also immensely provided by the masses. The property, the
valuable assets, the man, the machine and the society cannot lose much at the disaster.

The other functions of insurance include the following:

Means of savings and investment

Insurance serves as savings and investment, insurance is a compulsory way of savings and
it restricts the unnecessary expenses by the insured's For the purpose of availing income-
tax exemptions also, people invest in insurance.
Source of earning foreign exchange
Insurance is an international business. The country can earn foreign exchange by way of
issue of marine insurance policies and various other ways.

Risk Free trade

Insurance promotes exports insurance, which makes the foreign trade risk free with the
help of different types of policies under marine insurance cover.

NATURE OF INSURANCE

Sharing of risk
Insurance is a device to share the financial losses which might be fall on an individual or his
family on the happening of specified event. The event may be death, incase of life
insurance, marine perils, marine insurance, fire in fire insurance and other certain events
in general insurance.

Co-operative Device
The most important feature of every insurance plan is the co-operation of large number of
persons who, agree to share the financial loss arising due to a particular risk which is
insured. All co-operative devices, there is no compulsion here on anybody to purchase the
insurance policy.

Value of risk
The risk is evaluated before inuring to charge the amount of share of an insured, here is
called, consideration or premium. If there is expectation of more loss, higher premium may
be charged. So, the probability of loss is calculated at the time of insurance.

Payment at Contingency
The payment is made at a certain contingency insured. If the contingency occurs, payment
is made. Since the life insurance is a contract of certainty, because the contingency, the
death or the expiry of term, will certainly occur, the payment is certain.

Amount of payment
The amount of payment depends upon the value of loss occurred due to the particular
insured risk provided insurance is there up to that amount. In case of life insurance, the
insurer promises to pay a fixed sum on the happening of an even. (Either death or the
expiry of the term).

Large number of insured persons

The co-operation of a small number of persons may also be insurance but in that case, the
cost of insurance to each number may be higher. In case of large number of persons
opposite condition is applicable.

Insurance is not gambling

The insurance is just opposite of gambling. In gambling by bidding the persons exposes
himself to risk of losing ,in the insurance the insured is always opposed to risk and will
suffer loss if he is not insured.

Insurance is not charity

Charity is given without consideration but security and safety provided by insurance is not
possible without consideration or premium. It provides security and safety to an individual
and to the society although it is a kind of business because inconsideration of premium it
guarantees the payment of loss.

PRINCIPLE OF INSURANCE

Principles of Co-operation.

Insurance is co-operative device. If one person is providing for his own losses, it can not be
strictly insurance because in insurance, the loss is shared by a group of persons who are
willing to co-operate. It is the duty and responsibility of the insurer to obtain adequate
funds from the members of the society to pay them at the happening of the insured risk.
Thus, the shares of loss took the form of premium. Today, all the insured

give a premium to join the scheme of insurance. Thus, the insured are co-operating to share
the loss of an individual be payment of a premium in advance.

Principles of Probability

The loss in the shape of premium can be distributed only on the basis of theory of
probability. The chances of loss are estimated in advance to affix the amount of premium.
Since the degree of loss depends upon various factors, the affecting factors are analyzed
before determining the amount of loss. With the help of this principle, the uncertainty of
loss is converted into certainty. The insurer will have not to suffer loss as well have to gain
windfall. Therefore, the insurer has to charge only so much of amount which is adequate to
meet the loss. The probability tells what the chances of loss are and what will be the
amount of losses.

The insurance, on the basis of past experience, present conditions and future prospects,
fixes the amount of premium. Without premium, no-operation is possible and the premium
can not be calculated without the help of theory of probability, and consequently no
insurance is possible. So, these two principles are the two main legs of insurance.

FORMATION OF INSURANCE REGULATION AND DEVELOPMENT

AUTHORITY ACT

The Insurance Act, 1938 had provided for setting up of the Controller of Insurance to act
as a strong and powerful supervisory and regulatory authority for insurance. Post
nationalization, the role of Controller of Insurance diminished considerably in significance
since the Government owned the insurance companies. But the scenario changed with the
private and foreign companies foraying in to the insurance sector. This necessitated the
need for a strong, independent and autonomous Insurance Regulatory Authority was felt.
As the enacting of legislation would have taken time, the then Government constituted
through a Government resolution an Interim Insurance Regulatory Authority pending the
enactment of a comprehensive legislation.
The Insurance Regulatory and Development Authority Act, 1999 is an act to provide for the
establishment of an Authority to protect the interests of holders of insurance policies, to
regulate, promote and ensure orderly growth of the insurance industry and for matters
connected therewith or incidental thereto and further to amend the Insurance Act, 1938,
the Life Insurance Corporation Act, 1956 and the General insurance Business
(Nationalization) Act, 1972 to end the monopoly of the Life Insurance Corporation of India
(for life insurance business) and General Insurance Corporation and its subsidiaries (for
general insurance business).
The act extends to the whole of India and will come into force on such date as the Central
Government may, by notification in the Official Gazette specify. Different dates may be
appointed for different provisions of this Act.
The Act has defined certain terms; some of the most important ones are as follows
appointed day means the date on which the Authority is established under the act.
Authority means the established under this Act.
Interim Insurance Regulatory Authority means the Insurance Regulatory Authority set up
by the Central Government through Resolution No. 17(2)/ 94-lns-V dated the 23rd
January, 1996. Words and expressions used and not defined in this Act but defined in the
Insurance Act, 1938 or the Life Insurance Corporation Act, 1956 or the General Insurance
Business (Nationalization) Act, 1972 shall have the meanings respectively assigned to them
in those Acts. A new definition of "Indian Insurance Company" has been inserted. "Indian
insurance company" means any insurer being a company
(a) which is formed and registered under the Companies Act, 1956
(b) in which the aggregate holdings of equity shares by a foreign company, either
by itself or through its subsidiary companies or its nominees, do not exceed twenty-
six per cent. Paid up capital in such Indian insurance company (c) whose sole
purpose is to carry on life insurance business, general insurance business or re-
insurance business.