IC-14 Chapter 2.pdf

11 CHAPTER 2 IRDA FUNCTIONS AND INSURANCE COUNCILS Chapter Introduction For the smooth and orderly functioning of the insurance business in India, the Government of India has enacted the Insurance...

11 CHAPTER 2 IRDA FUNCTIONS AND INSURANCE COUNCILS Chapter Introduction For the smooth and orderly functioning of the insurance business in India, the Government of India has enacted the Insurance Act, 1938 and the Insurance Regulatory and Development (IRDA) Act, 1999. The Insurance Councils are formed under Section 64C of the Insurance Act, 1938. Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India. In this chapter, we will learn about the various powers of these institutions. This chapter will also help you understand the various functions carried out by these institutions. a) Understand the purpose of forming the IRDA and explain the duties, powers and functions of the IRDA. b) Understand the Acts governing insurance business in India.  12 Look at this scenario Deficit dilemma Life Insurance Corp. of India (LIC), the country's largest financial institution is running a valuation deficit of around Rs. 14,000 crore in three plans of its guaranteed-return annuity policies: Jeevan Dhara, Jeevan Suraksha and Jeevan Akshay. Not all plans under these three brands are affected. These plans were launched in the 1980s and 90s with assured returns of 11-12%, but with the drop in interest rates, the actual yield on investments is much lesser than what investors have been earning. They were launched under the Jeevan Dhara, Jeevan Suraksha and Jeevan Akshay brands. Subsequent schemes launched under the same brands are not suffering from any notional losses. LIC’s notional losses will vary according to the movement in the interest rates. Investors have nothing to worry as there is no plan now to close them. A senior Insurance Regulatory and Development Authority (IRDA) official said the regulator would not have approved these LIC schemes had it been in existence when they were launched. “There is indeed a deficit... This is not a good practice. We'd not have cleared such products if they were to come to us for approval, “the IRDA official said, asking not to be identified. IRDA came into being in 1999. (Excerpts from the Mint newspaper. Source: www.livemint.com) The case study shows the importance of having a regulator to approve the viability / feasibility of a product before it is launched in the market. This protects the interests of the insurance company as well as of the policyholder. 1. Understand the purpose of forming the IRDA and explain the duties, powers and functions of the IRDA. [Learning Outcome a] 1.1 Insurance Insurance is a promise of compensation (Claim) for specific potential future losses in exchange for a periodic payment (Premium). It allows one entity (Insured) to transfer its risk to another entity (Insurer) for a payment called premium.  13 Insurance is a tool of risk management. It is used to protect the financial well- being of the insured. The insurer, in exchange for payments from the insured, agrees to reimburse the losses of the insured on the occurrence of a specific event, covered in the said insurance policy. Insurance is an agreement by which one party called the ‘insured’ pays a stipulated consideration called ‘premium’ to the other party called the ‘insurer’, in return for which the insurer agrees to pay a defined amount of money or provide a defined service if a covered event occurs during the policy term. An insurer is a company selling insurance; an insured (i.e. policyholder) is a person or entity buying the insurance policy, premium is the payment made by the insured to the insurer and claim is the compensation that is paid if the insured event occurs during the policy term. Diagram 1: Insurance There is a delicate financial relationship between the insured and the insurer. This has made insurance a highly regulated industry across the world. 1.2 Insurance Regulatory and Development Authority (IRDA) Insurance Regulatory and Development Authority (IRDA) was formed by the Government of India by passing the IRDA Act, 1999 in the parliament. IRDA is the National agency of Government of India for the Indian insurance industry. It is created for the supervision and development of the insurance sector in India.  14 The Preamble of the IRDA Act states the mission of IRDA which is “to provide for the establishment of an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto. IRDA Act led to amendment of the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalisation) Act, 1972.” The IRDA is the regulator of the Indian insurance industry. Its objectives include: ! protecting the interest of the insured (i.e. the policyholders); and ! Promoting orderly growth of the insurance industry. Regulator means an authority responsible for control and supervision of a particular activity. Composition of IRDA The Authority consists of the following members: (a) a Chairperson; (b) not more than five whole-time members; and (c) not more than four part-time members. These members are appointed by the Central Government from amongst persons of ability, integrity and standing who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration or any other discipline which would, in the opinion of the Central Government, be useful to the Authority. The Central Government shall, while appointing the Chairperson and the whole- time members, ensure that at least one person each is a person having knowledge or experience in life insurance, general insurance or actuarial science respectively. The full time members are: ! Member, Non-life ! Member, Life ! Member, Actuary ! Member, Finance & Investments There is a provision for adding more members and part time members.  15 IRDA is situated in Hyderabad. Its website address is www.irda.gov.in 1.3 Purpose of forming the IRDA 1. To protect the interest of Policyholders and to secure their fair treatment. 2. To bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy. 3. To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates. 4. To ensure that insurance customers receive precise, clear and correct information about products and services and to make them aware of their responsibilities and duties in this regard. 5. To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery. 6. To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players. 7. To take action where such standards are inadequate or ineffectively enforced. 8. To bring about optimum amount of self-regulation in day to day working of the industry consistent with the requirements of prudential regulation. 1.4 Duties, powers and functions of the IRDA Section 14 of the IRDA Act, 1999 lays down the following duties, powers and functions of IRDA. 1. Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. 2. Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include: a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration; b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance; c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;  16 d) specifying the code of conduct for surveyors and loss assessors; e) promoting efficiency in the conduct of insurance business; f) promoting and regulating professional organisations connected with the insurance and re-insurance business; g) levying fees and other charges for carrying out the purposes of this Act; h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business; i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under Section 64U of the Insurance Act, 1938 (4 of 1938); j) specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries; k) regulating investment of funds by insurance companies; l) regulating maintenance of margin of solvency; m) adjudication of disputes between insurers and intermediaries or insurance intermediaries; n) supervising the functioning of the Tariff Advisory Committee; o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f); p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and q) exercising such other powers as may be prescribed 1.5 Regulations issued by IRDA In exercise of the powers under the Act the IRDA has in consultation with the Insurance Advisory Committee made various regulations and amended them subsequently as per requirement. Some examples of the regulations are given below: ! Licensing of Insurance Agents Regulations, 2000 ! Assets, Liabilities and Solvency Margin of Insurers Regulation, 2000. ! General Insurance – Reinsurance Regulations, 2000 ! Obligations of Insurance to Rural Social Sector Regulations, 2000 ! Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and Code of Conduct) Regulations, 2000.  17 ! Third Party Administrator – Health Services Regulations, 2001. ! Protection of Policy holders’ Interest Regulations, 2002. ! Insurance Brokers Regulations, 2000. ! Micro Insurance Regulations, 2005. SUMMARY 2 Identify the Acts governing insurance business in India. [Learning Outcome b] Motor Vehicles Act, 1988 The Motor Vehicles Act 1988, replaces the M.V Act 1939 and it came into force from 01/07/1989. Chapter (XI) provides for compulsory insurance of motor vehicles. According to this Act, no motor vehicles can be used in a public place unless there is in force in relation to that vehicle a policy of insurance issued by an authorized insurer. This policy is required to cover the insured’s liability in respect of death or bodily injury of certain persons (e.g. third parties, fare-paying passengers, paid drivers, etc) and damage to property of third parties. The limits of liabilities required to be covered are also prescribed in the Act.  18 The Motor Vehicle Act also provides for the constitution of Motor Accidents Claims Tribunals (MACT) by the State Governments. The object of this amendment is to ensure speedy settlement of claims of persons involved in Motor Vehicle accidents. The procedure adopted by these Tribunals is simple and fast, the Court fee is nominal and hence the procedure is not expensive. The Motor Vehicles (MV) Act, 1988 mandates payment of compensation to the victims of accidents arising out of the use of a motor vehicle or motor vehicles, in public places by the owner or owners, as the case may be. The MV Act provides that no person shall use a motor vehicle in public places without a policy of insurance complying with the requirements of the MV Act. In such a policy of insurance, the insurer agrees to indemnify the user of the vehicles against the legal liability to pay compensation payable to the victims (third parties) of accidents (death, injury, disability, property damages, etc.) arising out of the use of the motor vehicle. The compensation payable to the claimants is determined by the Motor Accident Claims Tribunals (MACT) established under the MV Act. The MV Act, 1988: Salient features No person shall use, except as a passenger, a motor vehicle in public places, unless there is a policy of insurance complying with the requirements of the MV Act, (Sec.146) The policy must be against any liability incurred by the insured in respect of death or bodily injury to any person or damage to any property of a third party. (Sec.147) The insurer can be made a party to the proceedings of the Motor Accident Claims Tribunal (Sec 149) When a cover note issued by an insurer is not followed by a policy within the prescribed time, the insurer is bound to notify the fact to the concerned Registering Authority (Sec 147) A claimant is entitled to compensation of Rs 50,000 in cases of death of Rs 25,000 in the cases of injury without burden of proof of fault on the part of the vehicle owner. (Sec 140-No fault liability) A claimant may also seek compensation on the basis of the structured formula prescribed in the Act. (Sec 163 A) A claimant may at his option, approach the Tribunal having jurisdiction over the area i) in which the accident occurred, ii) where he resides,  19 iii) carries on business or iv) where the defendant resides ( Sec 166) For victims of hit and run cases i.e. where the identity of the vehicle cannot be ascertained the insurers are liable to pay the stipulated compensation (Sec 161) The Tribunal may direct payment to interest on the award at the rates and from the date specified by it. (Sec.171) The Tribunal shall arrange to deliver copies of the award to the parties concerned within a period of fifteen days from the date of award( Sec. 168) The person liable to satisfy the award shall do so within thirty days of announcement of the award (Sec 168) Settlement through alternative forum The legal Services Authorities Act, 1987 provides for organising of Lok Adalat by the Legal Services Committees at various levels, to determine and arrive at a compromise or settlement between parties to a dispute in respect of any case pending before any court for which the Lok Adalat is organised. The insurance industry has also established Claims Conciliation Committees and Jald Rahat Yojana which enable negotiated settlements. The award by these would not carry any interest. Thus, the settlements through the above enable the companies to save interest and administration charges. Motor Third Party Pool In December 2006, IRDA issued directions that all the General Insurers will collectively participate in a pooling arrangement to share in all motor third party insurance business. The GIC was nominated by the IRDA as the administrator of the pooling arrangement. The Pool is operational from 1st April 2007. The salient features of the pool are as under: (a) The GIC’s share would be the statutory cession received by it. (b) All other members will cede to the pool in proportion to their market share of the Gross Direct Premium underwritten in India. (c) The General Insurance Council shall appoint a committee to lay down detailed underwriting policies and procedures as well as detailed claims processing procedures.  20 The pool will handle only commercial vehicles covered by policies issued by all general insurers. GIC as Pool Administrator has since established IT systems to receive all data pertaining to policies, premiums and claims. No Fault Liability Section 140(1) of the Motor Vehicles Act, 1988 provides as follows: “Where the death or permanent disablement of any person has resulted from an accident arising out of the use of a motor vehicle, the owner of the vehicle shall, or the owners of the vehicles shall, jointly and severally, be liable to pay compensation in respect of such death or disablement in accordance with the provisions of this section.” The material change in the law is that the negligence of the owner or user of the motor vehicles is no longer relevant to decide the question of liability. In fact Section 140(3) specifically provides that the claimants shall not be required to plead and establish that the death or permanent disablement in respect of which the claim has been made was due to any wrongful act, neglect or default of the owner, or owners, of the vehicles or vehicles concerned or any other person. This concept is known as No Fault Liability. However the amount of compensation payable is restricted to Rs 50,000/- in the case of death and Rs 25,000/- in the case of permanent disablement, after the amendment to Motor Vehicle Act, 1988. Permanent disablement is defined as any injury or injuries involving: (a) Permanent privation of the sight of either eye or the hearing of either ear, or privation of any member or joint or (b) Destruction or permanent impairing of the powers of any member of joint or (c) Permanent disfiguration of the head or face. Even if the victim has contributed fully or partially to the happening of the accident, such negligence is not to be taken in to account to defeat the liability of the motorist or to reduce the amount of compensation. The right to claim compensation on the basis of No Fault liability is in addition to any other right that the victim may have under any other provisions of the Act or any other law for the time being in force. In other words, the victim can also proceed against a wrong-doer on the basis of negligence under the law of Tort. However, in such suits based on negligence, if compensation awarded is higher than that has already been paid on No Fault basis that latter amount will have to be deducted there from.  21 Hit and Run Accidents Hit and run accident is “an accident arising out of the use of a motor vehicle or motor vehicles the identity where of cannot be ascertained in spite of reasonable efforts for the purpose.” Section 163 provides that the Central Government may established a fund known as the “Solatium Fund” to be utilized for paying compensation in respect of death or grievous hurt to persons resulting from Hit and Run Motor Accidents. The compensation payable for death claims is fixed at Rs 25,000/- and in respect of ‘grievous hurt’ Rs 12,500/-- after the amendment to Motor Vehicles Act, 1988. The payment of compensation for Hit and Run accidents is subject to the condition that if any compensation is awarded for such death or grievous hurt under any other provisions of the Motor Vehicles Act or any other law the amount paid under Hit and Run accident has to be deducted from such compensation. Solatium Fund The Solatium Fund will consist of contribution from the General Insurance Industry, the Central Government and the State Government as decided by the Central Governmnent. The Central Government is also authorized by the Act to make a scheme to provide for the administration of the Solatium Fund. Accordingly, The Solatium Scheme 1989 has been made by the Central Government for the payment of compensation to the victims of ‘hit and run’ motor accident. The Scheme came into force from 1st July 1989. The scheme provides for nomination of offices of the insurance companies in each district for settlement of claims. Structured Formula for Compensation The Act was amended on 14.11.1994, to introduce a new concept of ‘payment of Compensation on structured formula basis.” The new Section 163A provides for fixed compensation to be paid to victims of fatal injuries in motor vehicle accidents, based on their age and income. This would be full and final settlement.  22 Marine Insurance Act, 1963 The marine Insurance Act, 1963 codifies the law relating to Marine Insurance. With a few exceptions this Act closely follows the U.K Marine Insurance Act, 1906. In addition to the Marine Insurance Act, 1963 the following laws govern the practice of marine insurance contracts. A good working knowledge of these laws is necessary for underwriters to pursue rights of recovery from carriers or bailee under subrogation proceedings. The Carriage of Goods by Sea Act, 1925 This Act defines the responsibilities, liabilities, rights and immunities of a ship – owner in respect of loss damage to cargo carried. Broadly, speaking, the Act deals with the aspects of ship owner’s liabilities towards cargo owners. They are: a) The circumstances when the ship owner is deemed to be liable for loss or damage to cargo unless he proves otherwise. b) The circumstances when the ship owner is exempted from liability, i.e. when loss or damage is caused by events outside his control, e.g. perils of the seas. c) The limits of liability of a ship-owner for loss or damage to cargo calculated in monetary terms per package or unit of cargo. The Bill of Lading Act, 1885 This Act defines the character of the Bill of Lading as an evidence of the contract of carriage of goods between the ship owner and the shipper, as an acknowledgement of the receipt of the goods on board the vessel and, as a document of title. The bill of lading is one of the various documents required in connection with settlement of Marine Cargo claims. Indian Railways Act, 1989 The Act first passed in 1890, as amended by the Railways Act, 1989 which came into effect from 1st July, 1990. Whereas, the Act deals with various aspects of railway administration, there are also provisions which are relevant to marine insurance. These provisions related to rights and liabilities of railways as carriage of goods.  23 The Railways Claims Tribunal Act, 1987 provides for formation of Tribunals to deal with claims for cargo loss, personal injuries, refund of excess freight etc. and prescribes procedures there under. The Carriers Act, 1865 This Act defines the rights and liabilities of truck owners or operators who carry goods for public hire in respect of loss or damage to goods carried by them. The Act also prescribes the time limit within which notice of loss or damage must be filled with the road carriers. Workmen’s Compensation Act, 1923 The Workmen’s Compensation Act, 1923 came into force on 01st July, 1924. The Act provides for the payment by employers to their workmen for compensation for injury by accident, or disease arising out of and in the course of employment. The object of this legislation has been stated as follows: “ The growing complexity of industry in this country , with the increasing use of machinery and consequent danger to workmen, along with the comparative poverty of the workmen themselves renders it advisable that they should be protected, as far as possible, from hardship out of accidents, A legislation of this kind helps to reduce the number of accidents in a manner that cannot be achieved by official inspection, and to mitigate the effect of accidents by provisions for suitable medical treatment, thereby making industry more attractive to labour and increasing its efficiency. The Act provides for cheaper and quicker disposal of disputes relating to compensation through tribunals than was possible under the civil law”. Employee’s State Insurance Act, 1948 The Employees; State Insurance Act, 1948 has been described as an Act “ to provide for certain benefits to employees in cases of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereof”. Under the Act, the Employees’ State Insurance Corporation has been set up to administer the Insurance Scheme. The Scheme is applicable to industrial employees as defined in the Act. The Act operates in certain industrial areas as notified by the Government from time to time. It is intended that the Act will be eventually extended to all industrial areas in the country. Under the scheme a fund is maintained consisting of contribution from the employees, employers and the Government.  24 From this fund the following expenses are met: (i) Sickness benefit, maternity benefit, disablement benefit, dependents’ benefits (death), medically treatment. (ii) Establishment and maintenance of hospitals, dispensaries, etc. for the benefit of the insured persons and their families. (iii) Administration of the Scheme. Public Liability Insurance Act, 1991 An Act to provide for public liability insurance for the purpose of providing immediate relief to the person affected by accident occurring while handling any hazardous substance and for matters connected therewith or incidental thereto, was introduced in 1991. The Act gives relief on principles of No Fault. (Note: under common law compensation is required to be paid to the claimant only if fault or negligence of the wrong doer is found) Where death of or injury to any person (other than a workman or damage to any property has resulted from an accident, whilst handling hazardous substances, the owner shall be liable to give following relief for such death, injury or damage. (i) Reimbursement of medical expenses incurred up to a maximum of Rs. 12,500/- in each case, (ii) For fatal accidents the relief will be Rs. 25,000 per person in addition to reimbursement of medical expenses, if any, incurred on the victim up to a maximum of Rs. 12,500/- For permanent total or permanent partial disability or other injury or sickness, the relief will be (a) reimbursement of medical expenses incurred, if any, upto a maximum of Rs. 12,500/- in each case and (b) cash relief on the basis of percentage of disablement as certified by an authorized physician, The relief for total permanent disability will be Rs.125,000/- For loss of wages due to temporary partial disability which reduces the earning capacity of the victim, there will be a fixed monthly relief not exceeding Rs. 1,000/- per month up to a maximum of 3 month provided the victim has been hospitalised for a period exceeding 3 days and is above 16 years of age. (iii) Up to Rs.6,000/- depending on the actual damage for and damage to private property. (The Act also provides for compulsory insurance of this liability)  25 The Indian Stamp Act, 1899 The Indian Stamp Act requires that a policy of insurance be stamped in accordance with the schedule of rates prescribed therein. Question 1 Which of the following institution’s mission is to protect the interests of holders of insurance policies? A. Securities and Exchange Board of India (SEBI) B. Insurance Regulatory and Development Authority (IRDA) C. Reserve Bank of India (RBI) D. Association of Mutual Funds of India (AMFI) 3 Discuss General and Life Insurance Councils. [Learning Outcome c] According to Section 64A of the Insurance Act 1938, all insurers carrying on insurance business in India will constitute a body corporate known as ‘Insurance Association of India.’ The Insurance Association of India will consist of: 1. Members: All the insurers that are incorporated or domiciled in India. 2. Associate members: All insurers incorporated and domiciled outside India. Section 64A of the Insurance Act, 1938 also states that the Insurance Association of India shall have perpetual succession and a common seal and shall have power to acquire, hold and dispose of all property both moveable and immoveable and shall by the said name sue and be sued. 3.1 Councils of the Insurance Association of India Section 64C of the Insurance Act, 1938 provides for two Insurance Councils in India. They are: 1. The Life Insurance Council: It consists of all the members and associate members of the Association who carry on life insurance business in India.  26 2. The General Insurance Council: It consists of all the members and associate members of the Association who carry on general insurance business in India. Authority of members of the Association to act through agents Section 64D of the Insurance Act, 1938 states that it shall be lawful for any member of the Life Insurance Council or the General Insurance Council to authorise any individual, whether an officer of the insurer or not, to act as the representative of such member at any meeting of the Council concerned or to stand as a candidate for any election held by that Council. The authorities of the Life and General Insurance councils shall be the Executive Committees constituted as per Section 64E of the Insurance Act 1938. 3.2 Executive Committees of the Life Insurance Council and General Insurance Council According to 64F of the Insurance Act, 1938: (1) The Executive Committee of the Life Insurance Council shall consist of the following persons, namely: (a) two officials nominated by the Authority, one as the Chairman and the other as a member; (b) eight representatives of members of the Insurance Association of India carrying on life insurance business elected in their individual capacity by the said members in such manner, from such groups of members and from such areas as may be specified by the Authority. (c) One non official not connected with any insurance business, nominated by the Authority; and (d) five persons connected with life insurance business, nominated by the Authority for the purpose of representing such groups of insurers carrying on life insurance business or such areas as have not been able to secure adequate representation on the Executive Committee of the Life Insurance Council or for any other purpose. (2) The Executive Committee of the General Insurance Council shall consist of the following persons, namely: (i) two officials nominated by the Authority, one as the Chairman and the other as a member;  27 (ii) eight representatives of members of the Insurance Association of India carrying on general insurance business elected in their individual capacity by the said members in such manner, from such groups of members and from such areas as may be specified by the Authority; (iii) one non-official not connected with any insurance business, nominated by the Authority; and (iv) five persons connected with general insurance business, nominated by the Authority for the purpose of representing such groups of insurers carrying on general insurance business or such areas as have not been able to secure adequate representation on the Executive Committee of the General Insurance Council or for any other purpose. (v) If anybody of persons specified in (1) and (2) fails to elect any of the members of the Executive Committees of the Life Insurance Council or the General Insurance Council, IRDA may nominate any person to fill the vacancy, and any person so nominated shall be deemed to be a member of the Executive Committee of the Life Insurance Council or the General Insurance Council, as the case may be, as if he had duly elected thereto. (vi) No official nominated by the IRDA shall be entitled, whether as chairman or as a member , to vote in respect of any matter coming up before any meeting of the Executive Committee of the Life Insurance Council or the General Insurance Council, as the case may be, and subject thereto each of the said Executive Committees, may with the approval of the IRDA, make bye-laws for the transaction of any business at any meeting of the said committee and any such bye-law may provide that any member of the Committee who is interested in an matter for the time being before that Committee may not be present at or take part in any meeting thereof. (vii) The life Insurance Council or the General Insurance Council may form such other committees consisting of such persons as it may think fit to discharge such functions as may be delegated thereto. (viii) The Secretary of the Executive Committee of the Life Insurance Council and of the Executive Committee of the General Insurance Council shall in each case be an official nominated by the IRDA. 3.3 Duration and dissolution of Executive Committees According to Section 64H of the Insurance Act, 1938: 1. The duration of the Executive Committee of the Life Insurance Council or the General Insurance Council shall be three years from the date of its first meeting on the expiry of which it shall stand dissolved and a new Executive Committee constituted.  28 2. Notwithstanding the dissolution of the Executive Committee of the Life Insurance Council or the General Insurance Council, the out-going members thereof shall continue to hold office and discharge such administrative and other duties as may be prescribed until such time as a new Executive Committee of the Life Insurance Council or the General Insurance Council, as the case may be, shall have been constituted. Let us assume that the first meeting of a newly formed Executive Committee took place on 1 January 2006. This committee will be dissolved three years after its first meeting i.e. on 31 December 2008. However, the new executive committee was formed on 10 January 2009. Here, the out-going members of the dissolved Executive Committee will continue to hold office and discharge the duties prescribed to them till 10 January 2009. 3.4 Functions of the Executive Committee of the Life Insurance Council According to Section 64J of the Insurance Act, 1938 the functions of the Executive Committee of the Life Insurance Council are: (a) to aid, advise and assist insurers carrying on life insurance business in the matter of setting up standards of conduct and sound practice and in the matter of rendering efficient service to holders of life insurance policies; (b) to render advice to the IRDA in the matter of controlling the expenses of insurers in respect of their life insurance business in India; (c) to bring to the notice of the IRDA the case of any insurer acting in a manner prejudicial to the interests of holders of life insurance policies; and (d) to act in any matter incidental or ancillary to any of the matters specified in Clauses (a) to (c) as, with the approval of the IRDA, may be notified by the Life Insurance Council in the Gazette of India. For the purpose of enabling it to discharge its functions effectively, the Executive Committee of the Life Insurance Council may collect such sums of money, whether by way of fees or otherwise, as may be prescribed from all members and associate members of the Insurance Association of India who carry on life insurance business.  29 Apart from the above, ex-executive committee may also advise on controlling expenses. SUMMARY 3.5 Functions of the Executive Committee of the General Insurance Council According to Section 64L of the Insurance Act, 1938 the functions of the Executive Committee of the General Insurance Council are: a. to aid and advise insurers, carrying on general insurance business, in the matter of setting up standards of conduct and sound practice and in the matter of rendering efficient service to holders of policies of general insurance; b. to render advice to the IRDA in the matter of controlling the expenses of such insurers carrying on business in India, in the matter of commission and other expenses; c. to bring to the notice of the IRDA the case of any such insurer acting in a manner prejudicial to the interests of holders of general insurance policies; and d. to act in any matter incidental or ancillary to any of the matters specified in Clauses (a) to (c) as with the approval of the IRDA may be notified by the General Insurance Council in the Gazette of India. For the purpose of enabling it to discharge its functions effectively, the Executive Committee of the General Insurance Council may collect such fees as may be prescribed from all insurers carrying on general insurance business.  30 However if the General Insurance Council thinks fit, it may by a resolution passed by it, waive the collection of the prescribed fees for any year and where any such resolution has been approved by the Authority, the Executive Committee of the General Insurance Council shall not collect any fees in relation to that year. The Executive Committee can also advise on controlling expenses. SUMMARY 3.6 Powers of the Executive Committee to act together in certain cases Section 64N of the Insurance Act, 1938 states that: The Central Government may prescribe the circumstances in which, the manner in which, and the conditions subject to which, the Executive Committee of the Life Insurance Council and the Executive Committee of the General Insurance Council may hold joint meetings for the purpose of dealing with any matter of common interest to both Committees, and it shall be lawful for the two Committees at any such joint meeting to delegate any matter under consideration for the determination of a subcommittee appointed for this purpose from amongst the members of the two Committees. Question 2 The Insurance Association of India consists of _______ i. Members: All insurers that are incorporated or domiciled in India. ii. Members: All insurers incorporated and domiciled outside India iii. Associate members: all insurers incorporated and domiciled outside India iv. Associate members: insurers that are incorporated or domiciled in India  31 Which of the following options is correct? A. Only i. and iii. B. Only i. and iv C. Only ii and iii D. Only ii and iv Summary ! Insurance is a contract under which the insurer, in exchange for payments from the insured, agrees to reimburse the losses of the insured on occurrence of a specific event. ! IRDA is the regulator of insurance business in India. It is a national agency of the Government of India formed by an Act of Parliament known as the IRDA Act 1999. ! IRDA’s objectives include protecting the interests of the insured and promoting orderly growth of the insurance industry in India. ! Insurance association of India consists of members (All insurers incorporated and domiciled in India) and associate members (All insurers incorporated and domiciled outside India). ! The Life Insurance Council consists of all the members and associate members of the Association who carry on life insurance business in India. The objectives of Executive Committee include aiding, advising and assisting insurers carrying on life insurance business. ! The General Insurance Council consists of all the members and associate members of the Association who carry on general insurance business in India. The objectives of Executive Committee include to aid, advise and assist insurers in carrying on general insurance business. ! The duration of the Executive Committee of the Life Insurance Council or the General Insurance Council is three years from the date of its first meeting. Some important terms / definitions learnt in this chapter ! Insurance Regulatory and Development Authority (IRDA) ! Insurance Association of India ! The Life Insurance Council ! The General Insurance Council  32 Answers to Test Yourself Answer to TY 1 The correct option is B. The IRDA is established with the objective of protecting the interests of holders of insurance policies. SEBI is India’s stock market regulator. RBI is the central bank of India. AMFI is an apex body of all Asset Management Companies (AMC). Answer to TY 2 The correct options is A. According to Section 64A of the Insurance Act 1938, the Insurance Association of India consists of: 1. Members: All the insurers that are incorporated or domiciled in India. 2. Associate members: All the insurers incorporated and domiciled outside India. Self-Examination Questions Question 1 Which of the following is not an objective of IRDA? A. To protect the interest of and secure fair treatment to policyholders. B. To consolidate the various laws existing at that time and amend the law relating to the business of insurance. C. To ensure that insurance customers receive precise, clear and correct information about products and services and make them aware of their responsibilities and duties in this regard. D. To ensure speedy settlement of genuine claims, to prevent insurance fraud and other malpractices and put in place effective grievance redressal machinery.  33 Question 2 Which of the following is a duty of the IRDA? i. Protection of the interests of the policyholders in matters concerning assigning of policy, nomination by policyholders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance. ii. Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents. iii. Specifying the code of conduct for surveyors and loss assessors. A. Only i. and ii. B. Only ii. and iii. C. All of the above D. None of the above. Question 3 Which of the following is not among the Insurance Councils mentioned in Section 64C of the Insurance Act, 1938? i. The Life Insurance Council of India ii. The Health Insurance Council of India iii. The General Insurance Council of India A. Only i and iii B. Only ii C. All of the above D. None of the above Question 4 Choose the correct option to fill in the blank The duration of the Executive Committee of the Life Insurance Council or the General Insurance Council is ________ years from the date of its first meeting. A. One B. Two C. Three D. Four  34 Question 5 Whose function is to aid, advise and assist insurers carrying on life insurance business in the matter of setting up standards of conduct, sound practices and rendering efficient service to holders of life insurance policies? A. Executive Committee of the General Insurance Council of India B. Executive Committee of the Life Insurance Council of India C. Both of the above D. None of the above Answers to SEQ Answer to SEQ 1 The correct option is B. The Preamble to the Insurance Act, 1938 mentions that the aim of the Act is to consolidate (the various laws existing at that time) and amend the law relating to the business of insurance. Answer to SEQ 2 The correct option is C. All are the duties of IRDA according to Section 14 of the IRDA Act. Answer to SEQ 3 The correct options is B Section 64C of the Insurance Act, 1938 provides for two Insurance Councils in India. They are: 1. The Life Insurance Council: it consists of all the members and associate members of the Association who carry on life insurance business in India. 2. The General Insurance Council: it consists of all the members and associate members of the Association who carry on general insurance business in India.  35 Answer to SEQ 4 The correct option is C. The duration of the Executive Committee of the Life Insurance Council or the General Insurance Council is three years from the date of its first meeting, on the expiry of which the Executive Committee is dissolved and a new Executive Committee is constituted. Answer to SEQ 5 The correct option is B. According to Section 64J of the Insurance Act 1938, it is a function of the Executive Committee of the Life Insurance Council.