Insurance Sector Reforms &

Pending Bill

Prepared by:

Chandrajit Khaniya
What is Insurance?
 An insurance contract provides risk coverage to the insuree.

 A purchaser of insurance pays a fixed premium in exchange for a promise of

compensation in the event of some specified loss

 The primary purpose of insurance is to provide risk coverage, when the

contract period extends over a long time, as in the case of life insurance

 Premium payments comprise of two components:

1) One for buying risk coverage and
2) The other towards savings
Regulations notified in the Gazette of
India on 14th July, 2000
1. Appointed Actuary : IRDA (Qualification of Actuary) Regulations, January 2004
2. Actuarial Report and Abstract
3. Assets, Liabilities, and Solvency Margin of Insurers
4. Licensing of Insurance Agents: IRDA(Licensing Of Insurance Agents ) (Amendment)
Regulations, 2002
5. General Insurance - Reinsurance    
6. Registration of Indian Insurance Companies:
IRDA(Registration of Indian Insurance Companies) (Amendment) Regulations, 2003
IRDA(Registration of Indian Insurance Companies) (Second Amendment) Regulations, 2008
7. Insurance Advertisement and Disclosure
8. Obligations of Insurers to Rural Social Sectors:
IRDA(Obligations of Insurers to Rural Social Sectors) (Amendment) Regulations, July 2004
IRDA(Obligations of insurer's to Rural or Social Sector)(Fourth Amendment)
Regulations'2008
IRDA(Obligations of insurer's to Rural or Social Sector)(Third Amendment)
Regulations'2008
9. The IRDA (Meetings)
10. The Insurance Advisory Committee (Meetings)
Indian Insurance Sector Reform
 The formation of the Malhotra Committee in 1993 initiated reforms in
the Indian insurance sector.
 The aim of the Malhotra Committee was to assess the functionality of
the Indian insurance sector.
 The Insurance Regulatory and Development Authority Act of 1999
brought about several crucial policy changes in the insurance sector of
India. It led to the formation of the Insurance Regulatory and
Development Authority (IRDA) in 2000.
 The Authority has notified 27 Regulations : Registration of Insurers,
Regulation on insurance agents, Solvency Margin, Re-insurance,
Obligation of Insurers to Rural and Social sector, Investment and
Accounting Procedure, Protection of policy holders' interest etc.
The Insurance Laws (Amendment) Bill,
2008
 The Insurance Laws (Amendment) Bill, 2008 was introduced on Dec 22,
2008 in the Rajya Sabha. The Bill was referred to the Standing
Committee on Finance (Chairperson: Shri Ananth Kumar)
 The Bill increases the maximum permitted limit of foreign equity in
Indian insurance companies from 26% to 49%.
 The Bill seeks to provide for investment of assets in the prescribed
manner. It prohibits any insurer from investing funds of policy holders
outside India.
 The Bill seeks to facilitate the entry of Lloyd’s of London in the insurance
business in India as a foreign company in joint venture with Indian
partners and also as a branch of foreign re-insurer.
Cont…
 In order to be registered, each category of insurer requires a minimum
amount of capital:
 Life insurance or general insurance, the minimum paid up capital required is Rs 100 crore;
 Health insurance, the minimum paid up capital required is Rs 50 crore;
 Re-insurance business, the minimum paid up capital required is Rs 200 crore.
 A foreign re-insurance business needs to have a minimum of Rs 5000 crore as net owned
funds to be registered under the law.

 The Bill makes the insurers responsible for appointing insurance agents and
the IRDA for regulating their eligibility and qualifications.

 The Bill provides for crediting sums from penalties to the Consolidated Fund
of India It also allows insurance companies to raise capital through new
financial instruments on pattern of banks.
The Capital Adequacy Standard
 The Capital Adequacy Standard requires that the statutory fund have
available capital sufficient to provide confidence in the longer term
financial strength of the fund.

 At any time, the value of the assets of the statutory fund of a life
insurance company must be of an amount considered sufficient to allow
the company to continue to meet, into the future, its:
 a) obligations to, and the reasonable expectations of, policy owners referable to the
fund;
 b) obligations to creditors referable to the fund.

This is referred to as the Capital Adequacy Requirement.

Cont…
 In assessing the Capital Adequacy Requirement of a statutory fund
consideration is given to:
 the risks which may affect the value of the liabilities under policies;
 the risks which may affect the value of the assets supporting those liabilities.

 Components of Capital adequacy requirement:

 The Capital Adequacy Liability:
 The Other Liabilities
 The Resilience Reserve
 The Inadmissible Assets Reserve
 The New Business Reserve
Risk Coverage
 Insurance policies decide what they will cover and what they won't
through two different approaches: "all-risk" or "named peril.“

 With "named peril coverage," only damages that are mentioned in the
policy are covered.

 With "all-risk coverage" anything that happens to your house is covered,

unless it is specifically excluded in your policy.

 All insurance policies will exclude floods, earthquakes and nuclear war.
But, if you live in an area that gets earthquakes and floods you should
probably buy special flood or earthquake insurance.
Type of Risk Coverage
 Builders Risk Coverage: An insurance policy that covers residential and
commercial structures while they are under construction or being
renovated.

 Network Risk Coverage:

 Business Interruption Caused by Loss of Network:
 Digital Data Protection
 Compliance Cost Coverage
 Cyber Crimes Coverage
 Third Party Lawsuits

 High Risk Life Insurance Coverage: It is helping people to shield your loved
ones, business partners, and others in the event of your premature death.
Conclusion
 The government wanted to reform the insurance sector, it could not do it
because of strong opposition from the Left parties, whose support was
crucial for the minority government.

 The insurance industry feels that higher FDI is necessary as all private
insurers are now making losses.

 Most of the overseas partners have expressed willingness to raise

shareholding in their joint ventures.
Reference:

www.thehindubusinessline.com
www.irda.gov.in
www.ibef.org
www.economywatch.com
Thank You