Insurance Law and Practice - The Institute of Company Secretaries

276 Pages·2013·2.83 MB·English

STUDY MATERIAL

PROFESSIONAL PROGRAMME
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MODULE 3

ELECTIVE PAPER 9.3

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(iii)

PROFESSIONAL PROGRAMME
INSURANCE LAWS AND PRACTICE
Company Secretaries have a pivot role to play in the Insurance Sector. A Company Secretary can
work as a compliance officer in an Insurance Company and play an important role in ensuring
compliance to complicated legal, regulatory and supervisory issues all the time, transcending various
spheres of Insurance Company’s operations. So, in order to build the capacity of Companies
Secretaries to work as a compliance officer in Insurance Companies and to provide them a specialized
knowledge in Insurance laws and practice, New Syllabus for Professional Program contains one of the
five elective papers titled ‘Insurance Law and Practice’. The students interested in pursuing their
career in Insurance sector may opt for this subject.
The syllabus and contents of this paper has been developed in association of Insurance Institute
of India, Mumbai.
An attempt has been made to cover fully the syllabus prescribed for each module/subject. The
presentation of topics may not always be in the same sequence as given in the syllabus. Candidates
are expected to take note of all the latest developments relating to the subjects covered in the syllabus
by referring to IRDA Circulars, Financial Dailies, Economic Journals, Latest Books and Publications on
the subjects/topics concerned
Although due care has been taken in publishing this study material, yet the possibility of errors,
omissions and/or discrepancies cannot be ruled out. This publication is released with an
understanding that the Institute shall not be responsible for any errors, omissions and/or discrepancies
or any action taken in that behalf.
Should there be any discrepancy, error or omission noted in the study material, the Institute shall
be obliged if the same are brought to its notice for issue of corrigendum in the Student Company
Secretary. In the event of any doubt, students may write to the Directorate of Academics and
Perspective Planning in the Institute for clarification at [email protected] and [email protected].
(iv)

PROFESSIONAL PROGRAMME
SYLLABUS
FOR
ELECTIVE - PAPER 3: INSURANCE LAWS AND PRACTICE (100 MARKS)
Level of Knowledge: Expert Knowledge
Objective:
To acquire To acquire specialized knowledge of law and practice relating to Insurance..
Detailed Contents:
1. Understanding and Managing Risk
Risk Management - Perils - Nature – Risk Analysis – Planning – Control - Mechanism for Transfer of risk
Insurance and Reinsurance
2. General Principles and Concepts of Insurance
Insurable Interest - Indemnity - Uberrimae fidei - Proximate Cause - Subrogation and Contribution -
Differentiation Insurance and Guarantee - Insurance and Wager - Disclosure – Moral Hazards
3. Insurance Contract and Indian Market Conditions
Nature of Insurance Contract - Features of Insurance Contract - Types of Insurance - Concept of
Intermediaries – Market Players and their Roles - Agents, Brokers, Surveyors & Loss Assessors, Health
Third Party Administrators, Certification of Insurance Professionals, Training Organizations.
4. Regulatory Environment – Specific Legislations
Regulation of Insurance Business, Insurance Act, Insurance Regulatory and Development Act, Powers
and Functions of IRDA, Relevant Regulations and Guidelines issued by IRDA, Licensing, Audit &
Supervision, Investments, Amalgamation and Transfer, Grievance Redressal, Rural and Social Sector
obligations, Micro Insurance, Financial inclusion, Product Approval.
5. Regulatory Environment - General
Other Relevant Legislation (Motor Vehicles Act, Marine Insurance Act, Employees State Insurance Act
etc.), Consumer Protection, Courts, Tribunals, Insurance Ombudsmen, Arbitration.
6. International Regulatory Framework
International Association of Insurance Supervisors – Future Trends
7. Life Insurance - Practices, Procedures
Application of Principles in Life Insurance Contract –- Representation - Assignment and Nomination - Title
and Claims - Tax Law Implications - Concept of Trusts in Life Policy - Stamp Duties - Role and Function
of Life Insurance Companies.
8. Life Insurance & Pension Products
Life Insurance Products – Proposals, Policy and documentation
(v)
9. General Insurance - Practices and Procedures – Focus Underwriting
Application of Principles in General Insurance Contracts – Structure of the Policy – Insurance
Documentation – Underwriting and Rating - Disclosure - Terms and Conditions.
10. General Insurance - Practices and Procedures – Focus Claims
Claims Procedures – Underinsurance - Condition of Average - Recovery – Salvage.
11. General Insurance Products
• Property Insurance (Fire and Engineering)
• Marine Insurance (Hull and Cargo)
• Motor Insurance
• Business Interruption
• Liability Insurance (Public, Products, Professional, Directors & Officers etc)
• Personal Lines (Health, Accident, Travel, Residential Premises etc.)
• Rural and Agricultural
• Micro-Insurance
• Other Miscellaneous lines (Burglary, Bankers’ Risks, Fidelity etc.)
12. Ethics and Corporate Governance Framework for Insurance Companies
Financial Statements, Protection of Policy holders, Concept of Treating Customers Fairly (TCF), Actuarial
and Other Certifications
(vi)

LIST OF RECOMMENDED BOOKS
ELECTIVE
PAPER 9.3 : INSURANCE LAW AND PRACTICE

List of Recommended Books:
1. M. N. Srinivasan : Principles of Insurance Law, Wadhwa & Co.
2. Rajiv Jain : Insurance Law and Practice, Vidhi Publication Private Limited
3. Taxmann : Insurance Manual, Taxmann Publication Private Limited
4. Bharat : Manual of insurance Laws, Bharat Publication Private limited
5. Dr. Avtar Singh : Law of Insurance, Universal Publication Pvt. Limited
6. George E. Rejda : Principles of Risk Management and Insurance
(vii)

ARRANGEMENT OF STUDY LESSONS

ELECTIVE PAPER 9.3: INSURANCE LAW AND PRACTICE (100 Marks)

Lesson No. Subject

1. Understanding and Managing Risk
2. General Principles and Concepts of Insurance
3. Insurance Contract and Indian Market Conditions
4. Regulatory Environment – Specific Legislations
5. Regulatory Environment - General
6. International Regulatory Framework
7. Life Insurance - Practices, Procedures
8. Life Insurance & Pension Products - Life Insurance Products – Proposals,
Policy and documentation
9. General Insurance - Practices and Procedures – Focus Underwriting
10. General Insurance - Practices and Procedures – Focus Claims
11. General Insurance Products
12. Ethics and Corporate Governance Framework for Insurance Companies
(viii)
PROFESSIONAL PROGRAMME
INSURANCE LAW AND PRACTICE

CONTENTS

Lesson 1
UNDERSTANDING AND MANAGING RISK
Page

What is Risk … 2
Uncertainty … 2
Peril and Hazard … 3
Basic Categories of Risk … 4
Speculative or Dynamic Risk … 4
Pure or Static Risk … 5
Fundamental Risks and Particular Risks … 5
Subjective Risk … 6
Objective Risk … 6
Static Risks … 6
Dynamic Risk … 6
Financial and Non-financial Risks … 7
Risk Management … 7
Role of Insurance in Risk Management … 8
Risk Management Process … 8
Risk Analysis … 9
Risk Planning and Control … 9
Risk Avoidance … 9
Risk Retention … 10
Active Risk Retention … 10
Passive Risk Retention … 10
Risk Transfer … 11
Transfer of Risk by Contracts … 11
Hedging Price Risks … 11
Conversion to Public Limited Company … 11
Loss Control … 11
Loss prevention … 11
Loss reduction … 12
Loss Control-Ideal Method for Handling Risk … 12
Insurance and Reinsurance as a Risk Transfer Techniques … 12
LESSON ROUND UP ... 13
SELF TEST QUESTIONS ... 14

Lesson 2
GENERAL PRINCIPLES AND CONCEPTS OF INSURANCE

Learning Objectives ... 15
Understanding Principles of Insurance … 16
(ix)
Page

Differentiation Insurance and Guarantee … 19
Insurance and Wager … 20
Disclosures … 20
Material Facts … 21
Effect of Non-Disclosure … 22
Representations … 22
Active and Passive Duty of Disclosure … 23
Moral Hazards … 23
LESSON ROUND UP ... 23
SELF TEST QUESTIONS ... 24

Lesson 3
INSURANCE CONTRACT AND INDIAN MARKET CONDITIONS

Learning Objectives ... 25
Nature of Insurance Contract … 26
Essentials for a Valid Contract … 26
Features of Insurance Contract … 28
(a) Aleatory … 28
(b) Adhesion … 28
(c) Utmost Good Faith … 28
(d) Executory … 29
(e) Unilateral … 29
(f) Conditional … 29
(g) Personal contract … 29
(h) Warranties and Representations … 29
(i) Misrepresentations and Concealments … 30
(j) Fraud … 30
(k) Impersonation (False pretenses) … 30
(l) Parol (or Oral) evidence rule … 30
Types of Insurance … 31
Concept of Intermediaries … 31
Role of Intermediaries in Insurance Industry … 32
Dissemination of Information to the Marketplace … 32
Types of Insurance Agents … 34
Individual Agents … 34
Renewal of Licence … 36
Authorisation to Sell for One Insurer at a Time … 36
Licensing of Corporate Agents … 36
Requirements for becoming a Corporate Agent … 37
Renewal of licence … 38
Micro Insurance Agents … 38
Role of an Insurance Agent … 39
Insurance Broker … 39
Licensing of Insurance Brokers … 39
Categories of Insurance Brokers … 39
(x)
Page

Role of an Insurance Broker … 40
Requirements for Licensing of an Insurance Broker … 41

Theoretical and Practical Training requirements … 42
Annual Fee … 42
Renewal of licence … 43
Difference between Insurance Agent and Insurance Broker … 43
Surveyors and Loss Assessors … 43
Requirements for Issue of a Licence for Surveyor or Loss Assessor … 43
Role of a Surveyor or Loss Assessor … 45
Third Party Administrators-Health … 45
Requirements for becoming a TPA … 46
Qualifications of CEO or CAO of TPA … 46
Decision Making on Claims by TPAs Prohibited … 47
Bar on Non-Insurance Healthcare Schemes … 47
Agreement between a TPA and an Insurance Company … 47
Change of TPAs for Servicing of Health Insurance Policies … 48
Data and Related Issues … 48
Certification of Insurance Professionals and Training Organisations … 48
The Salient Features of Instructions as Issued By IRDA for
Accredited Training Institutes … 48
LESSON ROUND UP ... 51
SELF TEST QUESTIONS ... 52

Lesson 4
REGULATORY ENVIRONMENT – SPECIFIC LEGISLATIONS

Learning Objectives ... 55
History of Insurance in India … 56
Life Insurance … 56
General Insurance … 56
Regulation of Insurance business in India … 57
Acts/Regulations common to General and Life Insurance Business in India … 57
Regulations governing/affecting Life Insurance Business in India … 58
Regulations Affecting General Insurance Business in India … 58
Why Regulation of Insurance Businesses is Required … 58
Constitution of Insurance Regulatory and Development Authority … 59
Powers/Functions of IRDA … 59
Framework under the Insurance Act, 1938 … 60
Important Provisions of Insurance Act
(a) Incorporation of Insurance Companies … 61
(b) Requirements as to Capital, Transfer of Shares, Voting Rights … 62
(c) Deposits with RBI … 63
(d) Accounts, Audit and Actuarial Reports and Abstract … 63
(e) Provisions Relating to Invwstments … 63
Formation of Subsidiary Companies for doing Insurance Business … 65