Tag: Production & Total Quality Management BMS Notes

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.

Paying LIC premiums offline

Offline premiums for LIC policies can be paid in any of the below-mentioned ways:

1. NACH (National Automated Clearing House)

NACH means National Automated Clearing House and it is an electronic payment facility offered by the National Payments Corporation of India (NPCI). You would have to submit a NACH mandate form at the nearest LIC branch from which you have bought the policy. Your bank account number should be mentioned on the form. After the form is submitted, LIC would clear it with your bank. If your bank validates the mandate, the premium would be automatically debited from your bank account.

2. Bill Pay

You can register with your bank to pay LIC premiums directly from your bank account through Bill Pay facility. You can register for Bill Pay facility online or offline. After registration, you give your bank the authority to debit LIC premium from your bank account whenever it is due.

3. ATM

You can also pay your LIC premiums through the ATMs of specified banks. Axis Bank and Corporation Bank will allow you to pay premiums through their ATMs. Premiums for all types of LIC policies, except unit-linked plans, health plans and online term plans, can be paid through ATM. Monthly premiums and premiums payable under the Salary Saving Scheme would, however, not be accepted at ATMs. To pay premiums through ATMs, you would have to register for the same with your bank and the facility is available only to the customers of Axis Bank and Corporation Bank.

Paying LIC premium online

Since digital premium payment modes have become popular, LIC allows you to pay its premiums online. LIC online payment can be done through the following means:

1. LIC website

The website of the company allows you to pay LIC premium online with the help of a few clicks of your mouse. You can pay the premium directly without registering as a customer. Alternatively, if you are registered for LIC’s online services, you can pay through the company’s customer portal. The steps for payment through both of these means are as follows:

1. Without logging in (paying directly)

1. Visit https://www.licindia.in/Home/Pay-Premium-Online and choose ‘Pay Direct (Without Login)’
2. Select the type of premium payment that you want to do, i.e. whether you want to pay the renewal premium or the advance premium for the policy

• Provide your policy number, date of birth, mobile number, email id and amount of premium

1. Click on ‘I Agree’ and submit the form to pay the premium online
   2. Through Customer Portal
2. Enter in your valid User ID, email ID or mobile number registered with the policy
3. Enter in your online account password
4. Give your date of birth and sign in to your account
5. You would be able to check the policies that you have bought
6. Choose the policy whose premium you want to pay and pay the premium online

You can pay premiums through your debit card, credit card, mobile wallet, UPI platform or net banking facility offered by your bank.

2. Authorized Banks

LIC has partnered up with Axis Bank, City Union Bank and IDBI Bank to serve as authorized premium collection points for LIC policyholders. You can, therefore, visit the nearest branch of any of these authorized banks across India and pay your LIC premiums on their counter through cash or cheque. If you are paying through cheque, the cheque should be drawn on the bank. Once the premium is paid, the bank would issue a premium receipt which is a valid proof of premium payment. LIC would not issue any other receipt as the bank issued receipt would be sufficient. You can pay premiums for all types of LIC policies except unit-linked plans, health insurance plans and online term plans. The premium can be paid up to 30 days in advance. However, monthly and quarterly premiums would not be accepted if the policy is maturing after the premium has been paid. No additional charges are levied by the banks if you pay your LIC premiums through them.

3. Franchisees

LIC has various franchises which allow you to do LIC online payment of premiums. These franchisees are as follows:

4. AP Online
5. MP online
6. Instapay
7. PayTM
8. Suvidha Infoserve
9. CSC

To pay premiums through any of these franchisees you would have to deposit cash. Premiums cannot currently be paid through cheques. As soon as you deposit the premium, the cash collection counter would issue a signed premium receipt which would be a valid proof of premium payment against your LIC policy. Premiums of all policies can be paid up to 30 days in advance. However, premiums for unit-linked plans, online term plans and health plans are not accepted by these franchisees. No additional cost is applied on a collection of the premium by these franchisees making it easy for you to do LIC online payment of your policy premiums.

4. Merchant

Various merchants are also tied up with LIC for LIC online payment facility. These merchants are as follows:

1. Empowered agents who collect premiums through specified premium points
2. Senior Business Associates (SBAs) and LIC Associates who collect premiums through Life Plus Offices
3. Chief Organizers
4. Retired LIC employees

These merchants are allowed a user ID and password which connects them with LIC portal. Using the portal connection, they can collect premiums on behalf of LIC and log the premiums with the company. After collecting premiums up to a predefined limit (the limit is defined by the marketing department of LIC), the merchants deposit the amount in Axis Bank or any branch of LIC. They can also deposit cash invoice online through LIC’s portal through the net banking facility of their bank account. Payment can be done through cash or cheque. You can pay the premiums for all types of policies except online term plans. Upon receiving the premium, the merchants issue a signed premium receipt which serves as a valid proof of premium payment.

Benefits of LIC online payment

By allowing online payment facility for premiums, LIC has offered its customers a host of benefits. These benefits are as follows:

• Customers can pay the premium even on the move as they don’t have to visit the branch of the company for premium payment
• Online premiums are credited almost instantly in real time-saving time for policyholders
• Even if the payment is made through alternate channels like merchants, franchisees, authorized banks, etc. no additional charges are levied which make the payment easy and convenient for the policyholder
• Given the different means of LIC online payment, you can choose any mode which is suitable for you and gets the job done quicker
• You immediately receive the premium receipt which you can use as proof in case of any type of premium payment-related disputes
• The chances of policy lapse reduce as you are given various options of paying premiums. Thus, you can easily continue your coverage and enjoy the benefits the policy has to offer

Grace period for premium payment

Once the policy is issued, you are required to pay the premiums on each due date. Premiums can be paid annually, half-yearly, monthly or quarterly and the due date is fixed accordingly. However, you might miss a premium payment due to any reason. Some common reasons why premium payments are missed include the following:

• Forgetting the due date
• Paying the premium very late on the due date which is not credited within the due date
• Travelling outside the country when the premium is due
• Financial crunch, etc.

If the premiums are not paid, the policy lapses and the coverage stops. However, LIC offers its customers the benefit of a grace period to pay the premium due. During the grace period, the policy does not stop. You get full insurance coverage.

Grace period means an extra period allowed to pay the outstanding premium. The grace period allowed under LIC policies is 30 days if you pay the premiums annually, quarterly or half-yearly. However, if the premiums are paid monthly, the grace period allowed is 15 days. Here are some of the aspects of grace period which you should know:

• The period starts from the next day of the premium due date. This means that if the due date is15th of September, the grace period would begin from 16th of September
• Usually, one month is allowed as a grace period. Thus, the number of days of grace can be 30 or 31
• If the insured dies during the grace period and the premiums have not been paid, the outstanding premium would be deducted from the claim amount and the death benefit would be paid
• Participating policies would earn a bonus during the grace period even if the premium is outstanding because, during the grace period, the policy does not lapse
• If the premiums are not paid even during the grace period, the policy would lapse

The Insurance Regulatory and Development Authority of India (IRDAI) has introduced several regulatory changes to health insurance. Insurance Regulatory and Development Authority of India (IRDAI) has reviewed IRDA (Health Insurance) Regulations, 2013 and notified IRDAI (Health Insurance) Regulations, 2016 on 18th July 2016. The Authority prescribed constitution of a Product Management Committee (PMC) for General and Health Insurers, which is an internal oversight mechanism within the company. PMC shall approve roll-out of Group Insurance products under Use and File procedure and also withdrawal of products. Prior approval of IRDAI is dispensed for Group Health Insurance Products and for withdrawal of the products of General and Health Insurers. The revised regulations increase the transparency and flexibility in withdrawal and rolling out of products.

Key Changes of IRDAI (Health Insurance) Regulations, 2016

1. Under Health plus Life Combi Product, Combination of any Life Insurance cover offered by a life insurer and a Health Insurance cover offered by General Insurer or Health Insurer is allowed.
2. General Insurers or Health Insurers are permitted to launch pilot products for a period not exceeding five years. At the end of the five-year period from the date of launch of the product, product shall be continued either as a regular product or shall be withdrawn.
3. Life Insurers may offer long term Individual Health insurance products i.e., for term of 5 years or more. Life insurer may not offer indemnity based products.
4. Credit Linked Group Health/Personal Accident policies can be offered for a term extended up-to the loan period not exceeding five years by all Insurers.
5. Any Health Insurance Product offered by Insurers shall not be marketed or offered unless it is filed with the Authority as per the Product Filing Guidelines. Product Filing Guidelines specified Use and File norms for Group Health Insurance Products offered by General and Health Insurers.
6. Product Management Committee (PMC) of General and Health Insurers can decide on withdrawal of Health Product by complying with the extant Guidelines prescribed in Product Filing Guidelines, 2016.
7. Review of product performance after five years to seek fresh approval stands deleted.
8. Norms specified for Group Insurance.
9. General and Health Insurers may devise mechanisms or incentives to reward policyholders for wellness and preventive habits. It is further specified that the underwriting policy shall also cover the approach and aspects relating to offering health insurance coverage not only to standard lives but also to sub-standard lives. Denial of proposal shall be in writing and shall be the last resort.
10. Insurers are now permitted to use the same proposal form without any change, for any number of their products. Norms are incorporated to protect the privacy of the policyholders.
11. Restriction on allowing Cumulative Bonus to benefit based products stands deleted.
12. General and Health Insurers to endeavour to provide coverage for one or more systems under AYUSH. Earlier exemption to Benefit based products stands deleted.
13. Norms on Wellness & Preventive Aspects of health insurance products are specified.
14. The nomenclature of ‘Standard List of Excluded Expenses in Hospitalization Indemnity policies’ stands changed to ‘Items for which optional cover may be offered by Insurers’ in order to enable the Insurers cover these generally excluded items at their discretion.
15. Policyholder shall have the right to require a settlement of his/her claim in terms of any of his/her policies.
16. No fresh underwriting at renewal stage where there is no change in Sum Insured offered. Where there is an improvement in the risk profile, the Insurer may endeavour to recognise that for removal of loadings at the point of renewal.
17. Earlier Regulatory provision of HIR, 2013 [Reg. No. 8(d)(iv)] on claim event falling during two policy periods stands deleted. No claim shall be closed in the books of the Insurer without proper disposal as per policy terms and conditions.
18. The following other disclosures are to be made:

• Product-wise or location or geography-wise particulars of the TPAs
• Product-wise cashless services offered
• Geography-wise list of Network Providers
• Specific disclosures in case of Pilot Products

19. The Insurer may provide a permanent Identity card (Smart Cards) to avail cashless facility which is valid as long as the policy is renewed with the company.
20. Authority specified certain Standards and benchmarks for hospitals in the provider network through Guidelines.
21. Where a claim is denied or repudiated, the communication shall be made only by the Insurer. Reasons for the denial or repudiation to be specified referring to corresponding policy conditions. Details of grievance redressal procedures available with the Company and with the Insurance Ombudsman to be furnished
22. Insurers and TPAs should put in place systems and procedures to identify, monitor and mitigate frauds.

Health plus life combo products

The ‘Combi Products’ may be promoted by all Life Insurance and Non-Life Insurance Companies.

The ‘Combi Product’ shall be the combination of Pure Term Life Insurance cover offered by life insurance companies and Health Insurance cover offered by non life insurance companies. Health Insurance for the purpose of this product class means effecting of contracts which exclusively provide sickness benefits or medical, surgical or hospital expense benefits, whether in-patient or outpatient, on an indemnity or reimbursement basis.

• The Policy Term and Sum Assured limits are as proposed and cleared under File and Use norms.
• Riders / Add-on covers may be offered subject to File and Use clearance
• The premium components of both risks are to be separately identifiable and disclosed to the policyholders at both pre-sale stage and post-sale stage and in all documents like policy document, sales literature etc.
• The product may be offered both as individual insurance policy and on group insurance basis. However in respect of health insurance floater policies, the pure term life insurance coverage is allowed on the life of one of the earning members of the family who is also the proposer on health insurance policy subject to insurable interest and other applicable underwriting norms of respective insurers.
• The integrated premium amount of the ‘Combi Product’ shall be basis for reckoning the threshold limit / applicability of extant Regulations, guidelines and circulars etc. issued by the Authority or any other statutory body.
• Commission and Claim payouts in respect of ‘Combi Products’ shall be by respective insurers only.
• ‘Combi product’ shall have a free look option as outlined in Regulation (6) (2) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002. Free Look option is to be applied to the ‘Combi Product’ as a whole.
• The Health portion of the ‘Combi Product’ shall entitle its renewability at the option of policy holder to have an independent / standalone health insurance policy from Non-Life Insurance Company of the respective ‘Combi Product’.

Lead Insurer: As two insurance companies are involved in offering the ‘Combi Product’ one of the insurance companies may be mutually agreed to act as a lead insurer in respect of each ‘Combi Product’ marketed with agreed terms, conditions and considerations. The Lead Insurer for the purpose of these guidelines is the insurance company mutually agreed by both the insurers to play a critical role in facilitating the policy service as a contact point for rendering various services as required in these guidelines. It is envisaged that the lead insurer would play a major role in facilitating underwriting and policy service.

• Underwriting: Under the ‘Combi Product’, underwriting of respective portion of risk shall be underwritten by respective insurance companies, that is; Life Insurance risk shall be underwritten by Life Insurance Company and the Health Insurance portion of risk to be underwritten by Non-Life Insurance Company.
• File and Use: It is expected that the common strength of both insurers are leveraged and consequent benefits are passed on to policyholders under this product class. Hence, to examine this aspect it is proposed that both the independent products are integrated as a single product and filed with a common brand name. Both the insurance companies are advised to carry out the cost benefit analysis from the perspective of common policyholders before filing the product. Insurers may also utilize the existing insurance products ‘as it is without modifications’ that are already cleared under the extant File and Use norms. However the ‘Combi Product’ is to be filed at the stage of integrating for getting File and Use approval irrespective of the earlier approval to either of products. ‘Combi Product’ filing shall follow the File and Use guidelines in vogue and all such guidelines that would be issued from time to time. ‘Combi Product’ is to be filed with Actuarial Department of IRDA in File and Use formats that are in vogue.

The business of general insurance was nationalised through The General Insurance (Emergency) Provisions Ordinance promulgated on 13 May 1971 and thereby the business being carried on by 107 entities was consolidated and restructured into four companies namely The New India Assurance Company Limited, Bombay, United India Fire & General Insurance Company Limited, Madras, Oriental Fire & General Insurance Company Limited, Bombay and National Insurance Company Limited, Calcutta (New India Assurance Co. Ltd., United India Insurance Co. Ltd., The Oriental Insurance Co. Ltd., and National Insurance Company Co. Ltd. respectively).

The General Insurance Business (Nationalisation) Act, 1972 (GIBNA) that followed paved the way for the Government to take over ownership of these businesses. Accordingly, GIC was incorporated on 22 November 1972 as a private company under Companies Act, 1956[4] in Bombay and received its Certificate for Commencement of Business on 1 January 1973.

GIC’s stated role was to function as the holding company of the four companies, and superintend, control and carry on the business of General insurance on behalf of the Government of India.

The first Chairman of GIC was A Rajagopalan, an Actuary and an officer of the Indian Administrative Service (IAS). M K Venkateshan and S K Desai were appointed the two Managing Directors of GIC.

On 1 January 1973, GIC was notified as the reinsurer under Section 101 A of Insurance Act, 1938,[5] making it the Indian reinsurer for receiving obligatory cessions, a role hitherto played by two companies called India Reinsurance Corporation Limited (India Re) and Indian Guarantee and General Insurance Company Limited (Indian Guarantee).

GIC was reborn as a pure reinsurance company in November, 2000. It was re-notified as ‘Indian reinsurer’ under Insurance Act, 1938 and continued to receive obligatory cessions from direct insurers. It continued writing foreign inward reinsurance business purely on its own account from 1 April 2002.

With effect from 21 March 2003, the four subsidiaries were delinked from GIC by an administrative order from the Ministry of Finance and became directly owned by the Government.

An Act to provide for the acquisition and transfer of shares of Indian insurance companies and undertakings of other existing insurers in order to serve better the needs of the economy by securing the development of general insurance business in the best interests of the community and to ensure that the operation of the economic system does not result in the concentration of wealth to the common detriment, for the regulation and control of such business and for matters connected therewith or incidental thereto.

Effect of transfer of undertakings.

(1) The undertaking of every such existing insurer as is referred to in section 5 shall be deemed to include all assets, rights, powers, authorities and privileges and all property, movable and immovable, cash balances, reserve funds, investments and all other rights and interests in, or arising out of, such property as were immediately before the appointed day in the ownership, possession, power or control of such existing insurer in relation to the undertaking, whether within or without India, and all books of accounts, registers, records and all other documents of whatever nature relating thereto, and shall also be deemed to include all borrowings, liabilities and obligations of whatever kind then subsisting of the existing insurer in relation to the undertaking.

(2) Unless otherwise expressly provided by this Act, all deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments of whatever nature subsisting or having effect immediately before the appointed day and to which any such insurer as is referred to in section 5 is a party or which are in favour of such existing insurer shall be of as full force and effect against or in favour of the Indian insurance company in which the undertaking or the part to which the instrument relates has vested and may be enforced or acted upon as fully and effectually as if, in the place of the existing insurer referred to in section 5, the Indian insurance company in which the undertaking or any part thereof has vested had been a party thereto, or as if they had been issued in its favour.

(3) If, on the appointed day, any suit, appeal or other proceeding of whatever nature in relation to any business of the undertaking which has been transferred under section 5 is pending by or against any such existing insurer as is referred to in that section, the same shall not abate, be discontinued or be in any way prejudicially affected.

The objectives of this Code will be pursued having regard to the law, and acknowledging that a contract of insurance is a contract based on the utmost good faith.

Assignment

A policy of insurance is a contract of a personal nature and hence cannot be transferred by the insured without the consent of the insurer. In the case of life and personal accident insurances, the subject matter of the insurance is a life and is not amenable to transfer. An assignment of the policy in such cases is just an assignment of the right to receive the proceeds of the policy.

The Insurance Act lays down the mode of assignment and transfer of a life insurance policy. An assignment or transfer may be made only on satisfaction of the following conditions:

(i) An endorsement upon the policy itself or by a separate instrument;

(ii) The endorsement or instrument should be signed by the transferor or his agent and should be attested by at least one witness;

(iii) It should specifically set forth the fact of transfer or assignment.

Nomination

A policy holder of a life insurance policy on his own life has the right, either while effecting the policy or before it matures, to nominate a person to whom the money secured by the policy should be paid in the event of the death of the policy holder. An insurer is not bound by such nomination unless it is brought to his notice, endorsed on the policy and registered in the records of the policy. It is pertinent to note that a transfer of assignment of a policy automatically leads to cancellation of a nomination. Additionally, these provisions relating to nomination under the Insurance Act do not 16 apply to any policies under the Married Women’s Property Act, 1874.

Tax implications

Insurance companies and insurance agents, in India, are subject to tax for the premiums and the commissions received by them respectively, under the Indian Income Tax Act, 1963 (“Income Tax Act”).

The Income Tax Act deals with the computation of the income of the following insurance companies:

• Companies carrying on life insurance business which are resident in India;
• Companies carrying on any other kind of insurance business, which are resident in India; and
• Non-resident persons carrying on the business of insurance in India through a branch.

Taxation on Insurance Business

The Income Tax Act provides that the income tax payable on the profits and gains arising from the life insurance business will be calculated at the rate of 12.5% of such prof its and gains. An insurance company is required to deposit an amount equal to one-third of the tax, in a Social Security Fund as notified by the Central Government. Further, the insurance company is required to deposit an amount of not less than 2.5% of the profits and gains of the insurance business in such a Security Fund. Where the insurance company has deposited such an amount, the income tax payable by the insurance company will be reduced by that amount and the amount to be deposited in the Security Fund would also be calculated on the income tax so reduced.

The term ‘Yogakshemam Bahamayam’ in our ancient texts. This suggests that a form of “community insurance” was prevalent around 1000 BC and practised by the Aryans. In modern times, Triton Insurance Co. Ltd. was the first general insurance company to be established in India in 1850. The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880. Thereafter, many players emerged. By 1956, there were around 240 private life insurers and more than 100 general insurers. The Government of India, concerned by the unethical standards adopted by some players against the consumers, nationalised the industry in two phases in 1956 (life) and in 1972 (non-life). The government brought together life insurers under one nationalised monopoly corporation and LIC was born. The general insurance business remained in the private sector till 1972. Then, nearly 107 insurers were amalgamated and grouped into four companies- National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. They were subsidiaries of the General Insurance Company (GIC).

The modern form of Life Insurance came to India from England in the year 1818. Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance company on Indian Soil.

The insurance companies established during that period were brought up with the purpose of looking after the needs of European community and Indian natives were not being insured by these companies. However, later with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But Indian lives were being treated as sub-standard lives and heavy extra premiums were being charged on them.

Bombay Mutual Life Assurance Society heralded the birth of first Indian life insurance company in the year 1870, and covered Indian lives at normal rates. Bharat Insurance Company (1896) was also one of such companies inspired by nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance companies such as The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore.

Life Insurance Companies Act, 1912

In the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary. But the Act discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage.

Insurance Act 1938

From 44 companies with total business-in-force as Rs.22.44 Crores, it rose to 176 companies with total business-in-force as Rs.298 Crores in 1938. With a view to protect the interests of the Indian Insurance companies, the earlier legislation was amended with the enactment of the Insurance Act 1938, which consists comprehensive provisions for effective control over the activities of insurers or insurance organizations.

The Insurance Act 1938 was the first legislation governing the life insurance and non-life insurance and to provide strict state control over insurance business.

Birth of Life Insurance Corporation of India

On 19th of January, 1956, that life insurance in India was nationalized. About 154 Indian insurance companies, 16 non-Indian companies and 75 provident were operating in India at the time of nationalization. Nationalization was accomplished in two stages; initially the management of the companies was taken over by means of an Ordinance, and later, the ownership too by means of a comprehensive bill.

The Parliament of India passed the Life Insurance Corporation Act on June 1956, and the Life Insurance Corporation of India was created on September 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.

The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

History of General (non-life) Insurance

The history of general insurance dates back to the Industrial Revolution in the west during the 17th century. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd. at Kolkata in the year 1850 by the Britishers. In 1907, the Indian Mercantile Insurance Ltd. was established and was the first company to transact all classes of general insurance business.

In 1957, General Insurance Council (GIC), a wing of the Insurance Associaton of India was established The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices across Non-Life or General insurance sector.

In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also established in the same year.

With the passing of the General Insurance Business (Nationalization) Act in 1972, general insurance business was nationalized. A total of 107 insurers were amalgamated and grouped into four companies namely National Insurance Company Ltd. at Kolkata, the New India Assurance Company Ltd. at Mumbai, the Oriental Insurance Company Ltd at New Delhi and the United India Insurance Company Ltd at Chennai.

Malhotra Committee

The Government set up a committee in 1993 under the chairmanship of R.N. Malhotra, former Governor of RBI (Reserve Bank of India), to propose recommendations for initiation and implementation of reforms in the Indian insurance sector. The objective of setting up this committee was to complement the pace of reforms initiated in the financial sector.

The aforesaid committee submitted its report in 1994 wherein it was recommended that the private sector be permitted to enter the Indian insurance sector. It also recommended the participation of foreign companies by allowing them to enter into an MOU (Memorandum of Understanding) by floating Indian companies, preferably a joint venture with Indian partners.

Birth of IRDA

Following the recommendations of the Malhotra Committee report, the Insurance Regulatory and Development Authority (IRDA) Act, in 1999 was passed by the Indian Parliament.

The IRDA opened up the Indian insurance market in August 2000 by inviting application for registration proposals. Foreign companies were allowed entry into Indian insurance sector with an upper ceiling on ownership of up to 26% participation. The IRDA has been granted the powers to frame regulations under Section 114A of the Insurance Act, 1938.

From 2000 onwards, IRDA has framed various regulations for carrying on insurance business to protection of Indian policyholders’ interests including the registration of Life & Non-Life (General) Insurance companies.

Insurance: A thriving sector

At present there are 28 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in the country.

The insurance sector is a massive one and is thriving at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the country’s GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country.