Month: April 2021

Assignment means a complete transfer of the ownership of the policy to some other person. Usually, assignment is done for the purpose of raising a loan from a bank or a financial institution.

Assignment is governed by Section 38 of the Insurance Act 1938 in India. Assignment can also be done in favour of a close relative when the policyholder wishes to give a gift to that relative. Such an assignment is done for “natural love and affection”. An example, a policyholder may assign his policy to his sister who is handicapped.

A policyholder who has policy on his own life can assign the policy to another person. However, a person to whom a policy has been assigned can reassign the policy to the policyholder or assign it to any other person. A nominee cannot make an assignment of the policy. Similarly, an assignee cannot make a nomination on the policy which is assigned to him.

When a policyholder assigns a policy, he loses all control on the policy. It is no longer his property. It is now the assignee’s property whether the policyholder is alive or dead, the assignee alone will get the policy money from the insurance company.

If the assignee dies, then his (assignee’s) legal heirs will be entitled to the policy money.

An assignment cannot be changed or cancelled. The assignee can of course, reassign the policy to the policyholder who assigned it to him. He can also assign the policy to any other person because it is now his property. We can think of a bank reassigning the policy to the policyholder when their loan is repaid.

If the assignee dies, the assignment does not get cancelled. The legal heirs of the assignee become entitled to the policy money. Assignment is a legal transfer of all the interests the policyholder has in the policy to the assignee.

Assignment can be made only after issue of the policy bond. The policyholder can either write out the wording on the policy bond (endorsement) or write it on a separate paper and get it stamped. (Stamp value is the same, as the stamp required for the policy Twenty paise per one thousand sum assured). When assignment is made by an endorsement on the policy bond, there is no need for stamp because the policy is already stamped.

Assignment can be made in favour of a minor person. But it would be advisable to appoint a guardian to receive the policy money if it becomes due during the minority of the assignee.

Exmp.

P agrees to sell his car to Q for Rs. 100. P assigns the right to receive the Rs. 100 to S. This may be done without the consent of Q. This is because Q is receiving his car, and it does not particularly matter to him, to whom the Rs. 100 is being handed as long as he is being absolved of his liability under the contract. However, notice may still be required to be given. Without such notice, Q would pay P, in spite of the fact that such right has been assigned to S. S would be a sufferer in such case.

In this case, that condition is being fulfilled since P has assigned his right to S. However, P may not assign S to be the seller. P cannot just transfer his duties under the contract to another. This is because Q has no guarantee as to the condition of S’s car. P entered into the contract with Q on the basis of the merits of P’s car, or any other personal qualifications of P. Such assignment may be done with the consent of all three parties P, Q, S, and by doing this, P is absolved of his liabilities under the contract.

Effect of Assignment

Immediately on the execution of an assignment of an insurance policy, the assignor forgoes all his rights, title and interest in the policy to the assignee. The premium or loan interest notices etc. in such cases will be sent to the assignee. However, the existence of obligations must not be assumed, when it comes to the assignment. It must be accompanied by evidence of the same. The party asserting such a personal obligation must prove the existence of an express assumption by clear and unequivocal proof.

Assignment of a contract to a third party destroys the privity of contract between the initial contracting parties. New privity is created between the assignee and the original contracting party. In the illustration mentioned above, the original contracting parties were P and Q. After the assignment, the new contracting parties are Q and S.

Revocation of Assignment

Assignment, once validly executed, can neither be revoked nor canceled at the option of the assignor. To do so, the insurance policy will have to be reassigned to the original assignor (the insured).

Exceptions to Assignment

There are some instances where the contract cannot be assigned to another.

• Express provisions in the contract as to its non-assignability: Some contracts may include a specific clause prohibiting assignment. If that is so, then such a contract cannot be assigned. Assignability is the rule and the contrary is an exception.
• Contracts which are of a personal nature Rights under a contract are assignable unless the contract is personal in its nature or the rights are incapable of assignment.
• Pensions, PFs, military benefits etc.

Types of assignment

Assignment may take two forms:

1. Conditional Assignment

It would be useful where the policyholder desires the benefit of the policy to go to a near relative in the event of his earlier death. It is usually effected for consideration of natural love and affection. It generally provides for the right to revert the policyholder in the event of the assignee predeceasing the policyholder or the policyholder surviving to the date of maturity.

2. Absolute Assignment

This assignment is generally made for valuable consideration. It has the effect of passing the title in the policy absolutely to the assignee and the policyholder in no way retains any interest in the policy. The absolute assignee can deal with the policy in any manner he likes and may assign or transfer his interest to another person.

Assignment under various laws in India

There is no separate law in India which deals with the concept of assignment. Instead, several laws have codified it under different laws. Some of them have been discussed as follows:

Under the Indian Contract Act

There is no express provision for the assignment of contracts under the Indian Contract Act. Section 37 of the Act provides for the duty of parties of a contract to honour such contract (unless the need for the same has been done away with). This is how the Act attempts to introduce the concept of assignment into Indian commercial law. It lays down a general responsibility on the “representatives” of any parties to a contract that may have expired before the completion of the contract.

An exception to this may be found from the contract, e.g. contracts of a personal nature. Representatives of a deceased party to a contract cannot claim privity to that contract while refusing to honour such contract. Under this Section, “representatives” would also include within its ambit, transferees and assignees.

Section 41 of the Indian Contract Act applies to cases where a contract is performed by a third party and not the original parties to the contract. It applies to cases of assignment. A promisee accepting performance of the promise from a third person cannot afterwards enforce it against the promisor. He cannot attain double satisfaction of its claim, i.e., from the promisor as well as the third party which performed the contract. An essential condition for the invocation of this Section is that there must be actual performance of the contract and not of a substituted promise.

Under the Insurance Act

The creation of assignment of life insurance policies is provided for, under Section 38 of the Insurance Act, 1938.

Endorsement has to be made on the policy or on a separate document, signed by assignor (or agent authorized by him), attested by at least one witness specifying the fact of the assignment. The assignment is complete and effectual with the execution of such a document. However, it will not be operative against the insurer (no assignee has the right to sue for any policy amount from the insurer) unless the above-mentioned endorsement or separate policy has been delivered to the insurer.

When the insurer receives the endorsement or notice, the fact of assignment shall be recorded with all details (date of receipt of notice also used to prioritise simultaneous claims, the name of assignee etc). Upon request, and for a fee of an amount not exceeding Re. 1, the insurer shall grant a written acknowledgment of the receipt of such assignment, thereby conclusively proving the fact of his receipt of the notice or endorsement. Now, the insurer shall recognize only the assignee as the legally valid party entitled to the insurance policy.

Under the Transfer of Property Act

Indian law as to assignment of life policies before the Insurance Act, 1938 was governed by Sections 130, 131, 132 and 135 of the Transfer of Property Act 1882 under Chapter VIII of the Act – Of Transfers of Actionable Claims. Section 130 of the Transfer of Property Act states that nothing contained in that Section is to affect Section 38 of the Insurance Act.

Section 130 of the Transfer of Property Act

An actionable claim may be transferred only by fulfilling the following steps:

• Execution of an instrument
• In writing
• Signed by a transferor (or his authorized agent)

If unsuccessful or dissatisfied with the insurer’s internal grievance redressal system, the aggrieved insured can register their complaint on IRDAI’s Integrated Grievance Management System. Post-registration, IRDAI forwards the complaint to the concerned insurer. If a resolution is not achieved in 15 days, the insured has the option of escalating and sending the complaint for re-examination or approaching the Insurance Ombudsman/civil court/consumer forum.

Section 89 of the CPC embraces a provision for the settlement of disputes outside court. All cases that are filed in court need not necessarily be decided by the court itself. Considering the time taken for legal proceedings and the limited number of judges available, it has become imperative to resort to an alternative dispute resolution (ADR) mechanism with a view to end litigation between parties at an early date. The ADR mechanism as contemplated by Section 89 is arbitration, conciliation or judicial settlement, including settlement through a Lok Adalat (a mode of ADR) or mediation. There is usually a mediation cell associated with each court.

Arbitration

The ACA is based on the UNCITRAL Model Law. The ACA preserves party autonomy in relation to most aspects of arbitration, such as the freedom to agree upon the qualification, nationality and number of arbitrators (provided this is not an even number), the place of arbitration and the procedure to be followed by the tribunal. The principle of party autonomy has recently been confirmed by the Supreme Court in a number of cases. The decisions restrict the scope of the Indian courts to intervene in respect of those arbitrations where the seat is non-Indian.

The Arbitration and Conciliation (Amendment) Act 2015 amended the ACA. This Act makes the ACA a preferred reference for settlement of commercial disputes, as it not only sets out strict timelines for completion of the arbitral proceedings but also permits parties to choose to conduct arbitration proceedings in a fast-track manner, with the award being granted within six months. In addition to the foregoing, a cost regime with regard to providing the costs of arbitration proceedings to a successful party has also been set out.

The ACA expressly bars the courts from intervening in an arbitral proceeding except to the extent this is provided for in the Act itself. For example:

• Where a party files an action before a court in spite of an arbitration agreement, the other party can apply to that court to refer the dispute to arbitration instead;
• A party can apply to a court for interim remedies;
• A party can seek the court’s assistance for the appointment of an arbitrator if the other party refuses to cooperate in the process;
• A party can seek the court’s assistance for recording evidence; and
• The court can set aside an award in an arbitral proceeding where it has been passed following material errors of jurisdiction or in prejudice of the public interest. The court’s power is limited in this regard, and it cannot interfere in the reasoning given for arriving at the award.
• ADR

The ACA recognises arbitration and conciliation as valid forms of ADR.

• Mediation

The courts may direct the parties to refer their disputes to ADR with the parties’ consent. There are a number of mediation cells associated with the courts. The mediator is either selected by the parties or by the court. The mediator acts as a facilitator to encourage parties to settle their disputes. However, unlike arbitration, the mediation process is not binding on either party. The Commercial Courts Act contemplates compulsory mediation between the parties prior to filing of a suit unless urgent interim relief is sought.

Ombudsman

The Insurance Ombudsman scheme was created by the Government of India for individual policyholders to have their complaints settled out of the courts system in a cost-effective, efficient and impartial way.

There are at present 17 Insurance Ombudsman in different locations and any person who has a grievance against an insurer, may himself or through his legal heirs, nominee or assignee, make a complaint in writing to the Insurance ombudsman within whose territorial jurisdiction the branch or office of the insurer complained against or the residential address or place of residence of the complainant is located.

You can approach the Ombudsman with complaint if:

• You have first approached your insurance company with the complaint and
• They have rejected it
• Not resolved it to your satisfaction or
• Not responded to it at all for 30 days
• Your complaint pertains to any policy you have taken in your capacity as an individual and
• The value of the claim including expenses claimed is not above Rs 30 lakhs.

Your complaint to the Ombudsman can be about:

1999. a) Delay in settlement of claims, beyond the time specified in the regulations, framed under the IRDAI Act, 1999.
2000. b) Any partial or total repudiation of claims by the Life insurer, General insurer or the Health insurer.
2001. c) Any dispute about premium paid or payable in terms of insurance policy
2002. d) Misrepresentation of policy terms and conditions at any time in the policy document or policy contract.
2003. e) Legal construction of insurance policies in so far as the dispute relates to claim.
2004. f) Policy servicing related grievances against insurers and their agents and intermediaries.
2005. g) Issuance of life insurance policy, general insurance policy including health insurance policy which is not in conformity with the proposal form submitted by the proposer.
2006. h) Non issuance of insurance policy after receipt of premium in life insurance and general insurance including health insurance and
2007. i) Any other matter resulting from the violation of provisions of the Insurance Act, 1938 or the regulations, circulars, guidelines or instructions issued by the IRDAI from time to time or the terms and conditions of the policy contract, in so far as they relate to issues mentioned at clauses (a) to (f).

Award:

• If a settlement by recommendation does not work, the Ombudsman will:
• Pass an award within 3 months of receiving all the requirements from the complainant and which will be binding on the insurance company

Once the Award is passed

• The Insurer shall comply with the award within 30 days of the receipt of award and intimate the compliance of the same to the Ombudsman.

There is no appellate authority governing Ombudsman order. The order is final & binding.

Insurance Grievance redressal

A grievance is defined as any communication that expresses dissatisfaction about an action or lack of action, about the standard of service / deficiency of service of an insurance company and / or any intermediary or seeks remedial action.

Every insurer must ensure a grievance redressal mechanism is in place for providing excellent customer service which in turn is the most important tool for business growth.

Grievance redressal is based on the following principles

Customers are treated fairly at all times

Complaints raised by customers are dealt with an open mind, with courtesy

Customers are informed through policy document of avenues of escalation process of their complaints and grievances within the organization

To treat all complaints efficiently and fairly as they can damage the company’s reputation and business if not handled properly.

IRDAI has through various regulations mandated the following requirements to be complied with by all insurers

1. Ensure a board approved grievance redressal policy document is in place
2. All complaints must be logged in through IGMS(Integrated Grievance Management System portal) of the authority
3. Every insurer must have grievance redressal officer (GRO) whose contact details are provided in all the communication with the policy holder
4. Insurer must abide by the grievance redressal guidelines advised by IRDAI
5. Regular reporting of all category of complaints & reconciliation of pending complaints is order of the day
6. The category of complaints number, intermediary involved, action taken, RCA (root cause analysis) to be placed before the committee of policy holder protection of interest at every meeting for discussion & directions

Policy holder can lodge a complaint in any of the manner as listed below

If one are unhappy with the insurance company procedures or claim settlement, one can

• Approach the Grievance Redressal Officer of its branch or any other office that one deals with. All formal mail IDs of Grievance Redressal Officers, GRO, of all insurance companies is made available in IRDAI portal:  policyholder.gov.in
• Complaint in writing along with the necessary support documents to be provided
• Written acknowledgement of complaint  date to be obtained.

The insurance company should deal with all complaint within 15 days.

• If that does not happen or if policyholder is  unhappy with the solution he can:
  • Approach the Grievance Redressal Cell of the Consumer Affairs Department of IRDA:
    • Call Toll Free Number 155255 (or) 1800 4254 732 or
    • Send an e-mail to complaints@irda.gov.in
  • Make use of the Integrated Grievance Management System:
    • Register and monitor your complaint at igms.irda.gov.in

Insurance Ombudsmen

With an objective to provide a forum for resolving disputes and complaints from the aggrieved insured public or their legal heirs against Insurance Companies, the Government of India, in exercise of powers conferred on it u/s 114(1) of Insurance Act, 1938 framed “Redressal of Public Grievances Rules, 1998“, which came into force w.e.f. 11th November, 1998. These Rules aim at resolving complaints relating to the settlement of disputes with Insurance Companies on personal lines of insurance, in a cost effective, efficient and impartial manner. These Rules apply to all the Insurance Companies operating in General Insurance business and Life Insurance business, in Public and Private Sectors.

To implement the above Rules, the Institution of Insurance Ombudsman has been established and is functioning since 1999. The Ombudsman functions within a set geographical jurisdiction and can entertain  disputes relating to partial/total repudiation of claims, delay in settlement of claims, any dispute on the legal construction of the policies in so far as such disputes relate to claims, disputes regarding premium paid or payable in terms of the policy and non-issuance of insurance documents.

The Insurance Ombudsman is provided with a Secretarial Staff by the Governing Body of Insurance Council and such staff is drawn from Insurance Companies. The total expenses on running the Institution are shared by all Insurance Companies, who are Members of the Insurance Council. 

The Insurance Ombudsman scheme was created by the Government of India for individual policyholders to have their complaints settled out of the courts system in a cost-effective, efficient and impartial way.

There are Insurance Ombudsman in different locations and any person who has a grievance against an insurer, may himself or through his legal heirs, nominee or assignee, make a complaint in writing to the Insurance ombudsman within whose territorial jurisdiction the branch or office of the insurer complained against or the residential address or place of residence of the complainant is located.

Complaint is to be lodged with the Insurance Ombudsman under whose territorial jurisdiction the insurer’s office falls, at the address provided in website / insurer communication which includes policy document.

Policyholders can approach the Ombudsman with complaint if:

 He has first approached your insurance company with the complaint and

• they have rejected it
• not resolved it to your satisfaction or not responded to it at all for 30 days

• complaint pertains to any policy you have taken in your capacity as an individual and
• the value of the claim including expenses claimed is not above Rs 20 lakhs.

Complaint to the Ombudsman can be about:

1999. a)    Delay in settlement of claims, beyond the time specified in the regulations, framed under the IRDAI Act, 1999.
2000. b)    Any partial or total repudiation of claims by the Life insurer, General insurer or the Health insurer.
2001. c)     Any dispute about premium paid or payable in terms of insurance policy
2002. d)    Misrepresentation of policy terms and conditions at any time in the policy document or policy contract.
2003. e)    Legal construction of insurance policies in so far as the dispute relates to claim.
2004. f)     Policy servicing related grievances against insurers and their agents and intermediaries.
2005. g)    Issuance of life insurance policy, general insurance policy including health insurance policy which is not in conformity with the proposal form submitted by the proposer.
2006. h)    Non issuance of insurance policy after receipt of premium in life insurance and general insurance including health insurance and
2007. i)      Any other matter resulting from the violation of provisions of the Insurance Act, 1938 or the regulations, circulars, guidelines or instructions issued by the IRDAI from time to time or the terms and conditions of the policy contract, in so far as they relate to issues mentioned at clauses (a) to (f)

 The Ombudsman will act as mediator and 

• Arrive at a fair recommendation based on the facts of the dispute
• If you accept this as a full and final settlement, the Ombudsman will
• Inform the company which should comply with the terms in 15 days

 Award:

• If a settlement by recommendation does not work, the Ombudsman will:

• Pass an award within 3 months of receiving all the requirements from the complainant and which will be binding on the insurance company

Claim settlement

Claim settlement is one of the most important services that an insurance company can provide to its customers. Insurance companies have an obligation to settle claims promptly. You will need to fill a claim form and contact the financial advisor from whom you bought your policy. Submit all relevant documents such as original death certificate and policy bond to your insurer to support your claim. Most claims are settled by issuing a cheque within 7 days from the time they receive the documents. However, if your insurer is unable to deal with all or any part of your claim, you will be notified in writing.

Types of claims

Maturity Claim: On the date of maturity life insured is required to send maturity claim / discharge form and original policy bond well before maturity date to enable timely settlement of claim on or before due dates. Most companies offer/issue post dated cheques and/ or make payment through ECS credit on the maturity date. Incase of delay in settlement kindly refer to grievance redressal.

Death Claim (including rider claim): In case of death claim or rider claim the following procedure should be followed.

Follow these four simple steps to file a claim:

• Claim intimation/notification

The claimant must submit the written intimation as soon as possible to enable the insurance company to initiate the claim processing. The claim intimation should consist of basic information such as policy number, name of the insured, date of death, cause of death, place of death, name of the claimant. The claimant can also get a claim intimation/notification form from the nearest local branch office of the insurance company or their insurance advisor/agent. Alternatively, some insurance companies also provide the facility of downloading the form from their website.

2. Documents required for claim processing
   The claimant will be required to provide a claimant’s statement, original policy document, death certificate, police FIR and post mortem exam report (for accidental death), certificate and records from the treating doctor/hospital (for death due to illness) and advance discharge form for claim processing. Based on the sum at risk, cause of death and policy duration, insurance companies may also request some additional documents.

3. Submission of required documents for claim processing
   For faster claim processing, it is essential that the claimant submits complete documentation as early as possible. A life insurer will not be able to take a decision until all the requirements are complete. Once all relevant documents, records and forms have been submitted, the life insurer can take a decision about the claim.
4. Settlement of claim
   As per the regulation 14 (2)(i) of the IRDAI (Policy holder’s Interest) Regulations, 2017, the insurer is required to settle a claim within 30 days of receipt of all documents including clarification sought by the insurer. However, the insurance company can set a practice of settling the claim even earlier. If the claim requires further investigation, the insurer has to complete its procedures expeditiously, in any case not later than 90 days from the date of receipt of claim intimation and claim shall be settled within 30 days thereafter.

Claim Intimation

In case a claim arises you should:

• Contact the respective life insurance branch office.
• Contact your insurance advisor.
• Call the respective Customer Helpline.

Claim Requirements

For death claim:

• * Death Certificate
  * Original Policy Bond
  * Claim Forms issued by the insurer along with supporting documents

For maturity claims:

• * Original Policy Bond.
  * Maturity Claim Form

Provisions related to nomination

Nomination is the process by which the policyholder appoints a person or persons to receive policy benefits in case of a death claim. So in case of an eventuality, the life insurance company pays the policy proceeds to the appointed person.

Beneficial Nominees

As per the new law, if any immediate family member (like spouse, children or parents) is made the nominee, then they will automatically become the beneficial owners of the claim benefits and be referred to as ‘Beneficial Nominee’.

This means that the death benefit will be paid to Beneficial Nominees and not to any other legal heirs, irrespective of anything.

It is worth noting that only the immediate family members can be appointed as the Beneficial Nominees. Therefore, it’s always advisable to nominate an immediate family member as the nominee to ensure that there are no disputes in future between the nominees and legal heirs.

Minor Nominees

It’s a normal practice for people to appoint their children as beneficiaries of their life insurance policies. And rightly so; after all, its their future one wants to secure even if one is not around.

But children who are below the age of 18 years of age are not considered eligible to handle claim amounts. Hence, the policyholder needs to assign an appointee (or custodian).

In case of claim arising when the nominee (child in this case) is younger than 18 years, the claim amount is paid to the appointee for custody till the minor turns major.

Non-Family Nominees

This oddity is exactly what leads insurers to not accept strangers (or non-family members) as nominees.

So even though one can nominate distant relatives or even friends, fact is that it will be very difficult to prove ‘insurable interest’. This along with the fact that there is a moral hazard in appointing such a nominee, the insurance company might refuse the nomination or might ask for further explanations.

Changing Nominees

One should make sure that nomination of something as important as life insurance is up-to-date and in sync with whom policyholder actually wants to appoint as the beneficiary.

A policyholder can change the nominee as many times as he/she wishes but the latest nominee supersedes all previous ones.

The holder of a policy of life insurance may, when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death: Provided that, where any nominee is a minor, it shall be lawful for the policy-holder to appoint in the prescribed manner any person to receive the money secured by the policy in the event of his death during the minority of the nominee.

(2) Any such nomination in order to be effectual shall, unless it is incorporated in the text of the policy itself, be made by an endorsement on the policy communicated to the insurer and registered by him in the records relating to the policy and any such nomination may at any time before the policy matures for payment be cancelled or changed by an endorsement or a further endorsement or a will, as the case may be, but unless notice in writing of any such cancellation or change has been delivered to the insurer, the insurer shall not be liable for any payment under the policy made bona fide by him to a nominee mentioned in the text of the policy or registered in records of the insurer.

The insurer shall furnish to the policy-holder a written acknowledgement of having registered a nomination or a cancellation or change thereof, and may charge a fee not exceeding one rupee for registering such cancellation or change.

Repudiation

In  case  repudiation  is  on  ground  of  mis-statement  and  not  on  fraud,  the  Premium collected on Policy till the date of repudiation shall be paid to the insured or legal representative or Nominee or Assignees of insured, within a period of 90 days from the date of repudiation.

In this case, the death of the insured is within 2 years and the repudiation  of the claim is also within 2 years. In this class of cases, courts, while accepting the doctrine of uberrima fides have insisted upon the fairness of the insurer also and required proof that someone, on behalf of the insurer, had drawn the attention of the insured to tricky and ambiguous questions in the form of proposal and that the insured had clearly understood the question before giving his answer”.

A clever claimant may wait forthe2yearsto elapse before informing the insurer; and The insurer may not know to whom the repudiation is to be made, because, the insured is dead the insurer must wait and see to whom the letters of administration to the estate of the deceased are granted.

Fraud

The Indian Insurance Act does not contain definition for ‘insurance fraud’. Neither have any specific laws connected to insurance fraud been spelled out in the Indian Penal Code,1860(IPC). The Indian Contract Act,1872 (ICA) also doesn’t have any specific laws pertaining to insurance fraud. Even though sections related to forgery or fraudulent acts can be applied in the IPC, it does not succeed to deter the commission of the fraud. Insurance fraud occurs when people deceive an insurance company in order to collect money to which they are not entitled.

Types of Insurance Fraud

The Insurance Regulatory and Development Authority of India which is the apex body and overseeing the business of Insurance in India sets out these 3 broad categories of fraud:

• Policyholder Fraud and/or Claims Fraud: Fraud against the company in the purchase and/or execution of an insurance product, including fraud at the time of making a claim.
• Intermediary Fraud: Fraud perpetuated by an insurance agent/Corporate Agent/intermediary/Third Party Administrators (TPAs) against the company and/or policyholders.
• Internal Fraud: Fraud/ misappropriation against the company by its Director, Manager and/or any other officer or staff member (by whatever name called).

The provisions which can be applicable in such cases are:

Section 205. False personation for purpose of act or proceeding in suit or prosecution. Whoever falsely personates another, and in such assumed character makes any admission or statement, or confesses judgment, or causes any process to be issued or becomes bail or security, or does any other act in any suit or criminal prosecu­tion, shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.

Section 420. Cheating and dishonestly inducing delivery of property. Whoever cheats and thereby dishonestly induces the person de­ceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.

Section 464 Making a false document. 341 [A person is said to make a false document or false electronic record First Who dishonestly or fraudulently:

(a) makes, signs, seals or executes a document or part of a document;

(b) makes or transmits any electronic record or part of any electronic record;

(c) affixes any 342 [electronic signature] on any electronic record;

Section 405. Criminal breach of trust. Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust’’.

Protection of policyholder interest

Misrepresentation within the meaning of Section 18of the ICA

The contract of insurance is also void in as per Section 10 read with Section 14(4) and Section 18 of the ICA generally in cases of fraud.

As per Section 20of the Indian Contract Act, 1872, the agreement is void where both parties are under mistake as to matter of fact. Some factors are essential for insurance cover.

Steps such as having a comprehensive fraud and abuse management policy which covers types of fraud and abuse alongside with policies, procedures, and controls, company action being documented and implementing a review mechanism should be taken by insurance companies also so that they are also in a position to take legal action.

Sharing of knowledge and data should be more prevalent with the victims of fraudulent insurance claims, this data should include fraud patterns and case studies, fraud customer list and intermediaries, fraudulent providers and investigators etc.

Most importantly awareness should be brought about the due legal process to be followed before reporting a case. Reporting to external bodies such as Medical Council of India, IRDA, and corporate Human Resources can also be tried.

The amount of capital that an insurance company has in relation to probable claims.

Technically put, the solvency ratio of a company is a measurement of its ability to meet its debt obligations and other financial commitments. Basically, a solvency ratio gives insight into the company’s cash flow as well as whether this cash flow is capable of meeting the company’s liabilities – both long-term and short-term.

The understanding with this metric is that the lower a company’s solvency ratio, the higher the likelihood that the company will default on its financial obligations. Conversely, a company with a high solvency ratio indicates its financial trustworthiness. It is more capable and hence more likely to fulfill its debt and other commitments.

The solvency margin is a minimum excess on an insurer’s assets over its liabilities set by regulators. It can be regarded as similar to capital adequacy requirements for banks.

The solvency ratio of an insurance company is the size of its capital relative to all risks it has taken.

The solvency ratio is most often defined as: The solvency ratio is a measure of the risk an insurer faces of claims that it cannot absorb.

The solvency ratio of an organization gives an insight into the ability of an organization to meet its financial obligations.

It is the responsibility of the Insurance Regulatory and Development Authority of India (or IRDAI) to ensure that Indian insurers are upheld to certain standards, including a mandated solvency ratio. As a result, life insurance providers in India are expected to maintain a solvency ratio of 1.5 (or a solvency margin of 150%).

However, even within these limits, individual life insurance providers differ in their ranking. To determine the ideal life insurance provider for you, you can browse through the solvency ratios of all registered insurers in the annual report published on the IRDAI website.

Main Factors affecting Solvency Margin/Ratio

1. Poor Capital Gearing Ratio; It indicates that how efficiently the capital is used in converting into optimum turnover or superior business performance. If Capital is not used effectively for business expansion or does not result into expected return, the promoters would take back their capitals and same would result into insolvency or poor solvency for the insurer. Thus, it is important that the Capital of stakeholders will be used effectively and in such manner that the value of business would increase. Proper utilization of Capital is the most important.
2. Higher Solvency; It indicates the ability of an insurer to mitigate or handle or write bigger risks and ensure further development of business. But keeping higher Solvency Margin, will be questioned by Investors and the Promoters of the Company, because their capital is not utilized for better returns. If insurer maintain LOWER SOLVENCY as required in this case also the regulator (IRDAI) will impose restrictions and continuously follow with insurer to bring Solvency Margin to the extent as may be prescribed. Lower Solvency would also result into undercutting of premium rates as to compete in the market and it may slow down its business growth due to slow rate of business expansion.
3. ALM (Assets-Liability) Mismatch; It made compulsory for every life insurer to maintain every year matching each of their asset classes with their liabilities of similar duration. If there is mismatch of their assets and liabilities, it would result into severe liquidity risks and reinvestment risk. Wrong matching would also result into lower investment yield for the insurer resulting poor performance and operational results, which may hinder their business growth in the future. The mismatch between Assets and Liabilities may badly effects on Solvency Ratio/Margin of insurer.
4. Underwriting /Pricing Risk; It also affects Solvency of an insurer to a great extent in long run. If an insurer does not have good underwriting standard, would end up in writing mostly bad risks resulting into underwriting loss and poor business performance. If premium is inadequate to cover the claims cost and increasing administrative and marketing expenses, then it may affect the Investment Fund and would result into liquidity risk to the insurer and same will affect future business growth insurer. If the overall Operational Results become negative because of higher underwriting loss and inadequate premium then, continuous poor results would eat away the financial net worth or capital of the company in long run.
5. Cat & Exposure Limit; Due to global warming, catastrophic perils like, flood, earthquake, cyclones etc., are raising all over world. If insurer does not have adequate capital fund and reinsurance protection for such catastrophic events, it would impact Solvency of the insurer significantly. Since occurrence of catastrophic event does not only produce huge volume of accumulation of losses to the insurer but also impacts the severity of losses. The risk exposure limit will significantly be increased in case of any Catastrophic event to the insurer. If these events do not cover with sound capital arrangements by the insurer, then it will definitely affect Solvency Ratio/Margin.

Sufficiency of Assets;

Every insurer and re-insurance shall at all times maintain an excess of value of assets over amount of liabilities of, not less than 50% of amount of minimum capital as stated under Section 6 and arrived at in the manner specified by regulations.

An insurer who does not comply with the provisions of sub‑section (1) shall be deemed to be insolvent and may be wound up by the court. If, at any time an insurer does not maintain the required solvency margin( IRDAI mandates that insurers must maintain 150 percent solvency at all times) in accordance with the provisions of this section, he shall, in accordance with the directions issued by the Authority, submit a financial plan, indicating a plan of action to correct the deficiency to the Authority within a specified period not exceeding three months

The Authority shall be entitled at any time to take such steps as he may consider necessary for the inspection or verification of the assets and liabilities of any insurer or for securing the particulars necessary to establish that the requirements of this section have been complied with as on any date and the insurer shall comply with any requisition made in this behalf by the Authority, and if he fails to do so within two months from the receipt of the requisition, he shall be deemed to have made default in complying with the requirements of this section.

The provisions of this section shall not apply to an insurer specified in sub-clause (c) of clause (9) of section 2.

In applying the provisions of sub‑section (1) to any insurer, who is a member of a group, the relevant amount for that insurer shall be an amount equal to that proportion of the relevant amount which that group, if considered as a single insurer, would have been required to maintain as the proportion of his share of the risk on each policy issued by the group bears to the total risk on that policy:

Provided that when a group of insurers ceases to be a group, every insurer in that group who continues to carry on any class of insurance business in India, shall comply with the requirements of sub‑section (1) as if he had not been an insurer in a group at any time:

Provided further that it shall be sufficient compliance with the provisions of the foregoing proviso if the insurer brings up the excess of the value of his assets over the amount of his liabilities to the required amount within a period of six months from the date of cessation of the group:

Provided also that the Central Government may, on sufficient cause being shown, extend the said period of six months by such further periods as it may think fit, so however that the total period may not in any case exceed one year.

The Central Government may, by notification in the Official Gazette, reduce the sum of ten lakhs of rupees or five lakhs of rupees, as the case may be, referred to in sub‑section (1) to a lower figure not less than one hundred thousand rupees in respect of a country craft insurer or in respect of an insurer not having a share capital and carrying on only such insurance business as, in the opinion of the Central Government, is not carried on ordinarily by insurers under separate policies. Every insurer shall furnish to the Authority his returns under section 15 or section 16, as the case may be, in case of life insurance business a statement certified by an actuary approved by the Authority, and in case of general insurance business a statement certified by an auditor approved by the Authority, of the required solvency margin maintained by the insurer in the manner required by sub-section (1A).

Assets

(I) Assets shall be valued at values not exceeding their market or realizable value and the assets hereafter mentioned shall be excluded to the extent indicated, namely:

(a) “Agents” balances and outstanding premiums in india, to the extent they are not realized within a period of thirty days;

(b) “Agents” balances and outstanding premium outside india, to the extent they are not realizable;

(c) Sundry debts, to the extent they are not realizable;

(d) Advances of an unrealizable character;

(e) Furniture, fixtures, dead stock and stationery;

(f) Deferred expenses;

(g) Profit and loss appropriation account balance and any fictitious assets other than pre‑paid expenses;

(h) Such other asset or assets as may be specified by the regulations made in this behalf.

Pre-Sale Stage

• Fill the proposal form yourself correctly and truthfully, it is the basis of the insurance contract
• Do not leave any column blank, do not sign a blank proposal form
• You will be responsible for any information in this document as it bears your signature. Disclose “all material information” about the risk you want to cover
• Select the term of the policy as per your needs
• Select the amount of premium you can afford to pay
• Choose between Single Premium or Regular Premium
• Choose your premium paying frequency such as annual, half-yearly, quarterly or monthly
• Opt for electronic payment of your premium (ECS) for your convenience, safety and records
• Ensure to register nomination under your policy. Fill the nominee’s name correctly
• Ensure that your communication details mentioned in the proposal/other forms are correct, in case of changes at a later stage, the same are informed to the Insurer. This is very important as Insurers send information relating to various services such as proposal registration, claims details, status etc.

Post-sale stage

• Once the proposal is submitted, you should hear from the insurance company in 15 days
• If not, take up the matter in writing
• If any additional documents are asked for, comply immediately
• Once the proposal is accepted by the insurance company, the policy bond should reach you within a reasonable amount of time
• If not contact the insurance company about it
• When policy bond is received, check it and be sure that the policy is the one that you wanted.
• Go through all the policy conditions and be sure that these are the same that were explained to you by the intermediary/ insurance company official at the time of sale
• In case of doubts, contact the intermediary/ insurance company official immediately for clarification.
• If necessary contact the insurance company directly

Maintaining the policy:

• Pay your premium regularly on the due dates/ within the grace period
• Do not wait for a premium notice. It is only a courtesy. It is your duty to pay the premium to avoid lapsation or other penalties
• Do not wait for your intermediary or anyone to pick your cheque up. Make your own arrangement for paying the premium on time
• If there is a change of address, please intimate the insurance company immediately.

Free Look Period

All new individual health insurance policies issued by Life Insurers, General Insurers and Health Insurers, except those with tenure of less than a year shall have a free look period. The free look period shall be applicable at the inception of the policy and

(1) The insured will be allowed a period of at least 15 days from the date of receipt of the policy to review the terms and conditions of the policy and to return the same if not acceptable.

(2) If the insured has not made any claim during the free look period, the insured shall be entitled to:

(a) A refund of the premium paid less any expenses incurred by the insurer on medical examination of the insured persons and the stamp duty charges.

(b) where the risk has already commenced and the option of return of the policy is exercised by the policyholder, a deduction towards the proportionate risk premium for period on cover or.

(c) Where only a part of the insurance coverage has commenced, such proportionate premium commensurate with the insurance coverage during such period.

(d) In respect of unit linked policy, in addition to the above deductions, the insurer shall also be entitled to repurchase the unit at the price of the units as on the date of the return of the policy.

SURVEYORS Link between Insurer and Insured an Insurance Policy is a combination of protection and savings to meet your future needs. In today’s life the worthiness of insurance cannot denied by anyone. Whenever a person takes an insurance policy, the motive behind this is to secure the future from certain risk on the happening of certain event. We can feel the importance of insurance in our day-to-day life also. In modern and busy life people want to save they’re each and everything through the insurance.

As per requirements of an individual, insurance companies provide insurance policy for buildings, machinery and accessories, stock and stock in process for business purpose, furniture for the purpose of business and profession, mobile, transport, home, health etc. against loss an damages arising out of fire and allied perils. Machinery Breakdown policy covers financial loss incurred by the insured due to loss or damage to machinery as a result of accidental electrical and mechanical breakdown. It reimburses the insured for the cost of repairs or replacement of machinery of like nature.

Fire loss of profit insurance covers major fire loss, due to which the business operations get interrupted resulting in reduced turnover and eventually in loss of profits. Plate glass insurance covers against the actual breakage of plain glass of ordinary glazing quality completely and securely fixed. Any equipment operated with electrical power may suffer breakdown spontaneously. Electronic equipment insurance policy covers “All Risks” to cover Computers, Bio medical equipment, X-ray equipment, audio/video equipment etc. Disaster insurance policy provides protection against disasters arising out of earthquake, cyclone, landslide, floods, explosion, fire and so on. Machinery Insurance provides protection against unforeseen and sudden physical damage to the insured machinery. Mobile Cellular Phones and Pager can be covered against the risk of fire, theft Terrorist activity, Riot and Strike.

Suppose a person takes policy for his car against the fire, accident and theft etc. One day the car meets with an accident, the policyholder will lodge a claim with the company for compensation. The insurance company will appoint surveyor to assess the loss in accident. The surveyors will then go and assess the extent of loss. On the basis of the report submitted by the surveyor, the insurance company will liable to settle the claim of insurance. The IRDA (Insurance Regulatory and Development Authority) clearly articulates that a claim will have to be paid within 30 days from the date of receipt. In case the claim wants an investigation then the insurance company has to complete the investigation not later than 6 months from the time of lodging the claim. Moreover, in case a claim is ready for payment but the payment cannot be made due to any reasons then such an amount will earn interest at the rate applicable to a savings bank account.

But some times the insurance companies serve late in settling the claim lodged by the insured and do not follow the rules provided in IRDA (Insurance Regulatory and Development Authority).

Role and Responsibilities of Surveyor in Insurance claim:

• Investigate and Assess: The car insurance surveyor investigates to assess and verify the damages and tries to quantify the loss that has occurred. The losses may have also been sustained by a third party, apart from the insured. At the completion the surveyor submits the report to the insurer.
• Conflict of interest: If the surveyor is in any way related to the incidence or the insured, they must declare it to the insurer prior to the assessment. Any personal relationship may hamper the neutrality of the surveyor and his report being rejected on the grounds of conflict of interest.
• Neutrality and Confidentiality: The surveyor must remain neutral in all cases and ensure to secure interest of both the parties and should not endanger the responsibility of the insurance company and interest of the insured. The surveyor also must not reveal any personal details of the insurer to anyone outside of the car insurance claim process.
• Thoroughness: The surveyor must do a thorough job and personally conduct the spot survey. After careful consideration of the causes of the incidence and the circumstances at which the incidence occurred, the surveyor can comment upon the insurance category. The surveyor should not miss out on any details pertaining to the incidence or the claim in the report that he or she submits.
• Provide immediate financial relief to the insured: Surveyor may recommend on Account payment up to 75%, wherever admission of liability is clearly established, to provide immediate financial relief to the insured.
• Damage prevention advice: The surveyor should share any applicable advice that may result in further loss prevention and share safety or security procedures.
• Point out discrepancy: The surveyor must point out discrepancy or ambiguities in the verbiage of the policy that he or she comes across.
• Suggest the Depreciation: The surveyor shall make recommendations based on any depreciation that may have happened in the car due to age and usage. The surveyor needs to determine the appropriate depreciation percentage and suggest the same in the report. They can also comment on the disposal or salvage as applicable.
• Maintain timelines: The surveyor needs to be appointed within 72 hours from the initiation of the claim according to the IRDA regulation of 2017. He must submit their report to the insurer and a copy to the insured, within 30 days of appointment. This can be extended by the Surveyor to a maximum of 6 months provided the insured has been informed about the same.

Insurance risk surveyors carry out surveys of buildings, machinery, transport and other sites or items that need to be insured. A key part of the work is to produce reports, to help an agent who sells insurance, decide on the terms and conditions of insurance policies. Insurance surveyors usually specialize in one of the following areas:

 fire and perils examining plans, construction and fire protection systems to assess the risks to a building and its contents accidents and liability assessing the possible risks to employees, customers and visitors to a building or site engineering insurance surveying mechanical and industrial plants, machinery and equipment for faults and risks burglary and theft inspecting business premises to check how goods are stored and improve security.

The insurance business operates on the principle of indemnity, that is, putting the customer in same position financially in which he was before the loss happened. As there is a tendency on the part of customer, to benefit out of an insurance transaction, the surveyor puts a check on that and assesses the loss. He then gives a report to the insurance company and based on the surveyor’s report the company will settle the claim.

Microinsurance is insurance with low premiums and low caps / coverage. In this definition, “micro” refers to the small financial transaction that each insurance policy generates. “General micro insurance product means health insurance contract, any contract covering the belongings, such as, hut, livestock or tools or instruments or any personal accident contract, either on individual or group basis, as per terms stated in Schedule-I appended to these regulations”; and “life microinsurance product” means any term insurance contract with or without return of premium, any endowment insurance contract or health insurance contract, with or without an accident benefit rider, either on individual or group basis, as per terms stated in Schedule-II appended to these regulations as those within defined (low) minimum and maximum caps. The Indian Insurance Regulatory and Development Authority (IRDAI) characterizes microinsurance by the product features. This is further complemented by their definition for microinsurance agents, those appointed by and acting for an insurer, for distribution of microinsurance products (and only those products).

As in much of the developing world, India has a large number of informal quasi insurance schemes: for example, households that pool rice. In addition to this, there are small schemes run by cooperatives, churches and NGOs that may pool their members’ incomes to create an insurance fund against a specific peril: for example, funeral costs. In a few countries, there is specific legislation to regulate these schemes, e.g., the South African Friendly Societies Act. In India no such law exists, and any individual or institution conducting insurance has to comply with the stipulations of, among other regulations, the 1938 Indian Insurance Act as amended.

Compliance with this Act requires, among other conditions, over $22 million of capital. All insurance schemes that do not comply with the Act operate outside it and in a legal vacuum. This includes all community-based schemes, and in-house insurance schemes run by MFIs 4, NGOs, and trade unions, in-house hospital schemes, etc. At present, the IRDA has not taken action against these schemes as the Authority does not conside r them to be ‘insurance’ according to its definition although the IRDA realizes that this legal vacuum could cause some problems.

Furthermore, regulated insurers have expressed to the IRDA their dissatisfaction at needing to compete against non-regulated insurers that do not bear any regulatory expenses. The situation may change if regulated insurers place sufficient pressure on the regulator to act. Two possible scenarios may occur: either the development of specific legislation to cater for microinsurers or active closure of non-regulated insurers. The authors believe the best approach is the former. As a number of unregulated microinsurance schemes are innovative and should be further studied, it could limit practical knowledge concerning microinsurance i f they were to be closed down. The interests of the customers of these schemes must be protected. The development of specific legislation to support and supervise 5 currently unregulated microinsurers is to be preferred.

If the IRDA decides to create spe cific regulation to support currently unregulated micro – insurance schemes, e.g., in-house schemes run by MFIs, donors could support its development.

Many unregulated insurance schemes are run by well -intentioned staff and confer positive social benefits in the areas in which they act. Indeed much of the innovation in microinsurance has emerged from unregulated microinsurers. Unregulated microinsurers may hold significant funds on behalf of low-income clients. The risk of working with these unregulated organizations is that there is no legal framework that ensures that they meet minimum prudential standards and other professional insurance qualifications. In addition, they do not have a statutory ombudsman or other feasible means of enforcing consumer rights.

It would be useful to help establish a consumer protection mechanism for clients of unregulated microinsurers.

Should requests of support come from NGOs running in -house insurance schemes, donors should consider that these schemes are unregulated an d carefully weigh up the costs and benefits of supporting such schemes.

Two central regulations have shaped microinsurance in India. The first is a set of regulations published in 2002 entitled the ‘Obligations of Insurers to Rural Social Sectors’. This is essentially a quota system. It compels insurers to sell a percentage of their insurance policies to de facto low-income clients. It was imposed directly on those new insurers that entered Indian insurance after the market was liberalized. The old public insurance monopolies had no specified quotas, but had to ensure that the amount of business done with the specified sectors “not be less than what had been recorded by them for the accounting year ended 31st March, 2002.”

Compliance with this Act requires, among other conditions, over $22 million of capital. All insurance schemes that do not comply with the Act operate outside it and in a legal vacuum. This includes all community-based schemes, and in-house insurance schemes run by MFIs 4, NGOs, and trade unions, in-house hospital schemes, etc. At present, the IRDA has not taken action against these schemes as the Authority does not conside r them to be ‘insurance’ according to its definition–although the IRDA realizes that this legal vacuum could cause some problems.

Furthermore, regulated insurers have expressed to the IRDA their dissatisfaction at needing to compete against non-regulated insurers that do not bear any regulatory expenses. The situation may change if regulated insurers place sufficient pressure on the regulator to act. Two possible scenarios may occur: either the development of specific legislation to cater for microinsurers or active closure of non-regulated insurers. The authors believe the best approach is the former. As a number of unregulated microinsurance schemes are innovative and should be further studied, it could limit practical knowledge concerning microinsurance i f they were to be closed down. The interests of the customers of these schemes must be protected. The development of specific legislation to support and supervise 5 currently unregulated microinsurers is to be preferred.

In India, it is often assumed that a microinsurance policy is simply a low-premium insurance policy. This is not so. There are a number of other important factors. Low-income clients often:

• Live in remote rural areas, requiring a different distribution channel to urban insurance products;
• Are often illiterate and unfamiliar with the concept of insurance, requiring new approaches to both marketing and contracting;
• Tend to face more risks than wealthier people do because they cannot afford the same defences. So, for example, on average they are more prone to illness because they do not eat as well, work under hazardous conditions and do not have regular medical check -ups;
• Have little experience of dealing with formal financial institutions, with the exception of the National Bank of Agriculture and Rural Development (NABARD) Linkage Banking programme;
• Often have higher policyholder transaction costs. Thus, a middle -class, urban, policyholder can send a completed claims form to an insurance company with relative ease: a quick call to the insurance company, receipt of the claims form by post, and then return of the form by post. For a low-income policy holder, submitting a claims form may require an expensive trip lasting a day to the nearest insurance office (thereby losing a day of work), obtaining a form and paying a typist to type up the claim, sending in the claim, followed by a long trip back home. Aside from the real costs of doing this, the low -income policyholder may be uncomfortable with the process; clerks and the other officials are often haughty with such low-income clients and can make clients feel ill at ease.
• Designing microinsurance policies requires intensive work and is not simply a question of reducing the price of existing insurance policies.

The characteristics of microinsurance clients in this market are:

• They typically live-in households of five or more, sharing income and access to financial services. This has important implicatio ns for access to microinsurance. One member, who has access to the insurer, can purchase policies on behalf of another household member.
• Agricultural labour is the main source of income. The implications of this are that much of the income is irregular and seasonal. Note, not all income derives from agriculture as households tend to pursue multiple livelihood activities with off-farm income as a component. Premium collection must take into account the particular variances in the seasonal income of this market;
• The group’s poverty means that they present a higher than average risk profile for many types of insurance, e.g., lack of sanitation, lack of access to clean water, hazardous working conditions and poor nutrition imply higher rates of death and disease.
• To offset this, small rural communities often have better internal surveillance than large urban sprawls, and so there may be opportunities for controlling fraud.
• Low levels of literacy imply that marketing needs to be done without written media: for example, film, radio and word of mouth.
• The rural poor often live in areas with inadequate road and telecommunications infrastructure, which increases the costs of selling and servicing policies. The other crucial implication of this is a massive gap in the specific socio-economic data on this target group, even such basic data as mortality rates in large areas of rural India. This makes rate-making very difficult;

The insurable perils would be:

• Loss of life: Most household members contribute to household income, except those too old, young or infirm to work;
• Critical illness: This has the dual impact of loss of earnings/household labour as well as treatment expenses;
• illness that reduces the working days and also creates expenses though at a smaller level than critical illness;
• Old age, because there are few income options during old age. In addition, there is some evidence of emerging social trends in which the obligation of the young to take care of the old is weakening;
• Risk of lowered agricultural productivity or returns, e.g., through low levels of rainfall or natural catastrophes;
• Asset loss especially those assets used to generate income.
• Among specific occupational groups (e.g., construction workers) accident at the workplace and disability.

More recently, IRDA has taken a holistic view of the features of ULIPs and addressed issues impacting the policyholders including the way such products are sold/bought; how ULIPs can be better financial instruments for providing risk coverage; how sale by unlicensed personnel and several other malpractices existing in this market may be curbed by plugging legal loopholes and tightening of the regulatory ambit; legal mandate to initiate direct penal action against Corporate Agents etc. IRDA therefore initiated exposure drafts covering these areas and received considerable feedback from various stakeholders on the issues put forth. The issues were then presented to and discussed with the members of the Insurance Advisory Committee as well as the members of the Board of the Authority. The following regulatory initiatives have been approved by the Authority during the Board meeting on 31.05.10.

Distribution channel related changes:

1. IRDA has amended the IRDA (Insurance Advertisements and Disclosure) Regulations to remove any scope for the involvement of unlicensed personnel/entities in the sale of insurance products.
2. IRDA has amended the IRDA (Licensing of Corporate Agents) Regulations to further tighten the Code of Conduct of corporate agents to ensure that the prospect does not deal with any unlicensed person. The Regulations have also been amended to ensure that there is no scope for any kind of remuneration other than commission where sale has been effected. This measure will reduce the expenses of the insurer, thereby lowering premiums to be paid by the policyholder.
3. Regulations for referrals: IRDA has also addressed the issue of Referrals by bringing out separate Regulations leaving no scope for misuse of the system. Companies which wish to share their database of customers with insurers would need to get approval from IRDA after having conformed to the requirements as laid down in the Regulations. Further, there are restrictions on the business activities of the referral company to ensure that there is no misuse of the system. For instance, the referral company shall not be in any business of extending loans and advances or accepting deposits etc though there are exceptions such as for Regional Rural Banks, Co-operative banks etc. The Regulations cast obligations on the referral company as well as the insurer including submission of data as and when called for by the Authority.

ULIP Structure Related Changes:

(1)  Lock in period increased to five years:

IRDA has increased the lock-in period for all Unit Linked Products from three years to five years, including top-up premiums, thereby making them long term financial instruments which basically provide risk protection.

 (2) Level Paying Premiums:

Further, all regular premium /limited premium ULIPs shall have uniform/level paying premiums. Any additional payments shall be treated as single premium for the purpose of insurance cover.

(3). Even Distribution of Charges:

Charges on ULIPs are mandated to be evenly distributed during the lock in period, to ensure that high front ending of expenses is eliminated.

(4). Minimum Premium Paying Term of Five Years:

All limited premium unit linked insurance products, other than single premium products shall have premium paying term of at least five years.

(5). Increase in Risk Component:

Further, all unit linked products, other than pension and annuity products shall provide a mortality cover or a health cover thereby increasing the risk cover component in such products.

(i) The minimum mortality cover should be as follows:

Minimum Sum assured for age at entry of below 45 years	Minimum Sum assured for age at entry of 45 years and above
Single Premium (SP) contracts:  125 percent of single premium.  Regular Premium (RP) including limited premium paying (LPP) contracts: 10 times the annualized premiums or (0.5 X T X annualized premium) whichever is higher.  At no time the death benefit shall be less than 105 percent of the total premiums (including top-ups) paid.	Single Premium (SP) contracts:   110 percent of single premium Regular Premium (RP) including limited premium paying (LPP) contracts: 7 times the annualized premiums or (0.25 X T X annualized premium) whichever is higher.  At no time the death benefit shall be less than 105 percent of the total premiums (including top-ups) paid.

(In case of whole life contracts, term (T) shall be taken as 70 minus age at entry)

(ii)The minimum health cover per annum should be as follows:

Minimum annual health cover for age at entry of below 45 years	Minimum annual health cover for age at entry of 45 years and above
Regular Premium (RP) contracts: 5 times the annualized premiums or Rs. 100,000 per annum  whichever is higher, At no time the annual health cover shall be less than 105 percent of the total premiums paid.	Regular Premium (RP) contracts: 5times the annualized premiums or Rs. 75,000 per annum whichever is higher.  At no time the annual health cover shall be less than 105 percent of the total premiums paid

(6). Minimum Guaranteed Return for Pension Products:

As regards pension products, all ULIP pension/annuity products shall offer a minimum guaranteed return of 4.5% per annum or as specified by IRDA from time to time. This will protect the life time savings for the pensioners, from any adverse fluctuations at the time of maturity.

(7). Rationalisation of Cap on Charges:

With a view to smoothening the cap on charges, the capping been rationalized to ensure that the difference in yield is capped from the 5^th year onwards. This will not only reduce the overall charges on these products, but also smoothen the charge structure for the policyholder.

Discontinuance of Charges:

IRDA has also addressed the issue of discontinuance of charges for surrender of ULIPs. The IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations brought out by IRDA in this regard ensure that policyholders do not get overcharged when they wish to discontinue their policies for any emergency cash requirement. The Regulations stipulate that an insurer shall recover only the incurred acquisition costs in the event of discontinuance of policy and that these charges are not excessive.  The discontinuance charges have been capped both as percentage of fund value and premium and also in absolute value. The Regulations also clearly define the Grace Period for different modes of premium payment. Upon discontinuance of a policy, a policyholder shall be entitled to exercise an option of either reviving the policy or completely withdrawing from the policy without any risk cover. Further, the regulations also enable IRDA to order refund of discontinuance charges in case they are found excessive on enquiry.

Pension schemes

PFRDA, as already mentioned, is the pension regulator and works towards its promotion and development. It is a Central autonomous body and is a quasi-government organisation and has executive, legislative and judicial powers similar to other financial sector regulators in India such as Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA) and, Insolvency and Bankruptcy Board of India (IBBI). PFRDA administers and regulates the National Pension System (NPS) and also administers Atal Pension Yojana.

Functions of PFRDA

• Regulate NPS and pension schemes to which PFRDA Act applies
• Establish, develop and regulate pension funds
• Protect the interest of pension fund subscribers
• Register and regulate intermediaries
• Approve schemes, terms and conditions, and laying down norms for management of corpus of pension funds
• Establish grievance redressal mechanism for subscribers
• Promote professional organisation connected with the pension system
• Settle disputes among intermediaries and also between intermediaries and subscribers
• Train intermediaries and educate subscribers and the general public with respect to pension, retirement savings and related issues
• Regulate the regulated assets
• Call for information, conduct inquiries, investigation and audit of intermediaries and other entities connected with pension funds

National Pension Scheme

NPS is a defined contribution pension system introduced by PFRDA whereby subscribers’ contributions are collected and accumulated in an individual pension account using various intermediaries. Under NPS, individual contributions are pooled together into a pension fund and is invested as per approved investment guidelines. Funds are generally invested in diversified portfolios consisting of government bonds, bills, corporate debentures, and shares, based on subscribers choice. Subscribers also have an option, at the time of exit, to purchase a life annuity by using accumulated pension fund. As already mentioned,, NPS is governed by PFRDA. PFRDA also established an NPS trust under Indian Trust Act, 1882 in order to manage assets and funds under NPS in the best interest of subscribers. NPS Trust is managed by a Board of Trustees appointed by PFRDA who is the settlor of the trust. Legal ownership of trust and funds is entrusted to the board of trustees. The Board consists of a Chairman and up to 5 members including the chairman, and the Board meets once in 3 calendar months. NPS Trust is responsible for executing individual pension accounts in its name with the subscriber, protecting the properties of NPS, safeguarding interest of NPS and its subscribers, approving various documents and reports including audited financials submitted by various intermediaries of NPS trust, monitoring and evaluating operations of such intermediaries, exit the subscriber from NPS etc.

4. Intermediaries, stakeholders of PFRDA, NPS Trust

PFRDA has appointed various intermediaries for the purpose of collection, management, recordkeeping and distribution of accumulations. Various intermediaries of PFRDA are as follows:

Pension Fund

Pension fund is one of the intermediaries which has been granted a certificate of registration by PFRDA as an authority for receiving contributions, investing them, and paying the subscribers in a specified manner.

Primary functions of the pension fund are as below:

• Collection of subscribers funds (subscribers who have given their choice of investment and subscribers who have chosen auto allocation of funds) from trustee bank for the purpose of investment
• Constitute investment committee and risk management committee
• Maintain proper books of accounts for pension fund schemes
• Declaration of Scheme NAV (Net Asset Value) at the end of each working day and communicating to Central Record Keeping Agency (CRA) for unitization in subscriber’s Permanent Retirement Account Number (PRAN)
• Reporting operational activities to NPS trust at regular intervals

Money laundering

Prevention of Money Laundering Act, 2002 is an Act of the Parliament of India enacted by the NDA government to prevent money-laundering and to provide for confiscation of property derived from money-laundering.[1][2] PMLA and the Rules notified there under came into force with effect from July 1, 2005. The Act and Rules notified there under impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information in prescribed form to Financial Intelligence Unit – India (FIU-IND).

The act was amended in the year 2005, 2009 and 2012.

On 24 Nov 2017, In a ruling in favour of citizens’ liberty, the Supreme Court has set aside a clause in the Prevention of Money Laundering Act, which made it virtually impossible for a person convicted to more than three years in jail to get bail if the public prosecutor opposed it. (Section 45 of the PMLA Act, 2002, provides that no person can be granted bail for any offence under the Act unless the public prosecutor, appointed by the government, gets a chance to oppose his bail. And should the public prosecutor choose to oppose bail, the court has to be convinced that the accused was not guilty of the crime and additionally that he/she was not likely to commit any offence while out on bail- a tall order by any count.) (It observed that the provision violates Articles 14 and 21 of the Indian Constitution).

The PMLA seeks to combat money laundering in India and has three main objectives:

• To prevent and control money laundering.
• To confiscate and seize the property obtained from the laundered money; and
• To deal with any other issue connected with money laundering in India.

Attachment: Prohibition of transfer, conversion, disposition or movement of property by an appropriate legal order.

Proceeds of crime: Any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence.

Money-laundering: Whosoever directly or indirectly attempts to indulge or assist other person or actually involved in any activity connected with the proceeds of crime and projecting it as untainted property.

Payment System: A system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them. It includes the systems enabling credit card, debit card, smart card, money transfer or similar operations.

KYC

This is one of the biggest issues with insurance companies and passing money through the company. Criminals who want to launder money could easily put the dirty money into the claim that they file with the insurance company, and then receive it back through a check when they cash out on the account.

While the vulnerability of having this happen in the insurance industry is not as high as in the financial industry, it is still one of the biggest issues that insurance companies are faced with.

Fake Accounts

There are a number of fake accounts that can happen with insurance. Not only because these accounts are not in an actual person’s name, but it is usually done through a broker or insurance agent, not just through clients who come to the insurance company.

Skimming: The premiums are stolen through the system before the payments are sent to the account.

Lapping: Premiums for the accounts are stolen and then covered up when they are credited to a fake account in the system that shows the premium of another customer.

Fictitious Policies: These policies are made up, do not actually exist and are paid for through the broker’s own money. These can be held with the insurance firm and are generally not looked into closely because they tend to look and act like a normal, regular insurance policy.

Stolen Identities

Identities within the system can be stolen by anyone who has access to the system. This information is protected, which makes it illegal to steal, but it happens. Those who have access to this information, or get into the accounts of the insurance company, have access to social security information, personal and financial information, and any other information that they may need to steal an identity.

False Insurance Claims

False insurance claims happen every day throughout the entire world. Those who claim that something happens to their loved one, to themselves, or to the property that they have insured, but it does not actually happen can collect on the amount that the insurance company might pay out to cover the costs they promised to pay.

This insurance amount varies depending on the amount of insurance you have on the item. However, many insurance companies are now looking into the claims more closely, as this is something that can cause a series of issues in the end.

Application Fraud

Those who put the information on the application to get the insurance coverage but lie on it are committing fraud. It is important that this information is double-checked when signing up for the claims and coverage, as those who are lying may be getting more coverage than they are supposed to be getting.

KYC refers to identity verification procedures used to ensure customers are who they say they are. KYC is also a part of AML regulations framework that is an umbrella term for the entire set of mechanisms deployed to protect against money laundering and financial crime. There are four different components that are used in this process for any company:

• Customer Acceptance Policies
• Customer Identification Procedures
• Monitoring Transactions
• Risk Management

Those who are looking to not only prevent insurance fraud but also streamline the customer onboarding process can look to provide better steps to the KYC processes that they should use within their company.

In the past, the KYC method was an error-prone, lengthy, and time-consuming process. On top of that, it wasn’t scalable at all, which is why it is important to look for an automated approach or solution.