In LIC AAO exam, you will be tested on your understanding of insurance knowledge in General Awareness section. We are covering today the basics of insurance.
Insurance is “a promise of compensation for specific potential future losses in exchange for a periodic payment”. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.
Insurance therefore is a contract between two parties whereby one party agrees to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period (in case of life insurance) or to indemnify the other party on happening of an uncertain event (in case of general insurance).
Examples include car insurance, health insurance, disability insurance, life insurance, etc.
The party bearing the risk is known as the ‘insurer’ or ‘assurer’ and the party whose risk is covered is known as the ‘insured’ or ‘assured’.
Insurance Act, 1938
This Act came into force on 1st July 1939 and is applicable to the whole of India, except Jammu and Kashmir.
The purpose of enactment of this law is:
- To supervise all the organisations operating in insurance business in India.
- To increase deposit of insurance companies to ensure that they are adequately financed and conform to minimum capital requirements.
- Full disclosure of information is enforced to ensure soundness and transparency in management.
- Submission of accounts and inspection of insurance companies by authorities.
- Guidelines are laid for investment of funds by insurance companies.
- Regulations to govern the assignment and transfer of life insurance policies besides including the possibility of making nominations.
The Insurance Act, 1938 was amended in 1950, again in 1956 when life insurance business was nationalized and again in 1972 when general insurance was nationalised.
Insurance Regulatory and Development Authority (IRDA)
IRDA is the regulator of the insurance industry in India and was constituted by an Act of Parliament in 1997. It has the following mission: To protect the interests of the policy holders. To regulate, promote and ensure orderly growth of the insurance industry.
Duties, Powers and Functions of IRDA
Section 14 of the IRDA Act, 1999 lays down the duties, powers and functions of IRDA which are :
- Issuance of certificate of registration, renewal, modification, withdraw, suspend or cancel such registration;
- Protection of the policyholders interest;
- Laying down qualifications, training and code of conduct for intermediaries;
- Laying down code of conduct for Surveyors;
- Promote efficiency in the conduct of insurance business;
- Promoting and regulating professional organisations connected with the insurance and re-insurance business;
- Levying fees and other charges for carrying out the purposes of this Act;
- Calling for information, conduct of inspection, audit of all organizations associated with the insurance business;
- Control of the rates, terms etc. offered by general insurers in respect of business not controlled by Tariff Advisory Committee (TAC);
- Specifying the manner in which accounts should be maintained by insurers and intermediaries;
- Regulation of investment of funds by insurers ;
- Regulation of maintenance of solvency margins;
- Act as a dispute settlement authority between insurers and intermediaries;
- Supervise TAC;
- Specify the percentage of premium income to be utilised for promoting organizations mentioned in clause 6 ;
- Specify the rural sector obligation of insurers;
- Exercise any other powers as prescribed.
Reference – NCFM Insurance Module