Relevant for December 2019 Session OnwardsSTUDY MATERIALPROFESSIONAL PROGRAMMEINSURANCE - LAW& PRACTICEMODULE 3ELECTIVE PAPER 9.2
THE INSTITUTE OF COMPANY SECRETARIES OF INDIATIMING OF HEADQUARTERSMonday to FridayOffice Timings – 9.00 A.M. to 5.30 P.M.Public Dealing TimingsWithout financial transactions – 9.30 A.M. to 5.00 P.M.With financial transactions – 9.30 A.M. to 4.00 [email protected] Typesetting by AARUSHI GRAPHICS, Prashant Vihar, New DelhiPrinted at M. P. Printers/June 2019(ii)
(iii)PROFESSIONAL PROGRAMMEINSURANCE – LAW & PRACTICEThe world we live in is full of uncertainties and risks. Individuals, families, businesses, propertiesand assets are exposed to different types and levels of risks. These include risk of losses of life,health, assets, property, etc. While it is not always possible to prevent unwanted events fromoccurring, financial world has developed products that protect individuals and businesses againstsuch losses by compensating them with financial resources. Insurance is a financial product thatreduces or eliminates the cost of loss or effect of loss caused by different types of risks. In order tosafeguarding the interest of people from loss and uncertainty, Insurance has evolved as a processof indemnifying the people against the loss and uncertainity. It may be described as a social deviceto reduce or eliminate risk of loss to life and property.Apart from protecting individuals and businesses from many kinds of potential risks, Insurancecontributes a lot to the general economic growth of the society by provides stability to thefunctioning of process. The insurance industries develop financial institutions and reduceuncertainties by improving financial resources. It also provides stability to the functioning ofbusinesses and generating long-term financial resources for the industrial projects. Among otherthings, Insurance sector also encourages the virtue of savings among individuals and generatesemployments for millions, especially in a country like India, where savings and employment areimportant.Considering the various recommences the insurance industry provides to the society, economy,businesses and people on one side and considering the capital invested by the people by thepeople through the instrument of insurance on other side, it is mandated to regulate insurancesector.Though since ages, regulation exists for ensuring the maximum utilization of the insurance sectorfor the benefit of the society and for avoiding the probability of misuse of the insurance as ainstrument related to finance and capital, yet the privatization of insurance sector in early 90s hasmade it compulsory to have stricter standards of laws and regulation over insurance sector.In order to realize the benefits of insurance, one should be through in adhering the compliancesrelated to insurance and related products.Considering the significance of the Insurance Sector for the Company Secretaries as a specializedarea of their expertise and also the plethora of laws and regulation governing the Insurance sectorin India, this Study material aims as guiding the consolidated understanding of Insurance, thesector, and the laws and practices related to insurance industry in India.The legislative changes made up to June, 2019 have been incorporated in the study material.However, on one hand, where the subject of Intellectual Property Rights: Laws and Practice isinherently fundamental to understand the basics and advanced principles related to IntellectualProperty Rights and on the similar end it is subject to the refinement of Legislation, Rules andRegulations. Henceforth, it becomes necessary for every student to constantly update withlegislative changes made as well as judicial pronouncements rendered from time to time by
(iv)referring to the Institute’s monthly journal ‘Chartered Secretary’, E-Bulletin ‘Student CompanySecretary’ as well as other legal and professional journals along with the aid of reference booksrelated to the subject.In the event of any doubt, students may write to the Directorate of Professional Development,Perspective Planning and Studies of the Institute for clarification.Although due care has been taken in publishing this study material, the possibility of errors,omissions and /or discrepancies cannot be rules out. This publication is released with anunderstanding that the Institute shall not be responsible for any errors, omissions and /ordiscrepancies or any action taken in that behalf.Should there be any discrepancies, errors or omissions noted in the study material, the Instituteshall be obliged, if the same is brought to its notice for issue of corrigendum in the e-Bulletin‘Student Company Secretary’.
(v)PROFESSIONAL PROGRAMMEModule 3Paper 9.2INSURANCE – LAW & PRACTICE (Max Marks 100)SYLLABUSObjectiveTo impart knowledge on insurance related concepts to the students with the aim of broadening professionalopportunities in the arena of insurance.Detailed Contents1. Concept of Insurance: Risk Management; The Concept of Insurance and its Evolution; The Business ofInsurance; The Insurance Market; Insurance Customers; The Insurance Contract; Insurance Terminology;Life Assurance products; General Insurance Products.2. Regulatory Framework of Insurance Business in India: Development of Insurance Legislation in Indiaand Insurance Act 1938; Insurance Regulatory and Development Authority of India (IRDAI) Functions andInsurance Councils; IRDAI and its Licensing Functions; Policy Holders Rights of Assignment, Nominationand Transfer; Protection of Policy Holders Interest; Dispute Resolution Mechanism; Financial RegulatoryAspects of Solvency Margin and Investments; International Trends In Insurance Regulation.3. Life Insurance Practices: Life Insurance Organization; Premiums and Bonuses; Plans of Lifeinsurance; Annuities; Group Insurance; Linked Life Insurance Policies; Applications and Acceptance; PolicyDocuments; Premium payment, Life Insurance Corporation (L.I.C) of India; Policy Lapse and Revival;Assignment, Nomination and Surrender of policy; Policy Claims.4. Life Insurance Underwriting: Underwriting: Structure and Process; Financial Underwriting;Occupational, A vocational and Residential Risks; Reinsurance; Blood Disorders; Nervous System; DiabetesMellitus; Thyroid diseases; Urinary system; The Respiratory System; Gastrointestinal (Digestive) System;Cardiovascular system; Special Senses: Disorders of the eyes, ears and nose; Law of contract; LifeInsurance Contract; Protection of Interest of Consumers.5. Applications of Life Insurance: Financial Planning and Life Insurance; Life Insurance Planning; HealthPolicies; Pensions and Annuities; Takaful (Islamic Insurance).6. Life Insurance Finance: Accounting Procedures - Premium Accounting; Accounting Procedures–Disbursements; Accounting Procedure: Expenses of Management; Investments; Final Accounts, RevenueAccount and Balance Sheet; Budget and Budgetary Control; Innovative Concepts in Financial Reporting;Accounting Standard Applicable to Life Insurance Companies; Financial Analysis; Management Environmentin India; Application of Financial Management Concepts in Insurance Industry; Taxation New Syllabus forExecutive and Profess ional Programme S (Current Scenario); Anti-Money Laundering Guidelines and PMLAct.; Compliance with IFRS (Involving Broader Concepts).
(vi)7. Health Insurance: Introduction to Health Insurance and the Health system in India; Health FinancingModels and Health Financing in India; Health Insurance Products in India; Health Insurance Underwriting;Health Insurance Policy Forms and Clauses; Health Insurance Data, Pricing & Reserving; Regulatory andlegal aspects of health insurance; Customer service in health insurance; Health Insurance fraud;Reinsurance.8. General Insurance - Practices and Procedures: Introduction to General Insurance; Policy Documentsand forms; Underwriting; Ratings & Premiums; Claims; Insurance Reserves & Accounting.9. Fire & Consequential Loss Insurance: Basic Principles and the Fire Policy; Add On Covers and SpecialPolicies; Fire Hazards and Fire Prevention; Erstwhile Tariff – Rules and Rating; Documents; Underwriting;Claims – Legal & Procedural Aspects; Consequential Loss Insurance; Specialised Policies and OverseasPractice.10. Marine Insurance: Basic Concepts; Fundamental Principles; Underwriting; Types of Covers; MarineClaims; Marine Recoveries; Role of Banker’s in marine Insurance; Loss Prevention, Reinsurance, MaritimeFrauds.11. Agricultural Insurance: Glossary of Terms for Agriculture Insurance; Introduction to Indian Agriculture;Risk in Agriculture; History of Crop Insurance in India; Crop Insurance Design Considerations; CropInsurance - Yield Index based Underwriting and Claims; Weather Based Crop Insurance; Traditional CropInsurance: Underwriting and Claims; Agriculture Insurance in Other Countries; Livestock / Cattle Wealth inIndian Economy; Types of Cattle & Buffaloes; Cattle Insurance in India; Poultry Insurance in India;Miscellaneous Agriculture Insurance Schemes; Agriculture Reinsurance.12. Motor Insurance: Introduction to Motor Insurance; Marketing in Motor Insurance; Type of motorvehicles, documents and policies; Underwriting in Motor Insurance; Motor Insurance Claims; IT Applicationsin Motor Insurance; Consumer Delight; Third Party Liability Insurance; Procedures For Filing And Defending;Quantum Fixation; Fraud Management and Internal Audit; Legal aspects of Third party claims; ImportantDecisions on Motor Vehicle Act.13. Liability Insurance: Introduction to Liability Insurance; Legal Background; Liability Underwriting;Statutory Liability; General Public Liability (Industrial/Non-industrial Risks); Products Liability Insurance;Professional Indemnity Insurance; Commercial General Liability; Directors and Officers Liability; OtherPolicies & Overseas Practices; Reinsurance.14. Aviation Insurance: Introduction; Aviation Insurance Covers; Underwriting-General Aviation;Underwriting Airlines; Underwriting-Aerospace; Aviation Laws; Aviation Claims; Aviation Finance.15. Risk Management: Risk and Theory of Probability; Risk Management Scope and Objectives; Buildingup an Effective Risk Management Programme; Important Steps in Risk Management Decision MakingProcess; Alternative Risk Management; Enterprise Risk Management; Business Continuity Management andDisaster/ Emergency / Catastrophe Recovery Planning; Loss Exposures for Major Classes; RiskManagement Checklists.16. Corporate Governance for Insurance Companies.
(vii)PROFESSIONAL PROGRAMMELESSON WISE SUMMARYINSURANCE LAW & PRACTICELesson 1 - Concept of InsuranceInsurance is form of contract or an arrangement where one party agrees in return for a consideration to payan agreed amount of money to another party to make good the loss, damage or injury to something of valuein which the insured has an interest. Being a contract of indemnity, it is based on the principle of utmost goodfaith. In today’s world, insurance companies offer retail insurance policies of varied nature including life,health, fire, marine, etc. Individuals purchase such policies either in their individual capacity or the employeefriendly organizations may extend such cover as perks of the employment.Lesson 2 - Regulatory Framework of Insurance Business in IndiaRegulatory Framework of Insurance Business in India: The process of re-opening of the sector had begun inthe early 1990s and the last decade and more has seen it been opened up substantially. In 1993, theGovernment set up a committee under the chairmanship of R N Malhotra, former Governor of RBI, topropose recommendations for reforms in the insurance sector. The objective was to complement the reformsinitiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, itrecommended that the private sector be permitted to enter the insurance industry. They stated that foreigncompanies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory andDevelopment Authority (IRDA) was constituted as an autonomous body to regulate and develop theinsurance industry.Lesson 3 - Life Insurance PracticesLife Insurance Organisation comprises of the various functions comprised within a Life Insuranceorganisation. Insurance as a protection against natural calamities was first conceived by the adventuroustravellers of the sea who carried goods of value to faraway places, braving all the perils of the sea, inanticipation of handsome profits in the trade. Life insurance is meant to provide financial assistance to thedependents of the life assured in the evet of his death. Earliest form of life assurance was a lump sumpayment at the time of death of person whose life was insured. The amount of payment used to be fixedarbitrarily depending on the resources of the organisation. Recreation clubs having large membershipsadopted this type of inducement to the existing members to continue their membership of the club or toattract new members by offering some incentive out of the surplus funds they had.Lesson 4 - Life Insurance – UnderwritingInsurance is transfer of risk and Insurance companies are in the business of accepting the risks.Underwriting denotes acceptance of risk on a Proposal. It is the judgement of the insurance company to takethe risk based on the assessment of the extent of risk. Insurance contracts are based on the principle of
(viii)“uberrimaefidei”, meaning utmost good faith. The person taking the insurance policy is required to discloseall the facts impacting the assessment of risk truthfully and completely about the subject matter of insurance,to the Insurer in order to enable the insurer to correctly assess the risk on hand. If the principle of utmostgood faith is vitiated, insurer has
Applications of Life Insurance: Financial Planning and Life Insurance; Life . 15. Risk Management: Risk and Theory of Probability; Risk Management Scope and Objectives; Building up an Effective Risk Management Programme; Important Steps in Risk Management Decision Making Process; Alternative Risk Management; Enterprise Risk Management; Business Continuity Management and Disaster/