REGULATION OF INSURANCE BUSINESS—SOME THOUGHTS
The fundamental attribute of insurance is the transfer of risks from an individual to a group. The risk only means there is a possibility of occurrence of loss or damage. It may or may not happen. There has to be an uncertainty about the risk. Insurance is done against the contingency that it may happen. Insurance is relevant only if there are uncertainties. There are other meanings of the term risk. To the ordinary man in the street risk means exposure to danger. In insurance practice, risk is also used to refer to the peril or loss producing event. For example, it is said that general insurance covers the risks of fire, explosion, cyclone, flood etc.
Conceptually, the mechanism of insurance is very simple. People who are exposed to the same risks come together and agree that, if any one of the members suffers a loss. The others will share the loss and make good to the person who lost. The manner in which the loss is to be shared can be determined before hand. It may be proportional to the likely loss that each person is likely to suffer, which is indicative of the benefit he would receive if the peril befell him. The share could be collected from the members after the loss has occurred or the likely shares may be collected in advance, at the time of admission to the group. Insurance companies collect in advance and create a fund from which the losses are paid.
It is a known fact that, a human life is also an income generating asset. This asset also can be lost through unexpectedly early death or made non-functional through sickness and disabilities caused by accidents. If it happens around the time of one’s retirement, when it could be expected that the income will normally cease, the person concerned could have made some other arrangements to meet the continuing needs. But if it happens much earlier when the alternate arrangements are not in place, insurance is necessary to help those dependent on the income.
In the case of a human being, he may have made arrangements for his needs after his retirement. These would have been made on the basis of some expectations like he may live for another 15 years, or that his children will look after him. If any of these expectations do not become true, the original arrangement would become inadequate and there could be difficulties. Living too long can be s much a problem as dying too young. These are risks which need to be safeguarded against.
Insurance does not protect the asset. It does not prevent its loss due to the peril. It is only tries to reduce the impact of the risk on the owner of the asset and those who depend on that asset. It compensates may not be fully, the losses. Only economic or financial losses can be compensated.
The concept of insurance has been extended beyond the coverage of tangible assets. In some countries, the voice of a singer or the legs of a dancer may be insured, even though the advantage of spread may not be available in these cases. The business of insurance is nothing but one of sharing of risks. The insurer is in the position of a trustee as it is managing the common fund for and on behalf of the community. It has to ensure that nobody is allowed to take undue advantage of the arrangement .Insurers play an important role in the social security schemes sponsored by the Government. The system of insurance provides numerous direct and indirect benefits to the individual and his family as well as to industry and commerce and to the community and the nation as whole.
Insurance Regulatory and Development Authority, an interim body was formed in the year 1999 and the act was passed. The objects stated in the act are as follows. An act to provide for the establishment of an authority to protect the interests of the holders of the insurance policies, to regulate, promote and ensures orderly growth of insurance industry for matters connected therewith or incidental thereto and further to amend the insurance act 1938, the Life insurance corporation act 1956 and the General insurance business [nationalization] act 1972
Powers and functions of IRDA
To regulate, promote and ensure orderly growth of the business and reinsurance business.
Issue a certificate of registration, renew, modify, withdraw, suspend or cancel such registration to the applicant i.e. insurance company. Prepare a code of conduct for the agents, surveyors, loss assessors or the inter mediaries who take part in the development of insurance business and in the settlement of claim. To exercise all powers and perform all functions of the controller of insurance under the insurance act 1938 and other related acts as mentioned above. To protect the interest of the policy holders in the matters concerning inter alia assigning of policy, settlement of insurance claim, terms and conditions of insurance contract etc. To promote efficiency in the conduct of insurance business. To promote and regulate professional organizations connected with the insurance business. To levy fees and other charges for carrying out the purpose of the proposed act. To call for information from, undertake inspections and conduct enquiries and investigations including audit of insurers, insurance intermediaries and other organizations connected with. To control and regulate the rates advantage, terms and conditions that may be offered by insurance in respect of general insurance business not so controlled by the Tariff advisory committee under section 64(v)(b) of the insurance act 1938. To regulate investments of funds by insurance company To regulate maintenance of margin of solvency. To adjudicate the disputes between insurers and intermediaries to exercise such other powers as may be prescribed by the central government.
Tags: BUSINESS—SOME, Insurance, REGULATION, THOUGHTS