ASSIGNMENT

QUESTIONS :
1. Discuss the history of Indian Insurance Industry
2. Is insurance a contract? Explain in detail.
3. Write a note on types of insurance.

SEMESTER 6 (2021-22)
SUBJECT : ECONOMICS
CLASS : BA 3
SECTION : A
FACULTY : FACULTY OF SOCIAL SCIENCES
PAPER : BANKING AND INSURANCE – II
NAME : KANHA SHARMA
CLASS ROLL NO. : 061
EXAM ROLL NO. : 19221ECO061
 1. DISCUSS THE HISTORY OF INDIAN INSURANCE INDUSTRY

The history of India’s insurance industry reflects the history of India’s economy.
Insurance companies in India were nationalised during pre-liberalisation. This was done
to protect the interests of policyholders. Two state-owned insurance companies were
thus created: the Life Insurance Corporation in 1956, and the General Insurance
Corporation in 1972 for the non-life insurance business.
Post liberalization, the industry was opened up. The Insurance Regulatory and
Development Authority of India (IRDAI) was created in 1999 to regulate the insurance
industry in India. Thus, the insurance sector was opened to private players. This allowed
foreign players to collaborate with Indian entities to enter the sector.
The number of insurance companies in India has increased quickly and continuously,
and this has led to a vibrant insurance sector- with more variety and affordability for the
consumer.

Insurance in India began around 1800 AD with agencies of foreign insurance starting a
marine Insurance business. Some Important milestones in insurance history are listed
below.
 1818: Oriental Life Insurance Company, the first life insurance company on Indian soil
started functioning.
 1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company
started its business.
 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate
the life insurance business.
 1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
 1938: Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.
 1956: Nationalization of life insurance: Life insurance business was nationalized on 1st
September 1956 and the Life Insurance Corporation of India (LIC) was formed through
the LIC Act, 1956. A capital contribution of Rs. 5 crores from the Government of India
was also made. There were 170 companies and 75 provident fund societies doing life
insurance business in India at that time. From 1956 to 1999, the LIC held exclusive rights
to do the life insurance business in India.
 1972: Nationalization of non-life insurance: With the enactment of General Insurance
Business Nationalization Act (GIBNA) in 1972, the non-life insurance business was also
nationalized and the General Insurance Corporation of India (GIC) and its four
subsidiaries were set up. At that point of time, 106 insurers in India doing non-life
insurance business were amalgamated with the formation of four subsidiaries of the GIC
of India.

 1993 Malhotra Committee established

 1994 Recommendations of the Malhotra Committee published
 1995 Mukherjee Committee established
 1996 Setting up of (interim) Insurance Regulatory Authority
(IRA)recommendations of the IRA
 1997 Mukherjee Committee Report submitted but not made public
 1997 The government gives greater autonomy to Life Insurance Corporation,
General Insurance Corporation, and its subsidiaries with regard to the
restructuring of boards and flexibility in investment norms aimed at channeling
funds to the infrastructure sector
 1998 The cabinet decides to allow 40 percent foreign equity in private
insurance companies—26 percent to foreign companies and 14 percent to non-
resident Indians and Foreign Institutional Investors
 1999 The Standing Committee headed by Murali Deora decides that foreign
equity in private insurance should be limited to 26 percent. The IRA bill is
renamed the Insurance Regulatory and Development Authority Bill
 1999 Cabinet clears Insurance Regulatory and Development Authority Bill
 2000 President gives assent to the Insurance Regulatory and Development
Authority Bill

Currently, 24 life insurance companies and 29 non-life insurance companies in

the Indian market compete with each other on price and service to attract customers.
Out of the 24 life insurance companies, Life Insurance Corporation of India (LIC) is the
sole public sector company fully owned by Government of India. All the policies issued
by LIC of India enjoys Sovereign guarantee of Indian Parliament.
 2. IS INSURANCE A CONTRACT? EXPLAIN IN DETAIL.

Insurance may be defined as a contract between two parties whereby one party called
insurer undertakes, in exchange for a fixed sum called premiums, to pay the other party
called insured a fixed amount of money on the happening of a certain event.

The insurance, thus, is a contract whereby

1. Certain sum. called premium, is charged in consideration

2. Against the said consideration, a large sum is guaranteed to be paid by the

insurer who received the premium

3. The payment will be made in a certain definite sum. I.e., I lose or the policy
amount whichever may be, and

4. The payment is made only upon a contingency

Since Insurance is a contract, certain sections of the Contract Act are applicable.

All agreements are contracts if they are made by the free consent of the parties,
competent to contract, for a lawful consideration and with a lawful object and which are
not hereby declared to be void.

Elements of Insurance Contract can be classified into two sections;

1. The elements of general contract and

2. The elements of special contract relating to insurance: the special contract of

insurance involves principles: insurable interest, utmost good faith, indemnity,
subrogation, warranties. Proximate cause, assignment, and nomination, the
return of premium.

Elements of Insurance Contract

This Act says that all agreements are the contract if they are made by the free consent
of the parties, competent to contract, for a lawful consideration and with a lawful object
and which are not at this moment declared to be void”.
The insurance contract involves—(A) the elements of the general contract, and (B) the
element of special contract relating to insurance.

The special contract of insurance involves principles:

1. Insurable Interest.

2. Utmost Good Faith.

3. Indemnity.

4. Subrogation.

5. Warranties.

6. Proximate Cause.

7. Assignment and Nomination.

8. Return of Premium.
 4. WRITE A NOTE ON TYPES OF INSURANCE.

The types of Insurance are as follows :

1. Life Insurance
2. General Insurance (which includes fire insurance, health insurance and marine
insurance)

1. Life Insurance:
Life insurance is a type of insurance policy in which the insurance company undertakes
the task of insuring the life of the policyholder for a premium that is paid on a
daily/monthly/quarterly/yearly basis.
Life Insurance policy is regarded as a protection against the uncertainties of life. It may
be defined as a contract between the insurer and insured in which the insurer agrees to
pay the insured a sum of money in the case of cessation of life of the individual (insured)
or after the end of the policy term.
For availing life insurance policy the person needs to provide some details like age,
medical history and any type of smoking or drinking habits.
As there are many requirements of persons for availing a life insurance, the
requirements can be needs of family, education, investment for old age, etc.
Some of the types of life insurance policies that are prevalent in the market are:
a. Whole life policy: As the name suggests, in this kind of policy the amount that is
insured will only be paid out to the person who is nominated and it is only payable on
the death of the insured.
Some insurance policies have the requirement that premium should be paid for the
whole life while others may be restricted to payment for 20 or 30 years.
b. Endowment life insurance policy: In this type of policy the insurer undertakes to pay
a fixed sum to the insured once the required number of years are completed or there is
death of the insured.
c. Joint life policy: It is that type of policy where the life insurance is availed by two
persons, the premium for such a policy is paid either jointly or by each individual in the
form of installments or a lump sum amount.
In the case of such a policy the assured sum is provided to both or any one of the
survivors upon the death of any policyholder. These types of policy are taken mostly by
husband and wife or between two partners in a business firm.
d. Annuity policy: Under this policy, the sum assured or the policy money is paid to the
insured on a monthly/quarterly/half-yearly or annual payments. The payments are
made only after the insured attains a particular age as dictated by the policy document.
e. Children’s Endowment policy: Children’s endowment policy is taken by any individual
who wants to make sure to meet the expenses necessary for children’s education or for
their marriage. Under this policy, the insurer will be paying a certain sum of money to
the children who have attained a certain age as mentioned in the policy agreement.

2. General Insurance:
General Insurance is related to all other aspects of human life apart from the life aspect
and it includes health insurance, motor insurance, fire insurance, marine insurance and
other types of insurance such as cattle insurance, sport insurance, crop insurance, etc.
We will be discussing the various types of general insurances in the following lines.
a. Fire Insurance: Fire insurance is a type of general insurance policy where the insurer
helps in paying off for any damage that is caused to the insured by an accidental fire till
the specified period of time, as mentioned in the insurance policy.
Generally, fire insurance policy is valid for a period of one year and it can be renewed
each year by paying a premium, which can be a lump sum or in installments.
The claim for a fire loss must satisfy the following conditions:
i. It should be an actual loss
ii. The fire must be accidental and not done intentionally
b. Marine Insurance: Marine insurance is a contract between the insured and the
insurer. In marine insurance, the protection is provided against the perils of the sea. The
instances of dangers in sea can be collision of ship with rocks present in sea, attacking of
the ship by pirates, fire in ship.
Marine insurance covers three different types of insurance which are ship hull, cargo
and freight insurance.
Ship or hull insurance: As the ship is exposed to many dangers at the sea, the insurance
covers for losses caused by damage to the ship.
Cargo Insurance: The ship carrying cargo is subjected to many risks which can be theft
of cargo, lost goods at port or during the voyage. Therefore, insuring the cargo is
essential to cover for such losses.
Freight Insurance: In the event of cargo not reaching the destination due to any kind of
loss or damage during transit, the shipping company does not get paid for the freight
charges. Freight insurance helps in reimbursing the loss of freight caused due to such
events.
Marine insurance is a contract of indemnity where the insured can recover the cost of
actual loss from the insurer in event of any loss occurring to the insured item.
c. Health Insurance: Health insurance is an effective safeguard for protection against
rising healthcare costs. Health insurance is a contract that is made between an insurer
and an individual or a group where the insurer agrees to provide health insurance
against certain types of illnesses to the insured individual or individuals.
The premium can be paid in installments or as a lump sum amount and health insurance
policy is renewed every year by paying the premium.
The health insurance claims can be done either directly in cashless or reimbursement
availed after treatment is done. Health insurance is available in the form of Mediclaim
policy in India.
d. Motor vehicle insurance: Motor vehicle insurance is a popular option for the owners
of motor vehicles. Here the owners’ liability to compensate individuals killed by
negligence of motorists is borne by the insurance company.
e. Cattle Insurance: In case of cattle insurance, the owner of the cattle receives an
amount in the event of death of the cattle due to accident, disease or during pregnancy.
f. Crop Insurance: Crop insurance is a contract for providing financial support to the
farmers in the event of crop failure due to drought or flood.
g. Burglary Insurance: Burglary insurance comes under the insurance of property. Here
the insured is compensated in the event of a burglary for the loss of goods, damage
occurred to household goods and personal effects due to burglary, larceny or theft.