Licensing, Credit Regulation In Insurance

Bachelor of commerce
Banking & Insurance
Semester VI
2013-2014



Submitted by
Avinash Reynold Crasto
Roll No:- 05



Project Guide:
Mrs Celsa Dsouza

St. Gonsalo Garcia College of Arts & Commerce
Vasai, Thane 401202


Licensing, Credit Regulation In Insurance

Bachelor of commerce
Banking & Insurance
Semester VI
2013-2014

Submitted
In the Partial Fulfilment of the requirements for the Award of
the Degree of Bachelor of Commerce Banking and Insurance

By
Avinash Reynold Crasto
Roll No:- 05
Project Guide:
Mrs Celsa Dsouza


St. Gonsalo Garcia College of Arts & Commerce
Vasai, Thane 401202


DECLARATION


I Avinash Reynold Crasto Student of B.Com Banking &
Insurance Semester VI (2013-2014) hereby declare that I have
completed the Project on Licensing, Credit Regulation In
Insurance.

Wherever the data or information has been taken from any book
or sources, the same have been mentioned in bibliography.

The information submitted is true & original to the best of my
knowledge.





-----------------------------------
SIGNATURE OF STUDENT
(AVINASH REYNOLD CRASTO)
ROLL NO: 05


St. Gonsalo Garcia College of Arts & Commerce
Vasai, Thane 401202

CERTIFICATE

This is to certify that Mr Avinash Reynold Crasto Roll No 05
of B.Com. Banking & Insurance Semester VI (2013-2014) has
successfully completed the Project on Licensing, Credit
Regulation In Insurance under the guidance of Mrs Celsa
Dsouza.


------------------------ -------------------------
(Dr Valerian Rodrigues) (Dr Cecilia Carvalho)
Course Co-ordinator Principal


-------------------------- --------------------------
INTERNAL EXAMINER EXTERNAL EXAMINER

---------------------------
(Mrs Celsa Dsouza)
Project Guide


ACKNOWLEGEMENT


I had a great pleasure in presenting my project on
Licensing, Credit Regulation In Insurance.

I am sincerely thankful with deep sense of gratitude to
Mrs Celsa Dsouza, our guide for her kind co-operation for the
fulfilment of this project.

I am highly indebted to our Principle Dr Cecilia Carvalho & our
Vice- Principle Dr Dominic Lopes who took keen interest &
allowed us to perform this project.

I would like to thank our senior librarian who sincerely helped
me getting this information & last but not the least our college
for big reason that we are here in front of you presenting this
project.

-----------------------------------
SIGNATURE OF STUDENT
(AVINASH REYNOLD CRASTO)
ROLL NO: 05











Licensing, Credit Regulation In Insurance












Sr No. Topic Page No.
1 Executive Summary 1
2 Introduction 2
3 History Of Insurance 4
4 What Is Licensing 9
5 Regulatory Authority IRDA 14
6 Composition Of The Authority 16
7 Duties, Powers And Functions Of IRDA 17
8 Regulations Issued By IRDA 19
9 How To Get License 24
10 Renewal Of License 29
11 Rules To Follow Before Applying For License 32
12 What Is Credit Regulation 35
13 Guidelines Of IRDA 37
14 Benefit Of Credit Regulation To Companies And Policy
Holders
40
15 Penalties Imposed By IRDA Due To Non Compliance
With The Act
44
16 Conclusion 45





1

EXECUTIVE SUMMARY

The Insurance industry has changed rapidly in the changing and challenging
economic environment throughout the world. In this competitive and liberalized
environment everyone is trying to do better than others and consequently survival of
the fittest has come into effect.
The Insurance Companies these days have become more and more customer
eccentric in terms of how to maintain a good relationship with their loyal customers
and to innovate their insurance products as well.
To protect the interest of the Insurers and also the Insured certain Acts and
Regulations have been laid down in order for the smooth functioning of the
Insurance Industry in the country.
These Rules and Regulations help to build a competitive environment between the
companies and also give the policy holders to avail lots of benefits and choose over
a range of products.
Taking all these things into consideration I would like to present my Project of
Licensing, Credit Regulation In Insurance. The project would enlighten you on
the current rules and regulations and also about protecting the interest of the policy
holder. Also how to adhere to the Regulations along with granting of license and
penalties imposed by the Authorities.







2

INSURANCE

INTRODUCTION

Definition

Insurance is the equitable transfer of the risk of a loss, from one entity to another in
exchange for payment. It is a form of risk management primarily used to hedge
against the risk of a contingent, uncertain loss.
A contract (policy) in which an individual or entity receives financial protection or
reimbursement against losses from an insurance company. The company pools
clients' risks to make payments more affordable for the insured.
Insurance has been in many ways; Willet defines Insurance as the social device for
making accumulations to meet uncertain losses of capital which is carried out
through the transfer of risks of many individuals to one person or group of persons.
Dr. Pefeffer defined Insurance as a device for the reduction of uncertainty of one
party called the insured, through the transfer of particular risks to another party
called insurer, who offers, a restoration at least in a part of economic losses suffered
by the insured.
Another definition of insurance is a promise of compensation for specific potential
future losses in exchange for a periodic payment. Insurance is designed to protect
the financial well- being of an individual, company or other entity in the case of
another unexpected loss. Some forms of insurance are required by law, while others
3

are optional. Agreeing to the terms of an insurance policy creates a contract between
the insured and the insurer. In exchange of payment from the insured (called
premiums), the insurer agrees to pay the policy holder a sum of money upon the
occurrence of a specific event. In most cases the policy holder pays the part of the
loss (called the deductible) and the insurer pays the rest. Examples include: car
insurance, health insurance, disability insurance, life insurance, etc.
Insurance therefore is a contract between two parties whereby one party agrees to
undertake the risk of another in exchange for consideration known as premium and
promises to pay a fixed sum of money to the other party on happening of an uncertain
event (death) of after the expiry of certain period (in case of life insurance) or to
indemnify the other party on happening of an uncertain event (in case of general
insurance).
The party bearing the risk is known as insurer or assurer and the party whose risk
is covered is known as the insured or assured.









4

HISTORY OF INSURANCE

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

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

In 1914, the Government of India started publishing returns of Insurance Companies
in India. The Indian Life Assurance Companies Act, 1912 was the first statutory
measure to regulate life business. In 1928, the Indian Insurance Companies Act was
enacted to enable the Government to collect statistical information about both life
5

and non-life business transacted in India by Indian and foreign insurers including
provident insurance societies. In 1938, with a view to protecting the interest of the
Insurance public, the earlier legislation was consolidated and amended by the
Insurance Act, 1938 with comprehensive provisions for effective control over the
activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However,
there were a large number of insurance companies and the level of competition was
high. There were also allegations of unfair trade practices. The Government of India,
therefore, decided to nationalize insurance business.

An Ordinance was issued on 19
th
January, 1956 nationalizing the Life Insurance
sector and Life Insurance Corporation came into existence in the same year. The LIC
absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies245
Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the
Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the
west and the consequent growth of sea-faring trade and commerce in the 17
th

century. It came to India as a legacy of British occupation. General Insurance in
India has its roots in the establishment of Triton Insurance Company Ltd., in the year
1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was
set up. This was the first company to transact all classes of general insurance
business.

6

1957 saw the formation of the General Insurance Council, a wing of the Insurance
Association of India. The General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum
solvency margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalization) Act,
general insurance business was nationalized with effect from 1
st
January, 1973. 107
insurers were amalgamated and grouped into four companies, namely National
Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental
Insurance Company Ltd and the United India Insurance Company Ltd. The General
Insurance Corporation of India was incorporated as a company in 1971 and it
commence business on January 1sst 1973.

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

7

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

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%.
Together with banking services, insurance services add about 7% to the countrys
GDP. A well-developed and evolved insurance sector is a boon for economic
8

development as it provides long- term funds for infrastructure development at the
same time strengthening the risk taking ability of the country.





















9

What Is Licensing?

A legal entity which intends to engage in insurance activities must be licensed before
it can operate within a jurisdiction. The requirements and procedures for licensing
must be clear, objective and public, and be consistently applied.
Licensing Requirements:
To protect the interests of policyholders, a jurisdiction controls through licensing
which entities are allowed to conduct insurance activities within its jurisdiction.
Licensing is distinct from approval granted in terms of the general domestic
company, trade or commercial law. Apart from applying for a supervisory license,
other requirements pertaining to company, trade or commercial law should be met
(e.g. filing incorporation documents or applying to the registrar of commerce).
Entities should neither be allowed to present themselves nor act as licensed insurance
companies without or before having been granted a license.
In jurisdictions where another authority is responsible for issuing licenses, the
insurance supervisor should be able to give input and recommend conditions or
restrictions (including refusal) on a license where appropriate to the licensing
authority.
Depending on the legal forms that might be permitted in a jurisdiction, foreign
insurers may be allowed to conduct insurance activities within the jurisdiction by
way of a local branch or subsidiary or on a cross border provision of services basis
only. A subsidiary is a domestically established legal entity that needs to be licensed.
A branch is part of a company, not being a separate legal entity, established in a
jurisdiction other than the companys home jurisdiction. Branches require
authorization to operate with the license usually granted to the legal entity. Cross
10

border provision of services basis only does not require a local establishment but
may require approval from the host supervisor.
In some regions, a number of jurisdictions have agreed to a system of pass porting
as a manner of acknowledging each others licenses. This provides the opportunity
for insurers established in one of the jurisdictions to open branches and provide
insurance services across borders on the basis of their home jurisdiction
authorization to conduct insurance activities, i.e. the passport.
In some jurisdictions, licensing of a foreign insurer that conducts cross border
business without a physical presence takes the form of an authorization to conduct
insurance activities.
The method of licensing may differ in various jurisdictions in order to take into
account the nature, scale and complexity of an entity conducting insurance activities.
Some jurisdictions may allow registration, which is a less formal process, for non-
significant entities (e.g. limited geographic scope, limited size, and limited lines of
business) for the purposes of licensing. In such situations, the legislation should state
clearly the applicability, requirements and process for registration.

Registration
Registration of insurance companies is covered under Sec.3 of the Act and the
Insurance Regulatory and Development Authority (Registration of Indian Insurance
Companies) Regulations, 2000.
An applicant desiring to carry on insurance business in India should make a
requisition for registration application in Form IRDA/R1. An applicant, whose
11

requisition for registration application has been accepted by the Authority, should
make an application in Form IRDA/R2 for grant of a certificate of registration.
Every application for registration should be accompanied by
a) A certified copy of the memorandum and articles of association.
b) Names, addresses and occupation of directors.
c) A statement of the class or classes of insurance business to be done.
d) Principal place of business or domicile outside India.
e) A certified copy of the published prospectus.
f) Documentary proof evidencing the making of deposit required under section
7 of the Act.
g) Evidence of having rupees one hundred crore or more paid up equity share
capital, in case the application for grant of certificate is for life insurance
business or general insurance business.
h) Evidence of having rupees two hundred crore or more paid up equity share
capital, in case the application for grant of certificate is for re- insurance
business.
i) An affidavit by the principal officer and the promoters of the applicant
certifying that the requirements of the first proviso to section 6 of the Act to
the effect that paid-up share capital is adequate after excluding any
preliminary expenses incurred in the formation and registration of the
company and the deposit required to be made under section 7 of the Act have
been satisfied.
j) A statement indicating the distinctive numbers of shares issued to each
promoter and shareholder in respect of share capital of the applicant.
k) An affidavit by the principal officer and the promoters of the applicant
certifying that the paid up equity capital referred to in sub-clause (b) of clause
12

(7A) of section 2 of the Act, calculated is in accordance with regulation 11
does not exceed twenty six percent.
l) A certified copy of the standard forms of the insurer and statements of the
assured rates, advantages, terms and conditions to be offered in connection
with insurance policies together with a certificate by an actuary in case of life
insurance business that such rates, advantages, terms and conditions are
workable and sound.
m) A certified copy of the memorandum of understanding entered into between
the Indian promoter and the foreign promoter, if any, or amongst the
promoters as a whole including details of the support comfort letters
exchanged between the parties.
n) The original receipt showing payment of the fee of Rupees fifty thousand for
a class of business.
o) A certificate from a practicing chartered accountant or a practicing company
secretary certifying that all the requirements relating to registration fees, share
capital, deposits, and other requirements of the Act have been complied with
by the applicant.
p) Any other information required by the Authority during the processing of the
application for registration.
If, on the receipt of an application for registration and after making such inquiry as
he deems fit, the authority is satisfied that:
a) The financial condition and the general character of management of the
applicant are sound;
b) The volume of business likely to be available to, and the capital structure and
earning prospects of, the applicant will be adequate;
13

c) The interests of the general public will be served. Then the authority may
register the applicant as an insurer and grant him certificate of registration in
Form IRDA/R3.
An applicant granted a certificate of registration should commence insurance
business for which he has been authorized within 12 months of the date of
registration.
The authority shall withhold registration shall, or cancel a registration already made
if any requirement is not satisfied or in so far as it relates to a particular class of
insurance business as the case may be:
a) If the insurer fails to comply with the provisions Section 7 or of deposits, or
b) If the insurer is in liquidation or is adjudged an insolvent, or
c) If the business has been transferred to any other insured, or
d) If the whole of the deposit made in respect of insurance business has been
returned to the insurer under Section 9, or
e) When clause 9 of Section 2 related to insurers definition ceased of,
cancelled or suspended, or
f) Defaults in complying with any rules.
g) Carries on any business other than insurance business or any prescribed
business.





14

REGULATORY AUTHORITY
IRDA
Insurance Regulatory and Development Authority

IRDA is the Regulator of the Insurance Industry in India and was constituted by an
Act of Parliament in 1997. It has the following Mission:

MISSION STATEMENT

MISSION STATEMENT OF THE AUTHORITY

To protect the interest of and secure fair treatment to policyholders;
To bring about speedy and orderly growth of the insurance industry
(including annuity and superannuation payments), for the benefit of the
common man, and to provide long term funds for accelerating growth of
the economy;
To set, promote, monitor and enforce high standards of integrity, financial
soundness, fair dealing and competence of those it regulates;
To ensure speedy settlement of genuine claims, to prevent insurance frauds
and other malpractices and put in place effective grievance redressal
machinery;
To promote fairness, transparency and orderly conduct in financial
markets dealing with insurance and build a reliable management
information system to enforce high standards of financial soundness
amongst market players;
15

To take action where such standards are inadequate or ineffectively
enforced;
To bring about optimum amount of self-regulation in day-to-day working
of the industry consistent with the requirements of prudential regulation.




























16

COMPOSITION OF AUTHORITY

As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development
Authority (IRDA, which was constituted by an act of parliament) specify the
composition of Authority

The Authority is a ten member team consisting of
(a) a Chairman;
(b) five whole-time members;
(c) four part-time members,
(all appointed by the Government of India)












17

DUTIES, POWERS AND FUNCTIONS OF IRDA
Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of
IRDA..
Subject to the provisions of this Act and any other law for the time being in force,
the Authority shall have the duty to regulate, promote and ensure orderly growth of
the insurance business and re-insurance business.

1. Without prejudice to the generality of the provisions contained in sub-section (1),
the powers and functions of the Authority shall include, -

o issue to the applicant a certificate of registration, renew, modify, withdraw, suspend
or cancel such registration;
o protection of the interests of the policy holders in matters concerning assigning of
policy, nomination by policy holders, insurable interest, settlement of insurance
claim, surrender value of policy and other terms and conditions of contracts of
insurance;
o specifying requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents
o specifying the code of conduct for surveyors and loss assessors;
o promoting efficiency in the conduct of insurance business;
o promoting and regulating professional organizations connected with the insurance
and re-insurance business;
o levying fees and other charges for carrying out the purposes of this Act;
o calling for information from, undertaking inspection of, conducting enquiries and
investigations including audit of the insurers, intermediaries, insurance
intermediaries and other organizations connected with the insurance business;
18

o control and regulation of the rates, advantages, terms and conditions that may be
offered by insurers in respect of general insurance business not so controlled and
regulated by the Tariff Advisory Committee under section 64U of the Insurance Act,
1938 (4 of 1938);
o specifying the form and manner in which books of account shall be maintained and
statement of accounts shall be rendered by insurers and other insurance
intermediaries;
o regulating investment of funds by insurance companies;
o regulating maintenance of margin of solvency;
o adjudication of disputes between insurers and intermediaries or insurance
intermediaries;
o supervising the functioning of the Tariff Advisory Committee;
o specifying the percentage of premium income of the insurer to finance schemes for
promoting and regulating professional organizations referred to in clause (f);
o specifying the percentage of life insurance business and general insurance business
to be undertaken by the insurer in the rural or social sector; and
o exercising such other powers as may be prescribed








19

REGULATIONS ISSUED BY IRDA
INTRODUCTION
Till 1999 the insurance sector was controlled by Controller of Insurance as per the
provisions of Insurance Act 1938 but after formation of the IRDA it is felt by the
Authority that the most of the provisions of this Act were irrelevant in the present
scenario of the country. Therefore the Authority issued various regulations, as
deemed fit, to develop the insurance sector in the country.
Therefore, we shall be discussing the following important regulations in this
following chapters:
Procedure of:
o Granting of license to companies to start insurance business.
o Approval of insurance product.
o Appointment of different insurance intermediary.
o Investing the insurance premium.
o Accounting & audit.
o Miscellaneous important provisions of Insurance Act.
These regulations were not issued in the above sequence but we have followed this
logic - firstly the insurance company will come into existence, secondly the
insurance product will be design and developed, thirdly the manpower is required to
sell the product, fourthly the premium received by the insurance companies is to be
invested, fifthly the accounts are to be maintained and lastly, various provisions.



20

OBJECTIVES
At the end of this lesson you will be able to know:-
o The procedure of getting the license of insurance from IRDA.
o The procedure to get approval of insurance product from IRDA.
o The procedure to appoint an insurance inter-mediatory.
Before we start explaining the first regulations, we shall discuss various terms
defined in Insurance Act 1938
DEFINITIONS
1 Actuary means an actuary possessing such qualifications as may be prescribed;
2 Authority means the Insurance Regulatory & Development Authority
established under the Insurance Regulatory and Development Authority Act, 1999.
3 Policy-holder includes a person to whom the whole of the interest of the policy-
holder in the policy is assigned once and for all, but does not include an assignee
thereof whose interest in the policy is defeasible or is for the time being subject to
any conditions;
4 Approved Securities means
i. Government securities and other securities charged on the revenue of the
Central Government or of the Government of a State or guaranteed fully
as regards principal and interest by the Central Government or the
Government of any State;
ii. Debentures or other securities for money issued under the authority of any
Central Act or Act of a State Legislature by or on behalf of a port trust or
municipal corporation or city improvement trust in any presidency-town;
21

iii. Shares of a corporation established by law and guaranteed fully by the
Central Government or the Government of a State as to the repayment of
the principal and the payment of dividend;
iv. Securities issued or guaranteed fully as regards principal and interest by
the Government of any Part B State and specified as approved securities
for the purposes of this Act by the Central Government by notification in
the Official Gazette;
5. Auditor means a person qualified under the Chartered Accountants Act, 1949
to act as an auditor of companies;
6. Certified in relation to any copy or translation of a document required to be
furnished by or on behalf of an insurer certified by a principal officer of such insurer
to be a true copy or a correct translation, as the case may be;
7. Court means the principal Civil Court of original jurisdiction in a district, and
includes the High Court in exercise of its ordinary original civil jurisdiction;
8. Fire Insurance Business means the business of effecting, otherwise than
incidentally to some other class of insurance business, contracts of insurance against
loss by or incidental to fire or other occurrence customarily included among the risks
insured against in fire insurance policies.
9. General Insurance Business means fire, marine or miscellaneous insurance
business, whether carried on singly or in combination with one or more of them.
10. Government Security means a Government security as defined in the Public
Debt Act,
11. Indian Insurance Company means any insurer being a company:
a) which is formed and registered under the Companies Act, 1956 (1 of 1956);
22

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 equity capital of such Indian insurance company;
c) Whose sole purpose is to carry on life insurance business or general Insurance
business or re- insurance business?
12. Insurance Agent means an Insurance agent duly licensed and who receives or
agrees to receive payment by way of commission or other remuneration in
Consideration of his soliciting or procuring Insurance business including business
Relating to the continuance, renewal or revival of policies of Insurance;
13. Life Insurance Business means the business of effecting contracts of insurance
upon human life, including any contract whereby the payment of money is assured
on death (except, death by accident only) or the happening of any contingency
dependent on human life, and any contract which is subject to payment of premiums
for a term dependent on human life and shall be deemed to include:
a) The granting of disability and double or triple indemnity accident benefits, if
so provided in the contract of Insurance.
b) The granting of annuities upon human life.
c) The granting of superannuation allowances and annuities payable out of any
fund applicable solely to the relief and maintenance of persons engaged or
who have been engaged in any particular profession, trade or employment or
of the dependents of such persons.
14. Marine Insurance Business means the business of effecting contracts of
insurance upon vessels of any description, including cargoes, freights and other
interests which may be legally insured, in or in relation to such vessels, cargoes and
freights, goods, wares, merchandise and property of whatever description insured
23

for any transit by land or water, or both, and whether or not including warehouse
risks or similar risks in addition or as incidental to such transit, and includes any
other risks customarily included among the risks insured against in marine Insurance
policies;
15. Miscellaneous Insurance Business means the business of effecting contracts
of insurance which is not principally or wholly of any kind or kinds included in fire,
marine insurance business.













24

HOW TO GET LICENSE?
PROCEDURE OF GRANTING OF LICENSE TO COMPANIES TO START
INSURANCE BUSINESS
No person can carry on Insurance business unless & until he has obtained a
certificate from the Authority for a particular class of Insurance business. For e.g. a
person can start life Insurance, marine Insurance, fire insurance, health Insurance
etc. But a life Insurance business cannot be combined with other type of Insurance
business. Those who are already in Insurance Business like General Insurance Corp.,
National Insurance, New India Assurance, and Oriental Insurance & United India
Insurance have to obtain a fresh certificate within 3 months from the date of
commencement of this Act or before such date as fixed by the Govt.
Even those insurers for whom the registration was not necessary before the
commencement of this Act will require the registration certificate.
To get the registration certificate the following procedure is to be followed:
Every application in the prescribed form (IRDA/R1) for registration shall be made
with the following enclosures:
1. A certified copy of Memorandum and Articles of association if the applicant is a
company.
2. The name, address & the occupation of the directors of the company.
3. A statement of the class of insurance business proposed to be carried on.
4. A statement indicating the sources that will contribute the share capital.
25

On receiving the above documents IRDA will verify the contents and may ask for
additional information if any. The Authority may ask the Principal Officer to appear
to their office for any information or clarification.
If the Authority is satisfied with the information and documents provide with the
application form (IRDA/R1), the Authority may ask for an additional application in
the prescribed form (IRDA/ R2) which should be accompanied with then following
documents:
1. Every Insurance shall deposit in cash or in approved securities or partially in cash
or partially in approved securities as per details given below: -
(i) In case of Life Insurance business, a sum equivalent to 1% of his total gross
premium written in India in any financial year commencing after the 31st day
of March 2000 not exceeding rupees ten crores (Rs.10 crores).
(ii) In the case of General Insurance business a sum equivalent to 3% of his total
gross premium written in India in any financial year commencing after 31/3/
2000 not exceeding rupees ten crores (Rs.10 crores).
(iii) In case of reinsurance business, a sum of rupees twenty crores (Rs.20
crores).
(iv) If the business is to be done in marine Insurance only & relates
exclusively to country craft or its cargo or both the amount to be deposited
Rs.1,00,000/- (Rs.1 lakh) only.
(v) A certificate from the Reserve Bank of India showing the amount deposited.
2. A declaration verified by an affidavit from the Principal Officer that the equity
capital of the company has been complied with.
26

The paid up equity excluding preliminary expenses and registration charges should
be Rs.100 crores for life or General Insurance business and Rs.200 crores for the
Reinsurance business.
If any insurer is carrying on business of insurance already then within 6 months from
the commencement of the Act the paid up capital should be as per prescribed limits
in the Act.
3. A certified copy of the published prospects and of the standard policy forms of
the insurer.
4. Statement of assured rate, advantages, terms & conditions to be offered in
connection with Insurance policies.
5. In the case of the business the certificate from the actuary that such rates are
workable & sound.
6. In the case of marine accident & miscellaneous Insurance business other than
workmens compensation & motor car Insurance the available forms, prospects and
statements to be submitted.
7. The receipt of deposit of Rs.50,000/- for each class of business.
8. If there is any foreign partner, a certified copy of Memorandum of understanding
between Indian promoter and foreign promoter including details of support comfort
letters exchanged between the parties.
9. Any other document as desired by the Authority after scrutiny the application.
2A) If on the receipt of an application for registration and the authority is satisfied
that
27

a) The financial condition & the general character of management of the
applicant are sound.
b) The volume of business likely to be available to & the capital structure &
earning prospects of the applicant will be adequate.
c) The interest of the general public will be served if the certificate of registration
is granted to the applicant then the certificate of registration is granted.

REGULATION FOR PRODUCT APPROVAL
No Insurance Company can sell any insurance product unless & until the product is
approved by the Authority. The procedure to get the approval from the Authority is
as follows:
Life Insurance Products
The life Insurance products are classified as:
1) Linked Business.
2) Non-Linked Business.
3) Non-life/General Insurance Business.
An insurer who wishes to introduce a new product or to make changes to any existing
product or to withdraw an existing product shall submit the application in the
prescribed preform to IRDA with full details and reasons to make changes in any
existing product or to withdraw an existing product.
The insurer shall not commence selling the product in respect of which additional
information has been sought by the Authority until the Authority confirms in writing.
28

If no such information is sought by the Authority, the insurer can commence selling
the product in the market.

Period of Approval
Within 15 days (earlier 30 days) of the receipt of the application the Authority may
seek additional information with regard to the product, and the insurer shall not
commence selling the product in respect of which additional information has been
sought by the Authority, until the Authority confirms in writing having noted such
information. If no such information is sought by the Authority, the insurer can
commence selling the product in the market, as set out in the application after the
expiry of the said 15 days (earlier 30 days) period. This procedure is known as File
& use.










29

RENEWAL OF LICENSE
Insurance Company
Only Companies formed and registered under the Companies Act, 1956, where
under the foreign equity is not more than 26%, are allowed (IRDA allows only
Public limited companies). 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. Life insurance companies provide
insurance coverage on human lives i.e. provision of a defined sum on the
happening of any contingency linked to human life. Non-life insurance companies
are also allowed provide insurance coverage on all contingencies other than the ones
linked to human life, including health insurance. Standalone Health insurance
companies focus only on providing hospitalization and sickness coverage. 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. Separate companies will have to be formed for doing Life, Non-Life and
Standalone Health insurance business. Such companies cannot transact any business
other than the insurance business for which the license is issued. All companies
formed for the purpose of doing insurance business shall carry the suffix
Assurance or Insurance in their names to enable anyone to recognize that they
are engaged in insurance business.
A Public company is first incorporated under the Companies Act, 1956, with the
primary object of engaging in the business of life or non-life or standalone health
insurance business. Applicants for insurance license will have to submit, among
other things, certified true copy of memorandum and articles of association, list of
30

directors, certain affidavits and undertakings from Promoters and the fees required
for registration. IRDA conducts due diligence on the Promoters, their background
before they issue a license. Reference is made to the Regulatory of the country in
which the foreign promoter operates, as most foreign promoters of insurance
companies are established players in other jurisdictions outside India.
IRDA is vested with powers under the Act to cancel the registration of insurers on
certain grounds such as default in complying with the provisions of the Act or
Regulations passed thereunder, carrying on business other than insurance business
etc.
License is issued for a financial year and is renewable on a yearly basis on payment
of the required fees. The fee for renewal is 0.25% of the premium income generated
by the insurance company in the preceding financial year, subject to an overall cap
of `5 Crores.
Every year the registration is to be renewed and the application is to be made to the
Authority before 31st Dec. of the preceding years with the prescribed fees i.e.,
(i) 1/4th of 1% of premium received or Rs. 5 crores whichever is less.
(ii) It should not be less than Rs. 50,000 in each class of business.
(iii) For reinsurer companies 1/4th of 1% will be considered of total premium
in respect of facultative reinsurance accepted in India.
(iv) Fees to be paid in Reserve Bank of India.
Insurance Agents
A license is issue for a period of three years at a time. At the end of the third year,
the license is required to be renewed. The following are the conditions for renewal:
31

a) Completion of a practical training for 25 hours for Life or General Insurance,
as the case may be of 50 hours for renewal of composite agency license.
b) Payment of fees Rs.250 towards renewal of license. If the application of
renewal does not reach at latest 30 days before the due date for renewal, an
additional fee of Rs.100 by the way of penalty is payable. If the application
for renewal reaches after the expiry of license, IRDA may consider the
application for renewal upon imposition of a penalty of Rs.750.
c) Maintenance of a minimum persistency of 50% during the license period ( as
per IRDAs persistency guidelines dated 11
th
February 2011).
d) The Agent does not suffer from any of the disqualifications mentioned in the
previous section.
e) Renewal training on Anti- money laundering as may be prescribed by the
insurer from time to time.











32

RULES TO FOLLOW BEFORE APPLYING FOR LICENSE

Individual Agents
IRDA (Licensing of Insurance Agents) Regulations, 2000 as amended from time to
time, contains provisions relating to licensing of individual Insurance Agents. The
following are the different types of licenses issued within the Regulations:
a) Direct Life
b) Direct Non-Life
c) Composite License (both Life and Non-Life)
The following are the pre-requisites for a candidate intending to get a license issued
(common for all types of agents):
Minimum qualifications:
The minimum qualifications prescribed are a pass in 12th standard or equivalent
examination conducted by a recognized Board/Institution. This condition is relaxed
to a pass in 10th standard for applicants residing in a place where the population is
not less than 5,000 (Rural agents)
The applicant must not suffer from the following disqualifications:
a) That the applicant is not minor
b) That he is not found to be of unsound mind by a Court of competent
jurisdiction
c) That he has not been found guilty of criminal misappropriation or criminal
breach of trust or cheating or forgery or an abetment of or an attempt to
commit any offence by a Court of competent jurisdiction and five years have
not elapsed from the date of conviction
33

d) That he has been found guilty of or has knowingly participated in or connived
at any fraud, dishonesty or misrepresentation against an insurer or an insured
during the course of:
i. Any judicial proceeding relating to any policy of insurance
ii. Winding up of an insurance company
iii. In the course of investigation of affairs of an insurer
e) That he does not violate the code of conduct prescribed under the Regulations
Practical Training:
The applicant shall undergo a minimum of 50 hours practical training on insurance
related matters in life or general insurance business, as the case may be, spreading
to 1 to 2 weeks. Where the application is for a composite license, the training shall
be 75 hours spread over 3 to 4 weeks covering both life and general insurance
subjects. Where the applicant holds special qualifications such as membership of
Institute of Chartered Accountants of India, Institute of Cost and Works Accountants
of India, Institute of Company Secretaries of India, Insurance Institute of India or
the Institute of Actuaries of India or a Masters degree in Business Administration
of any institution recognized by Central Government or State Government, it is
sufficient if the training is undergone for 25 hours (35 hours if the license is
composite). The training can be undergone in any of the IRDA accredited training
institutions
Examination:
Every applicant shall undergo a pre-recruitment examination in life or general
insurance business or both, as the case may be, conducted by the Insurance Institute
of India or any other body authorized by IRDA.

34

AML & ULIP training:
In addition to the above, the insurer with whom the agent is attached provides a
special training on Anti money laundering (under the IRDAs Anti money
laundering Guidelines dated 31 March 2006) for all Insurance Agents. Training in
Unit Linked Insurance Products (ULIP) is compulsory for life insurance agents
before they are allowed to sell ULIPs on behalf of a life insurer (under the IRDA
(Linked Insurance Products) Regulations, 2013)
Payment of fees of Rs.250 along with the application for grant of license enclosing
proof of age, qualifications, training and examination.













35

WHAT IS CREDIT REGULATION?
Any Insurance company which proposes to raise share capital through a public issue
in terms of the ICDR Regulations for any purpose and promoters of any insurance
companies which seek to reduce their stake under the provisions of section 6AA of
the Act or otherwise may do so only on completion of 10 years from the date of
commencement of operations by the insurer or such other period as may be
prescribed by the Central Government.
The manner of divestment by the insurance company may be through any of the
following options:
1) Issue of capital under the ICDR Regulations;
2) Divestment of equity by one or more of the promoters through a public offer
for sale under the ICDR Regulations;. and/or
3) Issue of capital/divestment of equity stake through other than (i) and (ii) above
Provided that no issuance and allotment of capital by an insurance company shall
be, in any form other than as fully paid up equity shares.
Further provided that any divestment in the manner as indicated at (iii) above shall
require the specific prior approval of the Authority in terms of section 6A of the
Insurance Act, 1938.
Prior to filing of the draft document for issue of share capital or for making an offer
of sale to public with SEBI, the insurance company which proposes to issue capital
under the ICDR Regulations, whether or not as part of divestment of its promoter
stake under the provisions of section 6AA of the Act, shall approach the Authority
for its formal approval. The Authority shall consider the applicant companys
overall financial position, the regulatory record and the proposal for issue of capital
36

prior to giving its formal approval to the proposal to get its shares listed on the
stock markets/ raise funds through an issue of capital.
Any approval by the Authority in terms of the Regulations herein, shall not in any
manner tantamount to or serve as validation of the representations by the insurer in
any offer document, which fact shall be disclosed in bold letters in any offer
document.
Insurance companies seeking the approval of the Authority under the Regulations
shall apply in Form A placed at Annexure. The Authority reserves the right not to
accord its prior approval if, in its opinion, (i) the applicant company is not fit to tap
the markets through a public issue or (ii) where it may be detrimental to the interests
of policyholders or (iii) it may not be in the interest of the insurance business in the
country.
Why Regulation of Insurance Businesses is required?
Any industry wherein the stakes of the public are high would come within the
purview of a Regulation reason being that failure of such companies could result
in serious implications on the economy of the country at large.
Insurance business involves collection of money from various Policyholders,
investing them properly, honoring the obligations of the Policyholders and providing
an efficient service. It is important to ensure that the entities providing these services
stick to their commitments. Failure to honor commitments by such entities could
have major repercussions on the financial services industry.
After liberalization and entrance of Private players in Insurance business and seeing
the large numbers of customers and high risk potential, Government of India
constituted the Insurance Regulatory and Development Authority in Year 1999.
37

GUIDELINES OF IRDA

RELEVANT REGULATIONS AND GUIDELINES ISSUED BY IRDA FOR
LICENSING, AUDIT & SUPERVISION
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
Guidelines relating to Licensing Audit and Supervisions of Insurance
Companies
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.
For supervising the operations of Insurance Companies in India, IRDA has issued
various guidelines from time to time and discussed under relevant chapters.
As per the Insurance Regulatory and Development Authority (Registration of Indian
Insurance Companies) Regulations, 2000 (as amended), every entity wishes to work
as an Insurance Company needs to apply with IRDA in the prescribed format.

38

IRDA (Licensing of Insurance Agents) Regulations, 2000 & IRDA (Licensing
of Corporate Agents), 2002
These Regulations provide for the conditions of licensing for individual insurance
agents under Section 42. The Regulations cover the following:
a) Prescription of application for IRDA licensing along with the fees required
b) Prescription of minimum qualifications for becoming an insurance agent
12th standard or equivalent examination if the Agent resides at places with
population of 5,000 or more as per census and a pass in the 10th standard or
equivalent examination for candidates residing in any other place
c) Practical training requirements from an approved training institution for 50
hours covering various insurance subjects. Further, the training hours for an
agent who is going for a composite license i.e. one life and one non-life
license, the training requirement is 75 hours Where the applicant possesses
professional qualifications such as membership of the Institute of Chartered
Accountants, Cost an Works Accountant or Company Secretaries, Actuaries
or an MBA, the number of training hours is reduced to 25.
d) Pre-recruitment examinations to be conducted by the Insurance Institute of
India
e) Prescription of codes of conduct for Agents
In the case of Corporate Agents, i.e. where the entity licensed as an agent is a
Company or firm, it must have at the minimum a Corporate Insurance Executive and
Specified Persons who are employees of the Corporate Agent entity and who will
have to possess minimum qualifications, undergo the practical training and pass the
examination conducted by the Insurance Institute of India.
39

A license issued under these Regulations is valid for a period of 3 years after which
it shall be renewed for continued eligibility for Agents to solicit or procure insurance
business.

Insurance Surveyors and Loss Assessors (Licensing, Professional
Requirements and Code of Conduct) Regulations, 2000,
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
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.





40

BENEFIT OF CREDIT REGULATION TO COMPANIES AND
POLICY HOLDERS
Company:
One of the main reasons for insurance regulation is to protect the financial solvency
of the insurance company. An insurance company is in the business of spreading
risk across a large number of individuals. The risk continuously shifts, and the
insurance premiums paid by policyholders who are not accessing insurance benefits
help cover the cost of benefits paid out to those who are currently drawing on the
pool of funds. Insurance regulation limits the amount of benefits paid out to a
policyholder in a calendar year and adjusts the cost of premiums, depending on a
policyholder's risk factors. These regulations help the insurance company spread its
risk and keep costs lower so the company can make a profit and remain in business.

Policy Holders:
The protection of policyholders against insolvency of insurance companies is one of
the primary objectives of insurance regulation. In order to achieve this goal, a range
of regulatory and supervisory measures are normally established to ensure financial
and managerial soundness of insurance companies, and supervisory authorities are
expected to do their best to avoid the failure of supervised companies.
It is sometimes inevitable, however, that some insurance companies will encounter
serious financial difficulties. In spite of all possible supervisory measures, insurance
companies can become insolvent. In order to protect the interests of policyholders
in the event of insolvency of an insurance company, certain special regulatory
arrangements are normally established. These arrangements can be divided into two
groups: those included in the winding-up procedure and those outside of it. The
41

former type of arrangement is used in most jurisdictions, but typically vary
considerably in detail across jurisdictions, largely depending on idiosyncrasies of
the judicial insolvency procedures of respective jurisdictions as well as the
specificity in the insurance regulatory frameworks. In addition to these measures,
in many jurisdictions, policyholder protection funds (or guarantee schemes) have
been established to provide certain protection for policyholders outside of the
winding-up procedure.
The remainder of this document analyses the rationale and structure of policyholder
protection funds. It consists of five sections. The next section provides an overview
of policyholder protection funds. A distinction is made between a fund for a specific
class of insurance and a general fund. The third section reviews the arguments
regarding the merits and drawbacks of general funds. The fourth section discusses
the key aspects of the structure of such funds. The last section provides concluding
remarks.
When an insurance company becomes insolvent, policyholders face potential
financial losses as their claims may not be fully met. In order to protect
policyholders under such a situation, a fund to compensate their losses is often
created. Such schemes may be designed to collect necessary contributions or levies
(referred to as contributions hereafter, otherwise specified) in the event that an
insurance company goes bankrupt. Without building up a fund, these schemes are
sometimes called policyholder guarantee schemes. In this paper, however, the
phrase policyholder protection funds includes such schemes.
Policyholder protection funds are fairly common among OECD countries. At least
21 countries have one or more such funds. These funds can be classified into two
types. The first type includes the funds that focus on the policyholders of one or a
few branches of insurance. In the second type, the funds cover most of the insurance
42

contracts subscribed to by the participating insurance companies. The former type
is often referred to as a fund for a specific class of insurance, while the latter is a
general fund.
A fund for a specific class of insurance is normally established in association with
compulsory insurance. The typical example is a fund for compulsory motor vehicle
liability insurance. In many OECD Member and non-Member countries, car drivers
or owners are legally required to purchase liability insurance, which aims principally
at protecting victims of car accidents by ensuring minimum indemnification for any
damage or loss of income. The goal of this regulation would not be achieved when
the insurer is insolvent and therefore unable to pay the claim. Funds for compulsory
motor vehicle liability insurance are established to compensate the losses of the
victims under such circumstances. The funds also step in when the driver
responsible either cannot be identified or is uninsured and thus no insurance
protection is available for the victim. This type of policyholder protection fund is
considered, therefore, to exist mainly for protection of accident victims. Special
protection for the victims may also be rationalized by the fact that they are
involuntary creditors for the particular insurance companies and, thus, had no prior
option to select the insurers. In this context, the funds pay the full amount of the
claims in principle.
Among Member countries, at least fourteen countries have funds that cover
compulsory motor vehicle liability insurance exclusively. Some countries, like
Belgium, Finland, France and Spain, have a fund that covers other branches of
compulsory insurance (such as workers compensation insurance and hunting
insurance).
In contrast to a fund for a specific class of insurance, a general fund covers a wide
range of insurance classes, both compulsory and non-compulsory, including most of
43

the products of an insurance company if not particularly specialized. Such a fund is
created to ensure the payment of claims to policyholders when a company becomes
insolvent and unable to meet its financial obligations.1 while the benefit of a fund
for a specific class of insurance in ensuring the protection of the beneficiaries is
widely recognized, the necessity of creating a general fund is not agreed upon
internationally. Among Members, nine countries, namely Canada, France, Ireland,
Japan, Korea, Norway, Poland, the United Kingdom and the United States, are
known to have established such funds to date.2 Hereafter a policyholder protection
fund means a general fund, otherwise specified.













44

PENATIES IMPOSED BY IRDA DUE TO NON COMPLIANCE
WITH THE ACT

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
Further Section 105B empowers IRDA to impose a penalty not exceeding Rupees
Five lakhs for failure to comply with Section 32B, while Section 105C empowers
IRDA to impose a penalty not exceeding Rupees Twenty five lakhs for failure to
comply with Section 32C, with cancellation of certificate of registration for
continuing failure.
The Authority has the right to cancel the certificate of registration either wholly or
in so far as it relates to a particular class of Insurance business if the any of the
conditions specified for registration is not complied with.




45

CONCLUSION

The Insurance Sector is of importance to the policy holders and also is currently
booming across the world. Hence it is important to follow the rules and regulations
as specified in the Insurance Act and also to comply with the IRDA regulations. As
people keep these days strongly rely on protecting and securing their future it
becomes the role of the Insurance sector as well to keep the trust and faith going
along the way with its customers and also to build a relationship between them.

As the Insurance sector has to protect the consumers by following such regulations
hence imposition of the Act is of utmost importance to the Insurance companies and
to also see to it that the policy holders benefit from the limited risk and get the
maximum out of their losses. Together with the IRDA and also in accordance with
the Insurance Act it is possible to achieve great emphasis on the consumers and also
to protect their interest and also help the company and its policy holders from any
insolvency and corrupt malpractices. This in turn will regulate a health competition
amongst the companies and keep flourishing the Insurance Sector with new ideas
and built a better relationship.





46

REFERENCES

Bibliography:
INSURANCE LAWS IN INDIA By CA Rajkumar. S. Adukia.
INSURANCE AND PRIVATE PENSIONS COMPENDIUM FOR EMERGING
ECONOMIES By Mr. Takahiro Yasui
INSURANCE LAW AND PRACTICE By The Institute Of Company Secretaries Of
India
CONSUMER CREDIT REGULATED AND EXEMPT AGREEMENTS
IRDA RULES AND REGULATIONS By IRDA

Webliography:
www.google.com
www.wikipedia.org
www.slideshare.net
http://www.irda.gov.in
http://www.gbic.co.in/
http://www.niapune.com
http://www.iaisweb.org
http://gicouncil.in
http://www.lifeinscouncil.org/