CHAPTER - 2

CONCEPT, NATURE AND SCOPE OF INSURANCE Insurance means the act of securing the payment of a
sum of money in the event of loss or damage to
CONCEPT OF INSURANCE:
Hardy Ivamy writes in his work - “General Principles of insurance Law” property, life, a person etc., by regular payment of
that33 – premiums. Insurance is a method of spreading over a
A contract of insurance is a contract whereby one person called the
‘insurer’, undertakes in return for the agreed consideration called the large number of persons, a possible financial risk too
‘premium’ to pay to another person , called the ‘insured’ a sum of money serious to be conveniently sustained by an
or its equivalent on the happening of a specified event. individual. The aim of all types of insurances is to
In Prudential Insurance Company v. Inland Revenue
Commissioner34, Channel J. said protect the owner from a variety of risks which he
There must be either some uncertainty whether the event will ever anticipates. The happening of the specified event
happen or not, or if the event is one which must happen at some time
or another, there must be uncertainty as to the time at which it will must involve some loss to the insured or at least
happen. should expose him to adversity which is, in the law
Generally an insurance agreement to be a valid contract must be – 35 of insurance, called commonly the ‘risk’.36

 A contract between an ‘insurer’ and the ‘insured’; The nature of insurance depends on the nature of the
 The contract is based on the loss due to happening or not
risk required to be protected. An insurance contract
happening of a future incident;
makes available the risk coverage to the insured.
 A consideration in the form of payment of an amount by the
insured and The buyer of insurance pays a fixed premium in
 The insurer promises to make good the loss in so far money exchange for a promise of compensation in the event
can do it, in case the loss occurs on the happening of the of some specified loss. Insurance is bought because
contingency. it gives peace of mind to the holders. This comfort
Thus one can observe that in a contract of insurance, one can insure stage is important in personal and business life.37
ship or house but cannot ensure that the ship shall not be lost or the
Though the most important purpose of insurance is to provide risk
house shall not burnt, but what one can insure is that a sum of money
coverage, when the contract period extends over a long time, as in
shall be paid on the happening of a certain event. Thus the subject
the case of life insurance, premium payments comprise of two
matter of insurance is the compensation in the form of money to be
components – one for buying risk coverage and the other towards
paid to the assured on happening of a risk.
savings. The joining together of risk coverage and savings is peculiar
with the life insurance and is more common in developing countries
29
NATURE OF INSURANCE: like India.38
 formal social security arrangements. However, the actual experience
In the industrially superior countries, the short duration life has proved otherwise. There is now almost a stagnation of
insurance contracts without a savings component are equally employment in the organized sector with increase in the inflow of
popular. In the developing economies because of the savings workers into the informal sector. The unorganized workforce is
component and the long nature of the contract, life insurance has characterized by scattered and fragmented areas of employment,
become an important instrument of activating the long-term seasonality, lack of job security and low legislative protection.
funds. The savings component puts the life insurance in straight Currently, out of an estimated workforce of nearly 400 million, only
competition with other financial institutions and savings
instruments.39 less than 10 percent have the benefits of
formal social security protection. Although the government has a
In many developed countries, citizens are to a certain extent few centrally funded social assistance programmes like National Old
protected by social security schemes provided by the government.
Age Schemes and National Family Benefit Schemes, the number of
These schemes offer financial aid to citizens who are eligible on
people covered as well as the benefits is very meager. Furthermore,
grounds of unemployment, old age, sickness, disability, etc. The
in a country like India, where there is no provision for
social security scenario in India is quite different, having
unemployment benefits, the concept of insurance becomes extremely
traditionally been the responsibility of the family or community.
important.
However, with industrialization, urbanization, breakup of the joint Legal nature of insurance contract -
family system and weakening of family bondage, it has become
The concept of insurance as an effective mechanism for risk
necessary to provide social security arrangements that are
transference was first introduced in the marine trade. Later on, the
institutionalized and regulated by the state rather than the society.
utility of the concept was realized in its expansion to the non-marine
The issues relating to social security are listed in the ‘Directive
types like life and fire insurance. Almost until the middle of the
Principles of State Policy’ of the Constitution of India. While the
nineteenth century these were the three types which obtained
subject of ‘social security insurance’, ‘employment and
prominence in insurance law. The applicability of the principle of
unemployment’ form Item 23 of the Concurrent List, and the subject
insurance has been found to be wider and today, besides the various
of ‘the welfare of labour including conditions of work’, ‘provident
types like motor, accident and fidelity insurance, its scope is
fund’, ‘employee’s liability’, ‘workmen’s compensation’, ‘invalidity
extended to crop and cattle insurance. Insurance has become the
and old age pension’ and ‘maternity benefits’ form Item 24, also of
usual mode of ensuring security against future contingencies and it
the Concurrent List.41
plays a significant role in the social and commercial life of all
During the initial years of development and planning, it was believed
modern communities.43
that with the process of development, a greater number of workers
would join the organized sector and eventually get covered by
The law of insurance forms part of the general law of contract and any case, the promise of the insurer is to save the assured against the
whatever type of contract of insurance may be, it always represents uncertain consequences.46
the agreement between the assured and the insurer. The essential (b) Principle of indemnity:
ingredients of a contract under law, for example, offer and Insurance is essentially a contract of indemnity. All the claims of the
acceptance, consideration, capacity of the parties, mutuality of assured will be adjusted only with reference to the actual loss
understanding and legality of object are of equal application to a sustained by him. Thus, it is implied in every contract of insurance
contract of insurance. that the assured in case of a loss against which the policy has the
Basic principles of insurance - actual loss, is to prevent fraud on the part of the assured. It checks
the temptation to gain by unfair means and the willful causing of
Though insurance has been differentiated into marine, fire, life etc.,
loss. However, the factual basis for the application of the principle of
there are certain general principles applicable to all forms of
indemnity is not the prevention of crime or consideration of public
insurance. These general principles serve as a guide to the sound
policy but it derives from the inherent nature of the bargain. 47
interpretation of the purpose of the insurance contracts in their
diversified forms. The principles of indemnity, insurable interest,
In assessing the amount payable on a contract of insurance, the
uberrima fides (utmost good faith) and the existence of risk are some
principle of indemnity is a guiding principle. It is common that
of the principles having common application.
insurers limit their liability to a particular amount of money known
as the ‘sum assured.’ In case of loss, the ‘sum assured’ is all that the
Following are the some of the important principles of insurance:
assured is entitled to even if the value of the premium paid is less
(a) Existence of risk: than it. But in all other cases, except in the valued policies (in
Marine Insurance) the insurer is liable to indemnify only to the tune
It is vital to every contract of insurance that the subject matter should of the actual loss, even though the ‘sum assured’ is a higher amount.
be exposed to the contingency of loss or risk. Risk involves the In ‘valued policies,’ the parties agree that the value of the subject-
happening of an uncertain event adverse to the interest of the matter shall be agreed. The object of the valued policies is to avoid
assured. In marine insurance the ship or cargo is exposed to the loss dispute after the loss occurs as to the quantum of the assured’s
by perils of the sea. In fire insurance the risk is in the destruction of interest.48
property by fire45. In life insurance, the risk is in the death of the
assured, though a certainty, but uncertain as to the time of its In contracts of life insurance, personal accident and sickness
happening. In an abstract sense, risk may be defined as the chance of insurances and in some forms of emergency insurance, the loss is
loss. It can either be an uncertainty as to the outcome of some event frequently measured in monetary terms. They are to be distinguished
or events, or loss as the result of at least one possible outcome. In from contracts of indemnity like marine and fire insurance. It is now
well established that life insurance in no way resembles a contract of third party causing the loss, has no application to life
indemnity. Not seldom the contract of life insurance is considered as insurance.51
an arrangement for profitable investment. It is because the assured
by paying the premiums is effecting a saving, the cumulative sum Difference between the contract of insurance and wager
agreement:
which he can recover after the expiry of the fixed period. 49
The basic principle of indemnity on which the greater part of the law
of insurance is based, prima facie, negatives any treatment of
Life insurance may properly be considered as an
insurance on par with wagering contracts. The wagering contracts
investment of money because it enables to secure an
are those, wherein “two persons, professing to hold opposite views
ultimate fund to those persons who have no greater
touching the issue of a future uncertain event, mutually agree that,
opportunity of making savings or which left to
dependent upon the determination of that event, one shall win
themselves, they would have found it beyond their
from the other, and that the other shall pay and hand over to him, a sum
means. Yet, the objective of a contract of life
of money”.52
insurance is mainly to provide compensation for the
Again, the difference between a wagering agreement and a contract
risk of death happening at an uncertain time.
depends upon whether the person making it has or has not an interest
Though, it is considered as a sort of investment, it
in the subject matter of the contract. That means,“if the event
holds good in some cases, it is departing from the happens the party will gain an advantage, if it is frustrated he will
essential feature of insurance security against risk. It suffer a loss”. Probably, the common feature of the two types of
is, therefore observed that a life policy is not a agreement – the element of uncertainty, gave rise to the
50
contract of indemnity. misconception of insurance in terms of gamble. 53 According to Sir
William Anson54, the Father of the “Law of Contract”—
Generally; a contract of indemnity is entered into for Insurance was placed on a different ground from a pure wager
merely because it is permitted by law. Insurance was regarded as no
the sole purpose of making good a loss incurred.
better than a wagering contract despite the presence of insurable
The value of a life, however, is incapable of interest. But this view has been modified by him later on and now he
estimation and except, in a limited sense, cannot be affirms insurance is described as having only a ‘superficial
resemblance’ to a wager. Though the distinction is subtle, it is the
“made good” by insurance. The important intention of the parties rather than the form of the contract that
distinction which thus arises between life insurance distinguishes insurance from wager.
A wagering contract is made normally with a view to secure profit.
and the other forms of insurance is that the principle
The probability of the happening of an event is completely irrelevant
of “subrogation,” under which the insurer (i.e., the
company) takes the right of recovery against the to the interests of the parties except for the chance of gain. A wager
is concerned with the happening of an event per se and the
consequential determination of the conflicting interests. The purpose on grounds of public policy. The life insurance was regarded as a
is to win or lose in lieu of the mere probability of an event. In contract of indemnity similar to the other contracts of insurance even
insurance, the interest of the assured in the subject matter of risk during
known as the insurable interest and is of the utmost importance in 7 1854.59
the insurance contract.55 A contract of insurance is described as Therefore, following are the differentiable points between the life
aleatory contract. It is speculative to such an extent that the parties insurance and other forms of insurance60:

may not know whether the event insured against will occur or not,
Most of the contracts of insurance are frequently annual contracts
thus involving a case of mutual risk. The insurer in turn, for a
and the insurers have the option to refuse renewal at the end of each
comparatively small sum in the form of a premium undertakes to
and any period of insurance. In some cases the insurer reserves the
compensate against a heavy loss. But such undertakings will
right to terminate the insurance anytime on a proportionate return of
normally be with reference to actuarial practice and therefore
premium in respect of the unexpired period of the risk. Life
insurance always stands apart from a mere speculative venture. 56
assurance contracts are, in the main, long-term contracts and in the
The insurance can only be with reference to a previously existing
absence of any fault or any flaw the insurer has no option to cancel
risk and unlike a wager does not create risk with its inception. In the
the insurance.
case of insurance, the individual subjected to the risk before
negotiations, obtains security and to that extent there will be a The risk insured against under a fire, accident or marine insurance
shifting of risk rather than creation of it. Therefore, it can be said that contract may or may not occur but the event insured against under
the insurance accomplishes the reverse of a wagering contract. 57 life assurance contract is bound to happen.
At one time the life insurance was considered to be immoral, as The general contract of insurance continues to be a contract of
“gambling in human life”. This idea arose because policies were indemnity, but life insurance is considered as an assurance contract.
taken where no insurable interest existed and where the insurance (d) Principle of insurable interest:
was affected solely for speculative purposes. Life insurance,
however, is now chiefly used and properly regarded as an economic The test for a valid insurance contract is the existence of the
and social necessity and when properly understood cannot be insurable interest. The ‘insurable interest’ is nothing but an interest
considered as a “wager”, even though a large financial gain may of such a nature that the occurrence of the event insured against
58
result from the early death of an insured. On the other hand, a would cause financial loss to the insured and such an interest which
wagering contract is one where profit is sought to be made through can be or is protected by a contract of Insurance. This interest is
chance, while the true object of life insurance is rather the opposite, considered as a form of property in the contemplation of law. 61
the avoidance of loss arising through chance. A life insurance policy
therefore is not a wagering contract, which would be unenforceable
The insurable interest should exist at the time of happening of an in which no insurable interest exists. It was perhaps introduced to
event in the general insurance contracts, but is not necessarily so in curb insurances by way of wager, and obtained statutory
the case of the life insurance contracts. This is because the former is recognition.65 The presence of insurable interest is insisted for two
a contract of indemnity and the latter is a contract of assurance. reasons66:
Taking an example of fire insurance, it is clear
An assured cannot be taken to have suffered any damage if he has no
that an insured person suffers no loss under a policy if at the time of
interest in the property insured at the time of loss.
loss or damage to the property; he has no interest in it either as full
or partial owner.62 According to McGillivray63 --- Secondly, if the interest of the assured is limited to something less
than the full value of the subject matter, no greater damage than his
If the assured has no interest at the time the event happens it is clear interest in the subject matter will result.
that he cannot recover anything, because he suffers no loss, and In both the cases; the interest in the subject-matter is required by the
therefore has no claim to an indemnity. Similarly, if he has an
interest which is limited to something less than the full value of the terms of the contract itself, since the promise of the insurer will be
subject-matter, he suffers no greater loss than the value of his only to compensate the actual loss.
interest at the time of the loss, and therefore, his claim to an
indemnity cannot exceed the value of his interest.
To have insurable interest, it is essential that there should be some
In this context of insurable interest, life insurance stands on different contractual or proprietary right, whether legal or equitable so long as
ground. No value can be assigned to human life in the same way as it is enforceable in the courts. Accordingly, the main principles
is done in respect of tangible property. But all the same, it is possible determining the existence of insurable interest are (a) the interest
to measure the extent of loss that would be caused by the failure of a must be enforceable at law (b) the continued existence of the interest
particular life. An insurable interest of some kind is necessary to will be beneficial to the assured. Strict legal or pecuniary interest is
every contract of insurance of whatever kind and any insurance not necessary.67 Under the contract of life insurance, the assured has
made without such interest is illegal and void. The guiding factor in insurable interest in his own life to an unlimited extent. But, where a
this regard is that an insurable interest is a reasonable expectation of person takes insurance on the life of another, the criteria applied in
financial benefit from the continued life of the subject or an assessing the insurable interest are of great importance. It is not the

expectation of loss if the subject dies. For instance, a parent has a legal or beneficial interest as in the case of marine and fire insurance,
but the person insuring the life of the other must stand in such
clear insurable interest in the life of a minor child, since he is entitled
relationship as will justify a reasonable expectation of advantage or
to the services and earnings of that child. 64
benefit from the continuance of the life of the person on whom the

The concept of insurable interest primarily appears to be an insurance is affected. The test applicable is whether there was actual
invention of the courts. It may be necessary for the assured to show dependence of the person affecting the insurance, whose life is
interest but common law contains no general prohibition of contracts
insured, or he had an expectancy of some advantage from the obligation to make known to the purchaser all the facts that might
68
continued existence of the person insured. affect his decision. But in insurance there is something more than an
The effect of the requirement of insurable interest in all contracts of obligation to treat the insurer honestly and frankly. An insurance
insurance seems to be two-fold. Its absence makes a contract of being a device of risk transference stands on a separate basis. The
insurance equivalent to a wager. Also, the principle of indemnity
non disclosure of a material fact by the assured whether fraudulent or
cannot be applied unless there be some interest in the subject-matter,
innocent, has the same effect of avoiding the contract. A stringent
because, the actual loss alone will be indemnified. Thus it became a
preventive of wagering policies and also limited the amount duty is imposed on the assured to provide all the material facts that
recoverable to the loss sustained by the assured. 69 might influence the decision of the insurer. The fact that the assured
believed as a reasonable man certain information as immaterial to
(e) Principle of utmost good faith:
the purpose does not provide a defense. The materiality of a
In the case of ordinary commercial transaction, the legal maxim particular fact will be considered independently of the belief of the
“Caveat Emptor” (meaning “let the purchaser beware”) prevails. In assured.73
the absence of an enquiry the other party to the contract is under no This fundamental principle applies to all branches of insurance. It
obligation voluntarily to furnish detailed information regarding the may be summarized from one of the several judgments
subject matter of the contract70. It is, however, understood that one pronounced74:
It is the duty of the assured to disclose all material facts within their
party to the contract should not be misled by the other by any false knowledge. In cases of life insurance, certain specific questions are
declaration. All the same, it is open to both the parties to the contract proposed as the points affecting in general to all mankind. But there
to satisfy them and each party is entitled to make the best bargain may be circumstances also affecting particular individuals, which are
not likely to be known to the insurer, and which had they been
that he can make. As a contrast to such commercial contracts the known, would no doubt, have been made subject to specific
insurance contract is dominated by the legal maxim “the utmost enquiries.
good faith”.71
The onus of good faith lies equally on both the parties to the
contract, but in the nature of things the assured has to pay more
The observance of the utmost good faith by the parties is vital to a
particular attention to the observance of the principles. The selection
contract of insurance. Insurance is also called as an uberrima fide
of a life for insurance by the company depends to a large extent on
contract because the parties are required to confirm to a higher
the information supplied by the proposer. As the company solicits
degree of good faith than in the general law of contract. Good faith
proposals from the general public whose members are total strangers
and honesty though principles of equity and justice are equally
to the company, there is an urgent need for disclosing all material
applicable to every agreement; yet, in contracts other than insurance,
facts within the knowledge of the proposer to enable the company to
the parties are free to settle their own terms 72. In a contract of sale of
come to a decision. The proposer has within his knowledge all the
goods, “Caveat Emptor” is the principle and the seller has no
facts, which are material to the risk. The proposer is morally and
legally bound to disclose all matters, which in point of fact are A warranty in insurance is a statement or condition incorporated in
material to the contract.75 the contract relating to the risk, which the applicant presents as true
The question as to which information is material to the contract is and upon which it is presumed that the insurer relied in issuing the
wide one. In case of a dispute, a court or a committee of arbitrators contract. Marine insurance, the first branch of insurance to develop
may decide it. But this cannot certainly be left to the opinion of the commercially, evolved the doctrine of warranty. The Marine
proposer. Every circumstance is material which would influence the Insurance Act, 1906 (England), gives the following definition of a
judgment of a prudent insurer in fixing the premium or determining warranty79 -
whether he will take the risk - this definition has been embodied in warranty is a statement by which the assured undertakes that some
particular thing shall or shall not be done, or that some condition
the Marine Insurance Act, 1906 and is equally applicable to the life shall be fulfilled, or whereby he affirms or negatives the existence of
insurance. Nevertheless, the proposer is excused from explicitly a particular state of fact. This Act states further that a warranty as
above defined is a condition which must be exactly complied with,
disclosing certain facts. These are76: whether it be material to the risk or not.

What the insurer already knows?

The other replies given by the proposer, which are not intended to
What the insurer ought to know? have the force of warranty, are known as representations. In life
What the insurer waives being informed of?
insurance, there is a recital clause by which the answers given in the
Features, which lessen the risk?
proposal and the replies made to the medical examiner are made as
Thus in an insurance contract each party acts on the good faith of the the basis of the contract and thereby given the effect of warranty. 80
other. If the proposer conceals or misrepresents material facts, the The present tendency of the offices is to treat the replies as
contract is vitiated. Deliberate concealment or misrepresentation representation. Any misstatements are, therefore, judged from this
amounts to fraud, and the policy is legally void. The innocent approach and if the company thinks that the misstatement is material,
misstatement or misrepresentation renders the policy voidable at the that is, the knowledge of the correct statement would have
option of the insurer up to two years. In practice, however, policies influenced the decision of the company adversely; the insurer can
are usually allowed to continue, subject to adjustment, if the seek to avoid the policy on the ground of non-disclosure or
company is satisfied that there was no intention on the part of the misstatement and must also offer to return the premiums. 81
assured to defraud it.77 As stated before, full disclosure of the The courts also do not favour any unfair rigidity in the interpretation
material information having a bearing on the risk is necessary on the of answers to the questions in the proposal form. Even then it is
part of the proposer. This is due to the principle of uberrima fides always desirable on the part of the proposer to warrant the answers
that governs the insurance business. The statements made by the to the best of his knowledge and belief. This materially safeguards
proposer in the proposal and his statement before a medical his interests.
78
examiner is, in legal language, either representations or warranties.
TYPES OF INSURANCE:
 recent period, insurance have an imperative role to
As Insurance has become one of the most socially desirable and
play in reducing the risk burden that the individuals
commercially acceptable tertiary industries in the world, the types of
and businesses have to bear. The approach to
insurance are wide, both in private and public. The following flow
insurance should be in tune with the changing
chart describes the total cover of insurance which varies from corpus
times.87
and properties, living and non-livings, chattels and all belongings,
movable and immovable extending to even various limbs of the body
The aim of the insurance sector in India is to extend
the insurance coverage over a larger section of the
population and a wider segment of activities. The
three guiding principles of the industry must be to
charge premium not higher than what is acceptable
by strict actuarial considerations, to invest the funds
for obtaining maximum yield for the policy holders
consistent with the safety of capital and to render
efficient and prompt service to policy holders. With
a creative corporate planning and an abiding
commitment to improved service, the mission of
widening the network of insurance can be
achieved.88

SCOPE OF INSURANCE: There is a probability of a shoot in employment opportunities. A

number of web-sites are coming up on insurance, a few financial
The insurance sector has a huge potential not only magazines exclusively devoted to insurance and also a few training
because incomes are increasing and assets are institutes are being set up. Many of the universities and management
expanding but also because the increasing instability institutes have already started or are contemplating new courses in

in the system. In a sense, we are living in a extra insurance89. Life insurance has today become a mainstream of any

risky world. Trade is becoming more and more market economy since it offers plenty of scope for collecting large

global. Technologies are changing and getting sums of money for long periods of time. A well-regulated life

replaced at a faster rate. In this more uncertain insurance industry which moves with the times by offering its
customers specially made products to satisfy their financial needs is,
world, for which enough evidence is available in the
 therefore, essential to progress towards a unstressed future. 90 Thus,  1938: Earlier legislation consolidated and amended to by the
one can understand the term ‘insurance’ better from its legal nature, Insurance Act with the objective of protecting the interests of the insuring
public.
principles and functions as discussed above and is the base for all the  1956: Nationalization of life insurance: Life insurance business
types of insurances. was nationalized on 1st September 1956 and the Life Insurance
Corporation of India (LIC) was formed through the LIC Act, 1956.  A
History of Insurance and its evolution in India capital contribution of Rs. 5 crores from the Government of India was
History of Insurance in India started from the prehistoric period also made. There were 170 companies and 75 provident fund societies
as  Insurance in its primitive form has been known to exist from as back doing life insurance business in India at that time. From 1956 to 1999, the
as 3000 BC. Various civilizations were known for practicing the basic LIC held exclusive rights to do the life insurance business in India.
concept of insurance – pooling and sharing in an unorganized manner.  1972: Nationalization of non-life insurance: With the enactment
of General Insurance Business Nationalization Act (GIBNA) in 1972, the
While considering the history of insurance in India, the principle of
non-life insurance business was also nationalized and the General
insurance was reflected in the joint family concept, widely followed in
Insurance Corporation of India (GIC) and its four subsidiaries were set
many regions, and is considered as one of the best forms of life insurance
up. At that point of time, 106 insurers in India doing non-life insurance
down the ages.
business were amalgamated with the formation of four subsidiaries of the
Sorrows and losses from unfortunate events were shared by family GIC of India.
members and that helped to give them a security feeling. The breakup of Indian Insurance Sector Reforms
the joint family system and the emergence of the nuclear family in the The formation of the Malhotra Committee in 1993 initiated reforms in the
modern era, coupled with the stress of family life paved a path for the Indian insurance sector and is considered as one of the milestones in the
evolution of alternative methods for insurance. history of Insurance in India.

Table of Contents The aim of the Malhotra Committee was to assess the functionality of the
 History of  Insurance in modern India Indian insurance sector. This committee was also in charge of
 Indian Insurance Sector Reforms recommending the future path of insurance in India.
 Important Milestones in the history of Indian Insurance industry.
The Malhotra Committee attempted to improve various aspects of the
 Life insurance industry  today
insurance sector, making them more appropriate and effective for the
History of  Insurance in modern India
Indian market.
Modern Insurance in India began around 1800 AD with agencies of
The Insurance Regulatory and Development Authority Act of 1999
foreign insurance starting a marine Insurance business. Some Important
brought about several crucial policy changes in the insurance sector of
milestones in insurance history are listed below.
India. It led to the formation of the Insurance Regulatory and
 1818: Oriental Life Insurance Company, the first life insurance Development Authority (IRDA) in 2000.
company on Indian soil started functioning.
The goals of the IRDA are to safeguard the interests of insurance
 1870: Bombay Mutual Life Assurance Society, the first Indian
policyholders, as well as to initiate different policy measures to
life insurance company started its business.
help sustain growth in the Indian insurance sector.
 1912: The Indian Life Assurance Companies Act enacted as the
first statute to regulate the life insurance business. Important Milestones in the history of Indian Insurance industry.
 1928: The Indian Insurance Companies Act enacted to enable the  1993 Malhotra Committee established
government to collect statistical information about both life and non-life  1994 Recommendations of the Malhotra Committee published
insurance businesses.  1995 Mukherjee Committee established
 1996 Setting up of (interim) Insurance Regulatory Authority The Indian insurance market is considered to have a huge business
(IRA)recommendations of the IRA opportunity waiting to be harnessed. India currently accounts for less than
 1997 Mukherjee Committee Report submitted but not made 1.5 percent of the world’s total insurance premiums and about 2 percent
public of the world’s life insurance premiums despite being the second most
 1997 The government gives greater autonomy to Life Insurance populous nation.
Corporation, General Insurance Corporation, and its subsidiaries with
regard to the restructuring of boards and flexibility in investment norms The country is the fifteenth largest insurance market in the world in terms
aimed at channeling funds to the infrastructure sector of premium volume and has the potential to grow exponentially in the
 1998 The cabinet decides to allow 40 percent foreign equity in coming years.
private insurance companies—26 percent to foreign companies and 14
percent to non-resident Indians and Foreign Institutional Investors IRDA - Insurance Regulatory Development and Authority is the
 1999 The Standing Committee headed by Murali Deora decides statutory, independent and apex body that governs and supervise the
that foreign equity in private insurance should be limited to 26 percent. Insurance Industry in India.
The IRA bill is renamed the Insurance Regulatory and Development
Authority Bill o It was constituted by Parliament of India Act called Insurance
 1999 Cabinet clears Insurance Regulatory and Development Regulatory and Development Authority of India (IRDA of
Authority Bill India) after the formal declaration of Insurance Laws
 2000 President gives assent to the Insurance Regulatory and (Amendment) Ordinance 2014, by the President of India Pranab
Development Authority Bill Mukherjee on December 26,2014.
Life insurance industry  today
Currently, 24 life insurance companies and 29 non-life insurance Establishment:
companies in the Indian market compete with each other on price and o IRDA Act was passed upon the recommendations of Malhotra
service to attract customers. Out of the 24 life insurance companies, Life Committee report (7 Jan,1994), headed by Mr R.N. Malhotra
Insurance Corporation of India (LIC) is the sole public sector company (Retired Governor, RBI)
fully owned by Government of India. All the policies issued by LIC of o Main Recommendations - Entrance of Private Sector Companies
India enjoys Sovereign guarantee of Indian Parliament. and Foreign promoters & An independent regulatory authority for
Insurance Sector in India                        
The country’s insurance market is expected to quadruple in size over the o In April,2000, it was set up as statutory body, with its
next 10 years from its current size of US$ 60 billion. During this period, headquarters at New Delhi.
the life insurance market is slated to cross US$ 160 billion. o The headquarters of the agency were shifted to Hyderabad,
Telangana in 2001.
The general insurance business in India is currently at Rs 78,000 crore Objectives of IRDA:
(US$ 11.7 billion) premium per annum and is growing at a healthy rate of o To promote the interest and rights of policy holders.
17 percent. o To promote and ensure the growth of Insurance Industry.
o To ensure speedy settlement of genuine claims and to prevent
Insurance Penetration in India
frauds and malpractices
India’s insurance market lags behind other economies in the baseline
o To bring transparency and orderly conduct of in financial markets
measure of insurance penetration. At only 3.9 percent, India is well
dealing with insurance.
behind the 11.9 percent for Korea, 11.5 percent for the UK, 11.1 percent
for Japan, and 7.5 percent for the US. Indian Insurance Industry is
Organisational Setup of IRDA:
expected to grow to the US $ 280 billion by Financial Year 2020.
IRDA is a ten member body consists of :
 o One Chairman (For 5 Years  & Maximum Age - 60 years ) assignor, Party B is an obligor, and Party C is the assignee. Assignments
o Five whole-time Members (For 5 Years and Maximum Age- 62
years) are generally be permitted unless there is an express prohibition against
o Four part-time Members (Not more than 5 years) the assignment of rights in the contract. Where assignment is thus
The chairman and members of IRDAI are appointed by Government of
permitted, the assignor need not consult the other party to the contract.
India.
The present Chairman of IRDAI is Subhash Chandra Khuntia. An assignment cannot have any effect on the duties of the other party to
the contract, nor can it reduce the possibility of the other party receiving
Functions And Duties of IRDA:
Section 14 of IRDA Act,1999 lays down the duties and functions of full performance of the same quality. For assignment to be effective, it
IRDA: must occur in the present.

o It issues the registration certificates to insurance companies and

regulates them. No specific language is required to make such an assignment, but the
o It protects the interest of policy holders.
assignor must make some clear statement of intent to assign clearly
o It provides license to insurance intermediaries such as agents and
brokers after specifying the required qualifications and set identified contractual rights to the assignee. A promise to assign in the
norms/code of conduct for them. future has no legal effect. A cause of action for breach of the contract on
o It promotes and regulates the professional organisations related
with insurance business to promote efficiency in insurance sector. the part of the obligor lies with the assignee, which will hold the
o It regulates and supervise the premium rates and terms of exclusive right to commence a cause of action for any failure to perform
insurance covers. or defective performance. Because the assignee substitutes the assignor,
o It specifies the conditions and manners, according to which the
insurance companies and other intermediaries have to make their the obligor can raise any defense to the contract that the obligor could
financial reports. have raised against the assignor
o It regulates the investment of policyholder's funds by insurance
When looking at Assignment in Insurance, the study is in three contexts;
companies.
o It also ensures the maintenance of solvency margin (company's to wit; the effect of assignment by the insured of the subject matter of the
ability to pay out claims) by insurance companies. insurance policy, the assignment of the benefit of a contract of insurance
Clasification and Assignment of the subject matter of the
and the assignment of the contract of insurance itself.
insurance policy
February 08, 2013 - Insurance Law
In general, an assignment in law amounts to transfer of the rights
What amounts to an Assignment In Insurance
however for academic and professional examination purposes especially
Generally, an assignment in law is the complete transfer of the rights to
with regard to the United Kingdom and Commonwealth countries,
receive the benefits accruing to one of the parties to that contract. For
insurance is often sub-divided on a Subject Matter of Insurance or
example, if Party A contracts with Party B to sell Party A's car to Party B
Functional basis, as shown below:
for $10, Party A can later assign the benefits of the contract - i.e., the
right to be paid $10 - to Party C. In this scenario, Party A is the obligee /
Classification of Insurance estate. At this stage they both clearly have an insurable interest. However,
upon the completion of the purchase and therefore the passing of title, the
(a) Insurance of the person. legal estate vest in the purchaser and at this point, the vendor ceases to
This classification is not equivalent to ‘personal insurance’),that’s to have an insurable interest. If the property is therefore damaged at this
say. Human beings being the subject matter of the insurance. For point, the vendor may not recover anything for this reason. The purchaser
example. life insurance, health insurance and personal accident on the other hand is not the insured under the policy and therefore not
insurances, among others. party to the agreement between the insurer and the insured/vendor.
However, it should be noted that if the policy allows assignment of the
(b) Insurance of property. rights of the insured, then such shall be the case.
This involves covering tangible objects against loss or damage For
example fire, motor damage, marine cargo, among others Assignment of the benefit and Assignment of the policy
It must not be thought that the academic classification is only of use
(c) Insurance of liability. in studying for examinations. Thinking about insurance according to the
This involves covering legal liability for death, injury or Property damage function it performs, ie. (person, property, liability, pecuniary interest
to others for example. employees compensation, public liability, among etc.) is a useful check-list when trying to help a client on deciding what
others. insurances to take or have

(d) Insurance of pecuniary interests:

This classification relates to any financial interest to be insured not
covered by Insurance of the person, Insurance of property, Insurance of
Liability as mentioned in (a) - (c) above, as well as business interruption,
credit and rent insurances.

Assignment of the subject matter

This mainly concerns insurance of property when that property is sold or
disposed of by the insured. Generally, the assignment of a subject matter
of an insurance policy cannot operate to assign the insurance. Once the
contract for the sale of property or land is made, the purchaser obtains an
equitable interest in the property although the vendor retains the legal