Insurance may be explained as a social device to eliminate or reduce the risk of life and property. Under the scheme of insurance, a large number of people connect themselves by sharing risk, linked to an individual. The risk, which can be insured against covers fire, the peril of sea, death, incident, & burglary. Any risk contingent upon these may be insured against at a premium commensurable with the risk involved. Insurance is a contract between two parties whereby one party called insurer undertakes in exchange for a fixed amount called premium to pay the other party on the happening of a certain event.
Insurance law is the name specified to practices of law surrounding insurance, covering insurance claims and policies. Insurance regulation that governs the business of insurance is particularly aimed at assuring the solvency of insurance companies. Thus, this sort of regulation regulates reserve policies, capitalization, rates and various other "back office" procedures.
All assets have some economic worth attached to them. There is also a probability that these assets may get destroyed or damaged or become non-operational due to dangers like fire, breakdowns, floods, earthquakes etc. Various assets are visible to different types of threats like a car has a risk of stealing or meeting a mishap, a house is exposed to the threat of catching fire, a person is exposed to the risk of accident or death. Hence the insurance is necessary for the following reasons:
In India, insurance has a profound history. It finds indications in the writings of Manu (Manusmrithi ), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as floods, fire, famine and epidemics. This was certainly a precursor to modern-day insurance. Ancient Indian history has maintained the earliest traces of insurance in the form of carriers‘ contracts and marine trade loans. Insurance in India has developed over time heavily drawing from other countries, England in particular. 1818 saw the emergence of life insurance business in India with the formation of the Oriental Life Insurance Company in Calcutta. This Company, however, failed in 1834. In 1829, the Madras Equitable had initiated transacting life insurance business in the Madras Presidency. 1870 saw the passing of the British Insurance Act and in the last 3 decades of the 19th century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era was controlled by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for solid competition from the foreign companies. In 1914, the Government of India started printing returns of Insurance Companies in India.
The Indian Life Assurance Companies Act, 1912 was the first statute to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to permit the Government to gather statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protect the interest of the Insurance public, the previous legislation was consolidated and altered by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a great number of insurance companies and the level of competition was quite high. There were also allegations regarding unfair trade practices. The Government of India, decided to nationalize insurance business. An Ordinance was issued on 19th January 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.
The primary legislation regulating the insurance in India is the Insurance Act of 1938. Some other existing legislation in the area are as follows :
The provisions of the Indian Contract Act, 1872 are applicable to the contracts of insurance, whether for life or non-life. Likewise, the provisions of the Companies Act, 1956 are applicable to the companies carrying on insurance business. The subordinate legislation comprises Insurance Rules, 1939 and the Ombudsman Rules, 1998 framed by the Central Government under Sec.114 of the principal Act as also 32 regulations made by the IRDA under Sec.114 A of the principal Act and Sec.26 of the IRDA Act 1999.
The insurance business is divided into the following types of business namely:
There are seven principles of insurance are which are as follows :