INSURANCE LAW

TOPIC 1

Difference between law of contract, law of insurance and law of torts.

Contracts are the lifeblood of commerce and legal relationships, serving as the cornerstones of
agreements and obligations in the modern world. Whether you're purchasing a car, signing a lease,
or starting a business, contracts are integral to defining the terms and conditions that govern these
interactions. However, not all contracts are created equal. In this article, we will look to explore
the fundamental distinction between two crucial types of contracts: insurance contracts and general
contracts. While both serve the purpose of legally binding parties to their promises, these contracts
differ significantly in their nature, purpose, and intricacies. Understanding the nuances between
them is paramount, as it can have far-reaching implications for individuals, businesses, and society.

Let’s start with the basics first!

Understanding Contracts
Contracts are legally binding agreements between two or more parties. They outline the terms and
conditions of a particular transaction or relationship and set out the rights and obligations of each
party involved. When it comes to understanding contracts, it is important to note that there are
different types of contracts, each with its own specific features and requirements.

What is a General Contract?

A general contract, also known as a standard contract, is an agreement between two or more parties
that creates legally binding obligations. It is a type of contract that is not specific to any industry
or subject matter. General contracts are used in a wide range of business transactions, including
the sale of goods and services, employment agreements, and real estate transactions.

Elements of a General Contract

A general contract typically contains the following elements:

 Offer and acceptance: An offer is made by one party and accepted by the other party. The
offer must be clear, definite, and communicated to the other party. Acceptance must be
unqualified and communicated to the offeror.
 Consideration: Consideration is something of value that is exchanged between the parties.
It can be money, goods, services, or a promise to do something.

 Intention to create legal relations: The parties must intend to create legally binding
obligations. If the parties do not have this intention, then there is no contract.
  Capacity to contract: The parties must have the legal capacity to enter into a contract.
This means they must be of legal age, mentally competent, and not under duress or undue
influence.

 Lawful object: The object of the contract must be lawful. If the object is illegal, then the
contract is void.

What is an Insurance Contract?

An insurance contract is a legally binding agreement between an insurer and a policyholder. It
specifies the terms and conditions under which the insurer will provide financial compensation to
the policyholder in the event of a covered loss or damage. Insurance contracts are governed by the
principles of contract law, but they have some unique features that distinguish them from general
contracts.

Elements of an Insurance Contract

An insurance contract typically includes the following elements:

1. Offer and acceptance: The insurer offers to provide insurance coverage, and the
policyholder accepts the offer by paying the premium.
2. Consideration: The policyholder pays a premium in exchange for the insurer's promise to
provide coverage.

3. Legal purpose: The insurance contract must be for a legal purpose, such as protecting
against financial loss due to accident or injury.
4. Competent parties: Both the insurer and the policyholder must be legally competent to
enter into a contract.

5. Agreement: Both parties must agree to the terms and conditions of the insurance contract.
6. Insurable interest: The policyholder must have a financial interest in the property or
person being insured.

7. Utmost good faith: Both parties must act in good faith and disclose all relevant
information.

Comparison of Insurance and General Contracts

Legal Differences
An insurance contract is a legally binding agreement between an insurance company and the
insured party. It is a type of contract that is governed by specific laws and regulations. On the other
hand, a general contract is a legally binding agreement between two or more parties that is not
necessarily governed by specific laws and regulations.
One of the key legal differences between an insurance contract and a general contract is that an
insurance contract is a contract of utmost good faith. This means that both parties to the contract
are expected to act in good faith and disclose all relevant information to each other. Failure to do
so can result in the contract being voided.

Another legal difference is that an insurance contract is a contract of indemnity. This means that
the insurance company is obligated to compensate the insured party for any losses that they may
incur because of an insured event. In contrast, a general contract does not necessarily involve
indemnity.

Practical Differences
One of the practical differences between an insurance contract and a general contract is that an
insurance contract is typically more complex and involves more paperwork. This is because
insurance contracts often involve detailed terms and conditions, as well as exclusions and
limitations.

Another practical difference is that insurance contracts often involve the payment of premiums.
This is a regular payment made by the insured party to the insurance company in exchange for
coverage. In contrast, a general contract may not involve any payments.

Finally, insurance contracts often involve the use of insurance agents or brokers. These
professionals can help the insured party navigate the complex terms and conditions of the contract
and ensure that they are getting the coverage that they need. In contrast, a general contract may
not involve the use of any intermediaries.
To sum up, there are significant legal and practical differences between an insurance contract and
a general contract. While both types of contracts are legally binding agreements, insurance
contracts are subject to specific laws and regulations and often involve more complex terms and
conditions, payments, and intermediaries.

Conclusion
In the subject matter of contracts, the distinction between an insurance contract and a general
contract may seem subtle but holds immense significance. Understanding the unique
characteristics, purposes, and intricacies of these two types of agreements can be the key to making
informed decisions in various aspects of life and business.
Through this article, we have unraveled the essential disparities that set insurance contracts and
general contracts apart. The distinctions between these contract types underpin the legal
framework that shapes our interactions, and by comprehending them, you are better equipped to
navigate the complex world of contracts and make choices that align with your goals and interests.
If you have any queries on any topic related to Business Insurance, you may contact BimaKavach.
Here, you can get the best recommendation for any insurance product in just 5 minutes.
Difference Between Tort and Contract

Contract Law encompasses consent-based relationships between parties. In this one party to the
contract agrees to perform a certain obligation in exchange for something from the other party.
Contracts indicate commitments made by the parties for the future. The parties entering into the
contract expect the fulfilment of the commitment in future.
Conversely, Tort Law is concerned with non-consensual relationships, wherein the action or
omission of one party causes harm to another.

A tort is a civil wrong which is different from a breach of contract. Hence, the legal rules regarding
contractual responsibility of the fault vary from those regulating tort liability. While tort implies a
violation of law, a breach of contract is nothing but an infringement of legal rights.
There are a number of differences between Tort and Contract which we are going to discuss here.

Content: Tort Vs Contract

1. Comparison Chart

2. What is Tort?
 Classification

3. What is a Contract?
 Examples

 Essentials of a Valid Contract

4. Key Differences
5. Conclusion

Comparison Chart

BASIS FOR
TORT CONTRACT
COMPARISON

Meaning A tort is an unjustified act or omission The contract is an agreement which

which results in harm to another person or can be enforced in a court of law.
property.
BASIS FOR
TORT CONTRACT
COMPARISON

Liability Parties are liable for the breach of the Depends upon the breach of legal
terms of the agreement. duty towards other persons.

Duties It is the law which determines duties. It is the parties to the contract which
determine duties.

Minors Minors can be sued for recovery of The liabilities of minors are limited.
damages.

Rights and It results from common law created by the It results from the agreement
Obligations court. It is based on circumstances. existing between the parties
concerned.

Compensation Backward-looking Forward-looking

Duty Owed to the community at large. Owed to the specific persons.

Damages Real, Exemplary, Unliquidated or Real and Liquidated

Contemptuous.

Period of Limitation It is considered from the date when the It is considered from the date of
damage is suffered. breach of contract.

Consent Committed without consent. Based on the consent of contracting

parties.

Law Made by judges Codified law

Lawsuit The third-party can also file a lawsuit. Only contracting parties can file a
lawsuit, except under certain
conditions.

Remedy Claim for unliquidated damages. Claim for liquidated damages.

Privity No privity exists. Privity of the contract must be

present.

What is Tort?
Tort Law aims at determining whether one party is accountable for the harm caused to another
party. Further, it also ascertains the amount to be paid by the defendant to the affected party as
compensation. In tort law, the word harm covers:

 Pain
 Payment of medical expenses

 Loss of future income and suffering

 Property damage

 Unexplainable loss of wages

The point to note here is that the objective of compensating the aggrieved party is to pay for the
damages of a person’s inflicted rights, as they were pre-tort.
Furthermore, there are some cases in which along with the compensatory damages, the court
rewards Disciplinary damages to the aggrieved party. The main intention behind doing so is not
to reimburse, but it aims at penalizing the irresponsible behaviour of the defendant and preventing
others from adopting such behaviour.

Classification of Tort

Intentional Tort
As the name suggests, an intentional tort is when someone intentionally does or adopts wrongful
conduct, resulting in harm to some other person. In this, the aggrieved party is required to prove
that the tort was committed deliberately or purposefully.
Examples: Trespass, Assault, Fraud.

Negligence Tort
One in which a party fails to adopt a reasonable standard of care. To be called a negligence tort, it
must qualify the following criteria:

 Duty of care
 Violation of that specific duty

 Causation
  Presence of Damages
The maximum number of torts which are brought to the court is due to negligence.

Examples: Accidents by vehicles, Medical malpractice, etc

Strict Liability Tort

The kind of liability that does not pay attention to the presence of intention or negligence or mental
state of the accused.
Example: Owning wild animals, Planting poisonous trees, etc.

Also Read: Difference Between Tort and Crime

What is a Contract?
The contract implies any agreement which can be legally enforceable. So, agreement and legal
enforceability of the agreement are the two important elements of a contract.
Meaning of Agreement: Well, when a person makes a proposal to another person and that
proposal is accepted within the given time frame, it turns out as a promise. Every promise and its
set thereof that forms consideration for the parties concerned, is an agreement.
Meaning of Legal Enforceability: When an agreement is enforceable by law, it means that it
creates legal obligations. Hence, the parties to the agreement are obligated to perform their part. If
any of the parties fail to do so, the other one has the right to sue.

Contract Law is concerned with the fundamental principles of law related to contracts including
special provisions regarding Bailment, Indemnity, Guarantee, Agency and Pledge. It aims at
regulating the behaviour of the parties to the contract so that any issues arising between them can
be resolved in a proper manner.
Note: The Contract Law applies to all day-to-day personal dealing and not only to business
transactions.

Examples
 When you purchase vegetables from the vegetable seller, you enter into a contract with the
vegetable seller.

 When you take a taxi to the office, you enter into a contract with the taxi service company.

Essentials of a Valid Contract

Offer
When one party proposes something to another party, the proposal is said to be the offer.

Acceptance
The proposal is said to be accepted when the person to whom the offer is made approves the same.
On the acceptance, the proposal becomes a promise.

Intent to create a legal relationship

One must take note that the offer is made with the intent to enter into a legal relationship.

Competence
Contracting parties must be in a capacity to enter into a contract
 They should have attained the age of majority.

 They must be of sound mind. That means he must be able to understand the terms of the
contract completely.
 Also, they should not be disqualified by law to enter into a contract.

Free Consent
The parties must give their consent freely and genuinely. So, it should not be affected by coercion,
undue influence, fraud and misrepresentation. This means that the parties must accept the proposal
without any kind of threat or fear.

Lawful Consideration
It refers to ‘something in return’. The agreement must be backed by consideration by both parties.
Basically, it is the price for the promise. It is not necessary that consideration should be in cash
only. That is the consideration can be in kind also
Lawful Object
The object of the contract must be lawful, i.e. it should not be immoral, forbidden by law, unlawful,
or opposed to public policy. In other words, it should not promote illegality in any way.

Certainty of Meaning
The parties must agree on the same thing in the same sense, i.e. consensus-ad-idem.

Possibility of Performance
An agreement comprises reciprocal promises. These promises must be possible to perform. Hence,
an agreement of performing an impossible act is legally unenforceable.

Agreement not expressly declared void

Some agreements are declared void by the law which includes wagering agreement, agreement in
restraint of trade, agreement in restraint of marriage, agreement with minors, etc.

Writing and Registration

A contract can be oral or written. however, in special cases, the contract must be written as well as
registered.

Also Read: Difference Between Contract and Agreement

Key Differences Between Tort and Contract

1. A wrongful act or negligence that causes damage to life or property comes under tort. As
against, the contract is the legal agreement between two or more persons, for mutual
consideration and a lawful object.
2. The parties to the contract are liable for the breach of its terms. As against, in tort, the
liability of the parties will rely upon the breach of legal duty towards other persons.

3. The rights and obligations in case of tort result from common law created by the court. It
is based on circumstances, i.e. it varies from one case to another. Further, it applies even
when the parties are strangers. On the contrary, contract law results from the agreement
existing between the parties concerned. Moreover, the contract law is subject to privity, i.e.
only the parties to the contract can sue and be sued.

4. Tort involves a violation of a right in rem, which means the right vested in the public at
large. This is available to the world at large. Conversely, in the case of a contract, there is
a violation of a right in personam. It implies that the right is available and enforceable
against specific persons.

5. In tort, the duties and obligations are decided or imposed by law. Further, it is owed to the
community as large. Conversely, in a contract, the duties and obligations depend upon the
consent of the parties and the terms of the agreement. However, it is owed to the parties
concerned.
6. In the case of tort, privity does not exist, as harm is inflicted against the consent of the
aggrieved party. In contrast, in the case of a contract, privity is present between the parties
as they are legally bounded against each other.
7. In tort, minors can be sued for recovery of damages, out of their property. As against, in
contract law, the minority is a good escape or defence. This is because the contract with
minors is void from the very beginning. Hence, no rule of estoppel is applicable.

8. In case of tort, real, exemplary, unliquidated or contemptuous damages are awarded to the
aggrieved party. In contrast, real and liquidated damages are awarded to the aggrieved
party.
 9. In contrast, the remedy for the breach is confined to the performance of the agreement,
recovery of damages or termination of the agreement. Conversely, in tort, the remedy cover
compensation for the damage suffered, injunctions for stopping further damage, etc.

Conclusion
Above all, in contract law, the damages are confined to the losses which the parties incur as a direct
consequence of the breach of contract. In tort law, the damages cover compensation of different
types including damage to property, physical and emotional harm, loss of income, etc.

Among the terms used most often in the legal world are "contract" and "tort." Despite the
fact that they both deal with legally binding contracts, they have several key differences.

Consent is typically the deciding factor in whether something is a contract. In a contract, the
conditions are agreed upon by both parties. A tort occurs when one party is accused of willfully
breaking an obligation owed to another party.

What is Tort Law?

Torts are civil wrongs that can be committed by one person against another. In contrast to a
contract, there is no requirement that the parties have any form of relationship. The only
requirement is that one party violates an obligation that he or she has towards the other party.

Negligence, deliberate torts, and strict responsibility torts are the three primary categories of torts.

Intentional Torts

As the name implies, intentional torts are those in which the defendant harmed the plaintiff on
purpose. You might be familiar with assault, battery, and false imprisonment as examples of
deliberate torts.

Negligence

The most prevalent kind of tort is negligence. Damages are brought about when the defendant
violates a duty of care given to the plaintiff.

Strict Responsibility Torts

In certain situations, even though the defendant is not at fault, they are nevertheless responsible
for the damages. This is typically applicable when the defendant is taking part in a risky activity.

What is Contract?

A two or more parties’ agreement that establishes duties that can be enforced legally is generally
referred to as a contract. The agreement may be expressed explicitly or impliedly, and it may be
written or oral.

In order for a contract to be enforceable in court, the following conditions must be met:

 Offer: One party must make an offer to the other.

 Acceptance: The terms of the offer must be accepted by the other party.
 Consideration: The exchange of something of value, such as cash, products, or services,
is required from both sides.
 Competent to make Contract: Both parties must be of legal age and be able to
comprehend the conditions of the contract.
 Legality: The clauses of the contract cannot be forbidden by law.

To be valid and enforceable, most contracts typically need formalities like signing or exchanging
money. However, in some circumstances, the contract might be inferred from the behavior or
statements of the parties.

Difference Between Tort and Contract

Based on above discussion, the following table highlights the major differences between tort and
contract −

Tort Law Contract Law

Since harm is always done against the will of the The parties to a contract must always be
party affected, no privity exists or is required in tort legally bound to one another, or there cannot
law. be a valid contract.

Minors have the right to sue for torts, and any Minority is a strong defense because a minor's
damages awarded are paid from their assets. contract is null and void, and the estoppel rule
does not apply.
  Rule of Estoppel: If someone else
believes something to be true that isn't
really true, he or she is then prohibited
from denying it in the future.
Note: However, if it is in the interest of a
minor, a law suit may be filled and contract
will be considered as valid.

Without or against the consent of the party, a tort is The parties' agreement is the basis of the
committed; hence, no consent is required for the contract's duty; thus, agreement is the
obligation to exist. Or in other words, in this case, contract's essential component. Or in other
acquaintance or prior familiarity/relation is not a words, only the parties involved in the
criteria rather anyone (even stranger) who commits contract have such right, any third person
wrong and violates/harms some else property or cannot initiate a law-suit or claim for the
causes bodily harm, will be responsible for the damages in any case.
damages.

Duties determined by Law Duties determined by the parties i.e. under

terms and conditions of contract/agreement.

Conclusion

Contracts and torts are both crucial aspects of our daily lives. Both of these concepts should be
understood and used correctly. The court assists the person who has been harmed in seeking
remedy and obtaining compensation from the other party. And when a contract is broken, the
parties agree on the appropriate remedy. Contract and tort are important considerations on their
own fields.

Although the themes of tort and contract are related, they belong to different areas of the law.

Tort Liability Versus Insurance and Regulation

As noted above, tort liability is only one of the tools that society uses to try to supplement market
mechanisms, such as contracts and private insurance. Other tools are regulation and public
compensation programs (such as the workers’ compensation system). All of those policy tools
have strengths and weaknesses—as do markets—so using them in combination may be beneficial.
However, the interactions among different tools and the market can be complex and even
counterproductive.15

The interplay between liability and private insurance is perhaps the most complicated. From the
point of view of potential victims, tort liability acts as a partial substitute for their own insurance—
the more comprehensive the set of injuries for which they receive tort damages, the fewer the
injuries ultimately compensated by their own coverage. Conversely, from the perspective of
potential injurers, liability increases uncertainty, leading many of them to buy liability insurance
to control that uncertainty. The extensive use of such insurance makes analyzing the efficiency of
tort liability more complicated, because it may undermine potential injurers’ incentives to exercise
care. The degree to which it does so hinges on the precautions (if any) that insurance companies
require as a condition for providing coverage and also on the thoroughness of their underwriting.
The more they tailor their premiums to policyholders’ specific practices or experiences, the more
incentive potential injurers still have to take cost-effective precautions.

The interactions between liability and regulation are perhaps less complex—but in that case also
the two can be complements as well as substitutes. 16 In particular, tort lawsuits can be used as a
private mechanism for enforcing regulations, particularly when government agencies lack the
resources to monitor compliance or prosecute violations themselves. Such lawsuits may be
explicitly authorized by statute, as in the case of some civil rights laws. Alternatively, judges may
decide that tort claims are an appropriate means by which to carry out the intent of particular
statutes. For example, a court may allow a tort claim of deceit under a statute that makes it a crime
to roll back an automobile’s odometer. 17

As alternatives to each other, regulation is a more centralized policy tool than liability is. The
centralized approach may be more or less efficient for particular classes of injuries—on the one
hand, it tends to have lower transaction costs; on the other hand, the regulations it produces can
only be as good as the information available to the central decisionmakers. Whereas tort claims
arise after specific injuries occur, efficient regulation requires before-the-fact information about
risks of injury, types of precaution, and the costs and benefits associated with particular regulatory
standards. In addition, the more diverse that a given group of potential injurers is, the greater the
amount of information that will be necessary to craft regulations that appropriately reflect the
group’s various circumstances. In practice, the efficiency of regulations can also be lessened by
political factors, such as pressure from interest groups or excessive influence from the regulated
entities.

Next > The Costs of the Tort System

15. The relative use of those different policies varies significantly among countries. The United
States relies more heavily on tort liability than 11 other industrialized nations do, judging from the
estimated shares of gross domestic product that those countries spend on their tort systems; see
Tillinghast-Towers Perrin, U.S. Tort Costs: 2000— Trends and Findings on the Costs of the U.S.
Tort System (February 2002). The different policy mixes may reflect underlying differences in
national conditions (such as in the homogeneity or diversity of the industrial sector) and values
(such as in conceptions of equity or willingness to trade equity for efficiency).

16. For a more extensive discussion of the potential complementarities and conflicts, see Susan
Rose-Ackerman, “Product Safety Regulation and the Law of Torts,” in Janet R. Hunziker and
Trevor O. Jones, eds., Products Liability and Innovation: Managing Risk in an Uncertain
Environment (Washington, D.C.: National Academies Press, 1994), pp. 151-158, available
at www.nap.edu/openbook/0309051304/html/151.html.

17. For a discussion, see American Law Institute, Restatement of the Law Second,
Torts (Philadelphia: ALI, 1979), section 874A.

Last reviewed October 2023

https://www.tutorialspoint.com/tort-law-vs-contract-law
https://blog.ipleaders.in/difference-between-tort-and-breach-of-contract/

https://keydifferences.com/difference-between-tort-and-
contract.html#:~:text=Contracts%20indicate%20commitments%20made%20by,party%20causes
%20harm%20to%20another.

https://www.justia.com/injury/docs/us-tort-liability-primer/tort-liability-versus-insurance-and-
regulation/
https://link.springer.com/article/10.1057/palgrave.gpp.2510074#:~:text=Insurance%20and%20in
centives%20to%20take%20care&text=The%20potential%20tortfeasor%20relaxes%20in,of%20i
ncentives%20for%20efficient%20behaviour.

TOPIC 2

Risk- commencement, attachment and duration.

Definition of Risk in Insurance
Risk in insurance can refer to the possibility or chance that any unexpected event or events will
occur leading to the loss of life or loss or damage to any property of the person who takes insurance
by paying the insurance premium calculated by the insurers based on the probability of an event
and its impact.

Explanation
The risk is any event or happening that no one plans, but if it happens, it eventually causes life or
financial loss to any person. The risk is neither inevitable nor predictable. In the case of risk
insurance or risk in insurance, insurers assess the policy taken by the policyholder and pay the sum
of money (financial value of damages caused) based on terms and conditions covered in the
approach to compensate for the loss suffered by the policyholder.
Types of Risk in Insurance

The different types of risk in insurance are as follows:

 Financial Risk: Financial risk is a risk whose monetary value of a loss on a particular event
can be measured. The loss assessment can carry out; thus, proper monetary value can be
given regarding such losses. We can take, for example, the loss associated because of
material damage to the property upon the happening of an event. Therefore, these risks can
be insured and are the core subject while doing insurance.
 Non-Financial Risk: Non-financial risk is a risk whose monetary value of a loss on a
particular event cannot be measured. Loss assessment is practically not feasible; thus, one
cannot measure the same in monetary terms. A wrong decision or choice may result in
probable disliking, discomfort, or embarrassment, which could not be measured in
monetary terms. This risk cannot insure. An example of non-financial risk is the wrong
selection of the type of mobile phone.

 Speculative Risk: Speculative risk is the uncertainty regarding an event being considered
and the happening or non-happening of such event would lead to either profit or loss. This
type of risk is generally not insurable. An example of this type of risk is purchasing the call
option of any stock. The option’s price will depend upon the movement of the associated
stock and the time to expiry of the contract.
 Pure Risk: Pure risk relates to the happening of any event which would lead to either loss
to the person or may end up in a break-even situation. It will not lead to profit in any
circumstances. These types of risks are insurable and non-controllable. This type of risk
generally arises in a natural calamity, fire, etc. Upon any natural calamity, it would not,
under any circumstances, end up generating profits because of such calamity.
  Fundamental Risk: Fundamental risk is the risk that is intrinsic to the state of being, or it
may be an absolute hazard, thus producing no such uncertainty about the loss. The
happening of such an event is not under the control of any person. The origin of this type
of risk is on an individual level, and its impact can also be felt at a localized level. We can
take, for example, the event of an accident on a bus.

 Static Risk: Static risk is the risk that does not involve losses caused by changes in the
business environment and remains constant over the period, i.e., the risks associated with
the losses that would cause a stable economy. Any unexpected natural event or destructive
human behavior mainly causes it. For example, the risk that damage will be caused due to
heavy rains is covered under the static risk.

 Dynamic Risk: Dynamic risk associates losses with a stable economy. It affects a large
number of individuals as it does not occur regularly. For example, the risk that failure will
be caused due to changes in the technology is covered under the dynamic risk.

 Particular Risk: Particular risk can refer to the risks that affect only an individual & not
everyone in the community. For example, if any person’s assets are stolen, the loss falls on
that person only and not on anyone else. Thus risks are the responsibility of the person, not
the society as a whole.
Risk In Insurance and Its Transfer

It prefers that any risk an entity or an individual does not want to bear alone passes on or transfers
to the other entity. This process of transferring the risk is known as insurance, where the transferor
of risk is known as the insured, and the transferee party is known as the insurer. The person pays
an agreed amount known as the premium for the risk transfer. In exchange, the insurer agrees to
indemnify the insured against losses that could result from the specified perils. In short, when any
person feels unsecured & wishes to get such risk secured by paying a certain amount of money
(premium) is known as the transfer of risk in insurance.
Conclusion
Thus, risk in insurance is the risk that any unexpected event will cause loss of life or financial loss
to any property. If any person is unwilling to bear such risk and wants to transfer the same, then
such transfer is possible by taking the insurance policy. In the case of insurance, the insurer agrees
to undertake a person’s risk in exchange for a certain premium, which calculates the essential
nature of risk and its impact. If such an unexpected event happens and causes loss to the insured
person, the insurer has to pay the amount of loss incurred based on the terms of an insurance policy.

Again…….
Types of Risk in Insurance
There are several risk types which are present in insurance. People take insurance for such risks.
The covers and policy types also vary with such risk types. One must understand them and ensure
that they have measures for financial protection. Read below the classification of risk in
insurance types.

o Pure risk: This risk type is when the affected party can only incur a loss or remain in the
same position. The individual cannot gain anything from a pure-risk event. The companies,
for example, may make a loss or cover the costs. It cannot lead to a profit for the firm. An
example can be a natural calamity. A person may lose their house in such an event.
However, their house may remain the same and not be affected by the calamity. They
cannot gain anything in that event.

o Speculative risk: This risk type relies on speculation. It means the individual can also profit
or gain from such a risk. The loss or no-affect factors are still present. The classification of
risk in insurance in this type is that the individual may gain, remain in the same position,
or incur a loss. An example can be an investment in a company's shares. These shares can
appreciate or lose value. They may also trade at the same levels. This case results in
speculation.

o Financial risk: This risk type is the main base of insurance. Such risks are for events that
are bound to make a financial loss. The insurance companies evaluate and cover such
losses. For example, a company may lose their goods in a warehouse fire. This event risk
is thus a financial loss. The company can take insurance to cover the fire losses.

o Non-financial risk: This risk type is related to events where the risk loss is not measurable.
Insurance companies cannot quantify the amount. Thus, they don't offer insurance policies
for the same. For example, a person cannot avail of any loss if they select a bad phone
brand. This risk is usually not insurable.

o Particular risk: This risk type is for a particular event that comes up with the actions of an
individual or group. It affects only a few people or that group. For example, a car accident
is usually localized to the involved parties. They get the damages. Insurance policies are
available for such risks.
o Fundamental risk: The classification of risk in insurance of this type impacts the population
or a big group. Such events are not under anyone's control. They lead to losses for several
people. For example, an earthquake usually impacts a big area. Many people face the loss,
and this event isn't under their control. Such events can also have insurance policies.
o Static risk: These risks have similar levels over the periods. They are the effects of one's
actions. Also, the business environment or market doesn't impact such risks. For example,
money fraud by an organization's employees is a static risk. The companies usually offer
coverage for such risks.
 o Dynamic risk: These risks are the results of the market environment and changes. They are
often unpredictable. They affect several market players. For example, a new product may
significantly shift customer preferences. It can affect all the other companies.

Commencement

As you are aware that Insurance is a contract between insured and insurance company, and it
covers injuries /damages due to insured perils/risks. The time of commencement of risk cover is
the utmost important in the insurance policy. Generally, risk cover commences from the date of
acceptance of insurance plan or the date of receipt of first premium in full (except in some cases),
whichever is later. Please note that date of issue of insurance policy in some cases not considered
as effective date of commencement of risk coverage. Generally, it is mentioned in the Insurance
Policy the date and the time from which your risk coverage starts.

DATE OF COMMENCEMENT OF RISK

It means the date as mentioned in the Policy Schedule from which the insurance benefits start
under the Policy or on which date the risk commences under the Riders, if opted for.In simple
terms, the Date of Commencement is when the policy comes into effect. It is also referred to as
the risk commencement date. The risk covered under the policy starts after the realisation of the
premium payment. The policy begins to cover the risk only after compliance with the conditions
as specified by the insurance company.

SECTION 64VB IN THE INSURANCE ACT, 1938 64VB

No risk to be assumed unless premium is received in advance.

(1) No insurer shall assume any risk in India in respect of any insurance business on which
premium is not ordinarily payable outside India unless and until the premium payable is received
by him or is guaranteed to be paid by such person in such manner and within such time as may be
prescribed or unless and until deposit of such amount as may be prescribed, is made in advance in
the prescribed manner.

It is important to check effective date of commencement risk in your insurance policy. In case of
specified contract with insurer , the risk coverage commences on date which is specifically
mentioned in the Insurance Contract /Policy. In a case which is not specific and where no date is
mentioned for commencement of risk, the risk starts midnight of the same day.
Suppose Mr. X has paid premium to the agent on 01.04.2022 at 10.30 AM and insurance company
issued policy on the 01.04.2023 effective from 0.00 hours on 02.04.2022 for further one year. In
this case it does not mean that the risk coverage will start on 02.04.2022 at 0.00 hours onwards but
the time of payment of premium is an important criterion , soon after payment of premium contract
of insurance begins.

PLEASE NOTE THAT:

Therefore, as per Section 64VB of the Act above stated, the provision is very clear that soon after
the receipt of the payment of premium by the owner and received by the Insurance Company then
the contract of insurance begins between them. Issuance of policy is consequent effect after receipt
of premium.

If there is a specific contract is made between the insurer and the insured that the risk is to be
covered from that point of time itself is concerned, then that shall be specifically stated in the
Insurance Policy, and it is a specific contract between the insurer and insured so far as time of
commencement of risk.

If there is no specific contract stating to cover the risk from that particular point of time, then
generally in the Insurance Policy it is stated that the Insurance Policy commences from 00.00 hours
by mentioning the next day date commencing from 00.00 hours (midnight) on next date.

Therefore, where there is no specific contract of mentioning time between insurer and insured
regarding mentioning of time so as to cover the risk then generally the policy commences from
00.00 hours (mid night) by mentioning the date of the next day.

In absence of mentioning specific time of commencement of covering risk, therefore upon

considering this and applying the same in the present facts and circumstances and by following
the legal provision enshrined under Section 64VB of the Act it can be safely held that from the
time of making payment of premium itself covering risk starts.

LET'S CONSIDER SOME JUDICIAL DECISIONS

1. In New India Assurance Co. v. Bhagwati Devi reported in 1998 (6) SCC 534, the accident
occurred at 11 A.M., on 17.02.1989. The policy was issued at 4.00 P.M., on the same date. The
Claims Tribunal awarded compensation to be paid by the Company, following two decisions of
the Apex Court in New India Assurance Co. Ltd. v. Ram Dayal reported in 1990 ACJ 545 (SC)
and National Insurance Co. Ltd., v. Jikubhai Nathuji Dhabhi reported in 1997 ACJ 351 (SC).

Testing the abovesaid decisions, the Apex Court, following larger Bench decisions, which held
that when there is a special contract mentioning the time in the policy and it would be operative
from that time and not fictionally, from the previous midnight and having regard to the facts of the
case, held that,

i) the policy had been bought at about 4 p.m., on the day of the accident and, thus, was not allowed
to be operative from midnight; the accident having occurred around 11 a.m., on that date. The
principle deduced is thus clear that should there be no contract to the contrary, an insurance policy
becomes operative from the previous midnight, when bought during the day following. However,
in case there is mention of a specific time for its purchase then a special contract to the contrary
comes into being and the policy would be effective from the mentioned time.

2. In Balbir Kaur v. New India Assurance Co. Ltd., reported in 2009 ACJ 1848, the accident took
place on 18.03.1996.The company received the premium on 15.03.1996 and issued a cover note
with effect from 19.03.1996.The Tribunal, allowed compensation against the Insurance Company.
The High Court held that the Insurance Company was not liable and directed the claimant to refund
the compensation withdrawn by him, to the Insurance Company. Owner of the vehicle did not file
any appeal against the order of the High Court.

On appeal filed by the claimant, the Apex Court, at Paragraphs 13 to 15, held as follows:

"13. For the purpose of this case, we would assume that an insurance policy, in law, could be
issued from a future date. A policy, however, which is issued from a future date must be with the
consent of the holder of the policy. The insurance company cannot issue a policy unilaterally from
a future date without the consent of the holder of a policy. Even the said circular letter had not
been produced and/ or no material was placed as to why the policy was issued from a later date. It
is, however, not necessary for us to delve deep into the matter in view of the limited notice issued
by this Court.

14. Respondent No. 3, however, owner of the vehicle has not questioned that part of the order
passed by the High Court. He, therefore, accepted the judgment of the High Court. Accordingly,
liability to pay the awarded amount by him is not in question.

15. Keeping in view the peculiar facts and circumstances of the case and in particular having regard
to the fact that the appellants have already withdrawn the amount, the interest of justice would be
subserved if this Court in exercise of its discretionary jurisdiction under Article 142 of the
Constitution of India direct the insurance company not to recover the amount from the appellants
herein, subject of course to its right of recovery from the owner and the driver of the vehicle."

3. In National Insurance Co. Ltd., v. Geetha reported in 2004 (1) TNMAC 174 (DB), the accident
occurred on 15.06.1998, about 5.30 A.M. The policy was issued on the basis of the premium paid
on 12.06.1998, but effective only from 15.06.1998 at 10.00 A.M., to Midnight of 14.06.1999.
Having regard to the receipt of premium on 12.06.1998, the Tribunal fastened liability on the
Company. On appeal, though the learned counsel for the claimant therein relied on a Hon'ble
Division Bench judgment of this Court in United India Insurance Company v. S.Viswanathan
reported in 2003 (2) CTC 72, distinguishing the said case and after considering the binding nature
of the contract, as per the insurance under, the Contract Act and following the decisions in Oriental
Insurance Co. Ltd. v. Vedathal [Letter Patent Appeal No.190 of 1999, dated 12.11.2002], stated
supra, National Insurance Co. Ltd., v. Jikubhai Nathuji Dhabhi reported in 1997 ACJ 351 (SC),
Oriental Insurance Company v. Sunita Rathi reported in 1998 ACJ 121 and New India Assurance
Co. Ltd., v. Rula reported in AIR 2000 SC 1082, this Court in Geetha's case, cited supra, held as
follows:

15. In view of the above settled principles of law, the appellant-Insurance Company is correct in
challenging the award of the Tribunal on the ground that they are not liable as the Insurance policy
was issued with the specific mention of the time and date of commencement of the insurance and
the accident took place before the said time mentioned in the policy. There is, thus, a basic fallacy
in the conclusion reached by the Tribunal on this point.

4. In Oriental Insurance Co. Ltd., v. Porselvi reported in 2009 (2) TNMAC 161 (SC), the accident
occurred on 28.05.1996. The policy cover was for the period from 29.05.1996 to 28.05.1997. Since
cover note had been issued on 28.05.1996, which was also entered in the Policy, the High Court
felt that the finding of the Tribunal, fastening liability on the Insurance Company, cannot be termed
as perverse. Being aggrieved by the same, the Insurance Company took the matter on appeal to
Supreme Court. Though strong reliance has been made on the cover note, dated 28.05.1996, after
examining the same, and the relevant portion in the policy, effective date of commencement of
insurance for the purpose of the Act, from 0' Clock on (date) 29.05.1996 to midnight of 28.5.1997
and following a Three Judges Bench Judgment of the Apex Court in New India Assurance Co.
Ltd. v. Sita Bai (Smt.) and Ors. reported in 1999 (7) SCC 575, the Supreme Court in Porselvi's
case, referred to above, set aside the judgment of the High Court. Sita Bai's case, (cited supra),
referred to in the above reported case, is extracted hereunder:
The correctness and applicability of the judgment in Ram Dayal's case (supra) came up for
consideration before this Court subsequently in a number of cases.

5. In New India.Assurance Col Ltd. Vs, Bhagwati Devi and Ors. - Civil.appeal No. 1550 of 1994,
decided on 10.2.1998. a three- Judge Bench of this Court relied upon the view taken in National
Insurance Co. Ltd. Vs. Jikubhai Nathuji Dabhi (Smt) and Ors., [1997 (1) SCC 66], wherein it had
been held that if there is a special contract, mentioning in the policy the time when it was bought,
the insurance policy would be operative from that time and not from the previous midnight as was
the case in Ram Dayal's case, where no time from which the insurance policy was to become
effective had been mentioned. It was held that should there be no contract to the contrary, an
insurance policy becomes operative from the previous midnight, when bought during the day
following; but. in cases where there is a mention of the specific time for the purchase of the policy.
then a special contract comes into being and tile policy becomes effective from the time mentioned
in the cover note/the policy itself.

The judgment in Jikubhai's case (supra) has been subsequently followed in Oriental. Insurance Co.
Ltd, Vs. Sunita Rathi &Ors. [1998 (1) SCC 365]. by a three-Judge Bench of this Court also."

6. Sudharshan S/O Hanmanth vs Sri Subash on 2 December 2020

In this regard, as either of the parties have not produced receipt for payment of premium as to at
what time premium was paid. Therefore, under these circumstances the provision stated in Section
64VB of the Act is to be considered vis-à-vis Ex.P.11-Insurance Policy. Therefore, as per Section
64VB of the Act above stated, the provision is very clear that soon after the receipt of the payment
of premium by the owner and received by the Insurance Company then the contract of insurance
begins between them. Issuance of policy is consequent effect after receipt of premium. If there is
a specific contract is made between the insurer and the insured that the risk is to be covered from
that point of time itself is concerned, then that shall be specifically stated in the Insurance Policy,
and it is a specific contract between the insurer and insured so far as time of commencement of
risk. If there is no specific contract stating to cover the risk from that particular point of time, then
generally in the Insurance Policy it is stated that the Insurance Policy commences from 00.00 hours
by mentioning the next day date commencing from 00.00 hours (mid night) on next date.
Therefore, where there is no specific contract of mentioning time between insurer and insured
regarding mentioning of time so as to cover the risk then generally the policy commences from
00.00 hours (mid night) by mentioning the date of the next day. In absence of mentioning specific
time of commencement of covering risk, therefore upon considering this and applying the same in
the present facts and circumstances and by following the legal provision enshrined under Section
64VB of the Act it can be safely held that from the time of making payment of premium itself
covering risk starts.

Before issuance of policy and muchless even before receiving premium amount from the owner
the agent on behalf of Insurance Company will inspect the vehicle to say that whether it is in fit
condition or if any damage is caused and after verifying the said facts, then amount of premium
would be collected then the same would be disbursed to the Insurance Company during the course
of the day or during the banking hours. Normally the office hours of receiving payment of premium
by the Insurance Company commences from 10.30 am to 3.30 pm on par with the banking business
hours. Therefore, when in the present case after receipt of the premium amount by the owner and
obviously it is after verification of the vehicle itself by its agent or any of the officials then starts
to receive premium and starts processing the documents for issuance of Insurance Policy.

Therefore, it means the owner has paid premium during office hours soon after commencement of
office hours at morning 10.30 am and therefore it can be safely held that the Insurance Company
had received premium, in the present case before the time of accident on 07.05.2008 and therefore
upon analyzing the entire facts and circumstances involved in to the case coupled with the legal
provisions enshrined under Section 64VB of the Act and principle of law laid down by the Hon'ble
Apex Court (supra) after payment of premium is made then thereafter the accident was caused in
the present case, therefore the Insurance Company is liable to indemnify the owner as per the
contract of insurance between them as per Ex.P.11-Insurance Certificate.

Therefore, under these circumstances when the entire facts and circumstances are considered
coupled with the legal provisions as discussed above as stated in Section 64VB of the Act and also
principle of law laid down by this Court and the Hon'ble Apex Court the respondent No.2 -
Insurance Company is liable to pay the compensation by indemnifying the owner of the
vehicle/respondent No.1. Therefore, in this regard the judgment and award made by the Tribunal
is liable to be modified.

CONCLUSION

From above discussion we conclude that

1. Section 64VB of the Act above stated, the provision is very clear that soon after the receipt of
the payment of premium by the owner and received by the Insurance Company then the contract
of insurance begins between them. Issuance of policy is consequent effect after receipt of premium.
It means that the time of payment of premium is important, and risk commences once insured has
paid the premium to the insurance company. The issue of insurance policy is post compliances of
the insurance contract.

2. If there is a specific contract is made between the insurer and the insured that the risk is to be
covered from that point of time itself is concerned, then that shall be specifically stated in the
Insurance Policy, and it is a specific contract between the insurer and insured so far as time of
commencement of risk. The coverage of risk in these contracts will commence from the date
specifically mentioned in the insurance contract /policy or as mutually agreed between the insured
and the insurer.

3. If there is no specific contract stating to cover the risk from that particular point of time, then
generally in the Insurance Policy it is stated that the Insurance Policy commences from 00.00 hours
by mentioning the next day date commencing from 00.00 hours (mid night) on next date.Therefore,
where there is no specific contract of mentioning time between insurer and insured regarding
mentioning of time so as to cover the risk then generally the policy commences from 00.00 hours
(mid night) by mentioning the date of the next day.

Attachment
What is risk attaching?

A reinsurance contract specifies its period of effect: date of inception and date of termination. But
the period during which the treaty produces its effects is not to be confused with the period of
coverage. The period of coverage determines the period during which the Reinsurer will be
responsible for the claim arising from policies or risks ceded during the period of effect of the
treaty. This period of coverage might be loss occurring, risk attaching or accounting year.

“Risk attaching” treaty means that the Reinsurer only pays the Ceding party for losses resulting
from policies that are issued (new or renewed) or in force with the reinsurance contract period,
regardless of the date of occurrence of the losses.

So, let’s take an example:

 An insurance policy is issued on July 2nd 2019.

 The Ceding party purchased a reinsurance contract running from June 1st 2019 to May 31st
2020 on a risk attaching basis.
 A loss occurred on February 5th 2020. It will be covered.
 But if the policy was issued prior to June 1st 2019, it wouldn’t be covered. Indeed, there is
no reinsurance coverage for claims originating outside the reinsurance coverage period,
even if the losses occurred while the contract was in effect.

With a risk attaching clause, the Reinsurer is then responsible until all policies covered by the
reinsurance contract for the concerned underwriting year have expired and all losses have been
fully settled.

Attachment, Duration And Termination Of The Insured Risk

1. Policy Period, Time Policy And Voyage Policy
The same considerations within section 25 MIA. These considerations can be found in Parts 7 and
8 of this Mini Series.
2. Cargo Policies And The Institute Clauses
Cargo is invariably insured under voyage policies given that the very nature of cargo is that it is
property or goods which are being transported from one place to another.
Cargo is very commonly insured under the Institute Cargo Clauses (1/11/82). A revised version of
the Institute Cargo Clauses was introduced in 2009 (1/1/09). There are three versions of the Cargo
Clauses – A, B and C. The Institute Cargo Clauses A insure the cargo against ‘all risks’ of loss.
The B and C clauses insure the cargo against a more restricted range of perils or risks.
All three sets of the Institute Cargo Clauses contain a number of provisions concerning the
attachment (or commencement), duration and termination of the risk:
a) Clause 8 (the Transit Clause): this clause provides for the attachment and termination of the
risk; it is often referred to as a ‘warehouse to warehouse’ clause in that it provides cover for the
cargo not merely from the time of loading of the cargo or the time of sailing of the ship carrying
the cargo to the time of discharge at the destination, but also in respect of the ‘land risks’ from the
warehouse at the port of departure until loading and also from the time of discharge until the
earliest of:
(i) delivery of the cargo to the consignee at the warehouse; or (ii) delivery of the cargo at the
warehouse for storage other than in the ordinary course of transit or for distribution or allocation;
or (iii) the expiry of 60 days after completion of discharge of the cargo from the vessel at the final
port of discharge. (As to the meaning of ‘final warehouse’, see Deutsche-Australische
Dampfschiffsgesellschaft v Sturge, G H Renton & Co Ltd v Black Sea & Baltic General
Insurance Co Ltd and John Martin of London Ltd v Russell).
Clause 8.3 provides that the insurance shall remain in force during any delay beyond the control
of the assured or any deviation and during any variation of the adventure arising from the exercise
of a liberty granted to shipowners or charterers under the contract of carriage.
The Institute Cargo Clauses (1/1/09) provide broader cover by providing that:
“this insurance attaches from the time the subject-matter insured is first moved in the warehouse
or at the place of storage…for the purpose of the immediate loading into or onto the carrying
vehicle or other conveyance for the commencement of transit…”
b) Clause 9 (Termination of Contract of Carriage Clause): this clause provides that if, beyond
the control of the assured, the contract of carriage (e. the contract between the shipowner or
charterer of the ship and the cargo-owner) is terminated at a port or place other than the destination
in the contract of carriage or the transit is terminated before delivery of the goods in accordance
with clause 8, the insurance will terminate. However, there is provision for the cover to be
continued if notice is given to the insurer and an additional premium is agreed.
c) Clause 10 (Change of Voyage Clause): this provision allows for the assured to be ‘held
covered’ in the event that the destination is changed after the attachment of the insurance, provided
that prompt notice is given to the insurer. This clause qualifies section 45, not section 44, MIA,
because it is concerned with a change of destination after the attachment of the risk. However, as
we have seen, where the insurance incorporates the Transit Clause, the risk may attach before the
vessel sails as contemplated by section 44 MIA (Nima SARL v Deves Insurance Public Co Ltd
(The Prestrioka)).
d) Clause 18 (Reasonable Despatch Clause): this clause essentially reinforces section 48
MIA by providing that it is a condition of the insurance that the assured shall act with reasonable
despatch in all circumstances within their control.

What Is Duration Risk?

Duration risk is the potential loss that an investor faces due to changes in interest rates. It is a
measure of the sensitivity of a bond's price to changes in interest rates and is an important concept
in finance and investment.
Duration risk is an essential concept in finance and investment as it provides a measure of risk and
potential loss. It is particularly important for investors who seek to maximize returns
while managing risk.

Duration risk can help investors identify potential downside risks and make informed decisions
about asset allocation, risk management, and investment strategies.

Duration risk is also a critical measure in evaluating the performance of bond

funds or investment managers, as it indicates how much an investment or portfolio is exposed
to changes in interest rates.

By understanding duration risk, investors can assess the potential risks associated with a particular
investment or portfolio and make more informed decisions.

https://www.educba.com/risk-in-insurance/

https://www.caclubindia.com/articles/when-insurance-policy-starts-to-cover-risk-
49439.asp#:~:text=It%20means%20the%20date%20as,the%20policy%20comes%20into%20effe
ct.
https://blog.ccr-re.com/en/what-is-risk-
attaching#:~:text=%E2%80%9CRisk%20attaching%E2%80%9D%20treaty%20means%20that,o
f%20occurrence%20of%20the%20losses.

https://www.maritimelaw.com.my/2022/04/27/attachment-duration-and-termination-of-the-
insured-risk/

https://www.financestrategists.com/wealth-management/investment-risk/duration-risk/

TOPIC 3

TOPIC 4
Role and function of insurance regulatory and development authority.
What is IRDAI? Functions of IRDA
The concept of insurance dates back 6,000 years where individuals back then also sought some
kind of safety net. This need was realised and gave birth to the concept of insurance. The dictionary
meaning of insurance states “an arrangement by which an organisation undertakes to provide a
guarantee of compensation for specified loss, damage, illness, or death in return for payment of a
specified premium”. With the growing need of this concept of security, it gave rise to life insurance
at first followed by general insurance. Insurance when introduced in India was under the
government regulation. However, to institute a standalone body to oversee the functioning of the
growing insurance industry, a separate regulatory body was set up known as the Insurance
Regulatory and Development Authority of India or IRDA.

What is IRDA?
IRDA or Insurance Regulatory and Development Authority of India is the apex body that
supervises and regulates the insurance sector in India. The primary purpose of IRDA is to safeguard
the interest of the policyholders and ensure the growth of insurance in the country. When it comes
to regulating the insurance industry, IRDA not only looks over the life insurance, but also general
insurance companies operating within the country.

What are the functions of IRDA?

As discussed above, the primary objective of the Insurance Regulatory and Development Authority
of India is to ensure the implementation of provisions as mentioned in the Insurance Act. This can
be further understood by its mission statement which is as follows-
 To safeguard the policyholder’s interest while ensuring a fair and just treatment.
 To have a fair regulation of the insurance industry while ensuring financial soundness
of the applicable laws and regulations.
 To frame regulations periodically so that there is no ambiguity in the insurance industry.
What is the role and importance of IRDA in the insurance sector?
India began to witness the concept of insurance through a formal channel back in the 1800s and
has seen a positive improvement ever since. This was further supported by the regulatory body
that streamlined various laws and brought about the necessary amendment in the interest of the
policyholders. Below mentioned are the important roles of IRDA -

 First and foremost is safeguarding the policyholder’s interest.

 Improve the rate at which the insurance industry is growing in an organised manner to
benefit the common man.
 To ensure the dealing are carried on in a fair, integral manner along with financial
soundness keeping in mind the competence of the insurance company.
 To ensure faster and a hassle-free settlement of genuine insurance claims.
 To address the grievances of the policyholder through a proper channel.
 To avoid malpractices and prevent fraud.
  To promote fairness, transparency and oversee the conduct of insurance companies in
the financial markets.
 To form a reliable management system with high standards of financial stability.
What are the types of insurance policies regulated by IRDA?
The broad classification of the insurance sector is in two parts - life and non-life which is also
known as general insurance. For life insurance, as the name suggests, it governs the policies that
ensure the safety of your life. But what is general insurance? General insurance covers everything
other than life which includes health insurance, car insurance, two wheeler insurance, home
insurance, commercial insurance, travel insurance and more. These are some of the critical roles
that IRDA oversees. While they are not limited to the above-mentioned roles, they also include
granting registration to insurance companies to conduct their business in the country. It also settles
the disputes that arise between the insurer and the policyholders and many such other functions.

Again……

Introduction

Insurance Regulatory and Development Authority of India Act was passed by the Parliament in
the year December 1999. The Act received President’s approval in the year January 2000. The Act
intents to protect the interest of the insurance policy holders. It also aims to encourage and ensure
the systematic growth of the insurance industry. The Insurance Regulatory and Development
Authority is a statutory body formed by the Insurance Regulatory and Development Authority of
India Act, 1999.

What do we mean by Insurance?

Insurance is a monetary instrument, which reduces the financial burden in the events of
eventualities, and provides a financial safety. A certain type of loss can be covered by paying a
small premium. In case of loss, the Insurance Company will pay a certain amount of money, which
will help in reducing the financial burden.

Insurance Products

There are a variety of Insurance products to cater to the different needs of different people. The
customer has a lot of options to choose from depending on their needs. The customer is nowadays
in place to analyze and compare the policies of various companies with one another and choose
the best amongst them. The insurance industry has a large market to target. The Insurance products
act more as a protection tool than as a way to save tax. As there is more demand from the customer
for new, beneficial and improved insurance products, there is a healthy competition amongst the
insurers. This acts as a boon to the customer. Improved products along with attractive schemes
have been designed by the public sector to give tough competition to the private sector.

The market is full of different kinds of insurance products. Price, service and products are the main
factors that differentiate one product from another. No Company can introduce a new product
before taking a prior approval from Insurance Regulatory and Development Authority.

Insurance Regulatory and Development Authority of India

Composition of the Authority

The Authority Comprises of the following members mentioned below;-

1. The Authority comprises of chairman, whole time members and part time members and
together they act as a group of members and work jointly not individually like
Controller of Insurance.
2. The Authority will continue to work even in cases of death or resignation.
3. The Authority is a body corporate with perpetual succession and a common seal.
4. The Authority has the power to sue or can be sued in its own name.

Powers & Functions of the Authority

Section 14 of the Insurance Regulatory and Development Authority of India Act, 1999 states the
powers and functions of the IRDA. The power and functions of the Authority are as follows:

1. The Authority aims to protect the interest of the insurance policyholders in the matters
related to surrender value of the policy, settlement of insurance claims, insurable
interest, nomination by policy holders etc.
2. The authority gives the Certificate of Registration to the applicant. It can also renew,
modify, withdraw, suspend or even cancel the registration of the applicant
3. The Authority states the qualifications, code of conduct and practical training for the
intermediaries and insurance agents.
4. The Authority promotes the efficiency in the conduct of the business of insurance.
5. The Authority states the code of conduct for surveyors and loss assessors.
 6. The Authority promotes and controls the professional organizations that are connected
with the insurance business. It levies fees and charges for carrying the purpose of this
Act.
7. The Authority has the power to call for information, conduct investigation, audit and
enquiry of the insurers, insurance intermediaries and organization connected with the
business of insurance.
8. The Authority controls and regulate the rates, gains terms and conditions that are offered
by the insurers with respect to the general insurance business.
9. The investment of funds by the insurance companies are regulated by the Authority.
10. The Authority regulates the margin of solvency.
11. The Authority provides dispute resolution between the insurers and insurance
intermediaries.
12. The Authority controls the working of Tariff Advisory Committee.
13. The Authority lay down the percentage of premium income of the insurer to fund the
schemes for promoting and controlling the professional organizations.
14. The Authority lay down the percentage of life insurance and general insurance business
that can be carried out by the insurer in the rural or social sector.

Role of Insurance Regulatory and Development Authority (IRDA)

1. To protect the interest of and ensure just treatment to insurance policy holders.
2. To encourage and ensure the systematic growth of the insurance industry so as to benefit
the common man and help in bringing economic growth.
3. To set, promote, monitor and apply high standards of integrity, fair dealing, financial
viability and capability of those it regulates.
4. To ensure clarity, preciseness, transparency while dealing with the insurance policy
holder. The Authority ensure that correct information about the products and services
is passed on to the policy holders along with making them aware of their
responsibilities.
5. To provide dispute resolution mechanism and ensure speedy settlement of genuine
claims. The Authority must check insurance scams and other misconducts.
6. To take suitable steps against circumstances where set standards do not prevail or
inappropriately enforced.
 7. To bring about the optimal amount of self-regulation in day-to-day activities of the
industry reliable with the requirements of the prudential regulation.

Effect of Insurance Regulatory and Development Authority (IRDA)

Effect on Regulation of Insurance Industry

Insurance Regulatory and Development Authority regulates the Insurance sector. It aims to protect
the interest of the insurance policy holders. It also encourages and ensure the systematic growth of
the insurance industry.

Effect over protection of policyholders

IRDA has great impact over the protection of policyholders. The Authority aims to provide fair
treatment to all the policyholders.

Effect over Awareness about Insurance

IRDA is taking steps to increase awareness amongst the masses about the benefits of insurance.
There is a separate Consumer education website of IRDA to educate people about insurance.

Effect over Insurance Market

There is a drastic effect of Insurance Regulatory and Development Authority over insurance
market. IRDA regulates the insurance market and ensure the systematic and speedy growth of the
insurance market.

Effect over Development of Insurance Product

All the insurance companies must take approval from Insurance Regulatory and Development
Authority before launching any new product or before making any changes in the existing product
or withdrawing a product. The insurers who wishes to launch a new product or make changes to
the existing product or withdrawing a product shall submit an application to the Authority in the
prescribed form along with the necessary details and reasons for the change reasons. The authority
may ask for additional information if required. If no information is asked for then the insurer can
start selling the product. The insurer can introduces the new product after allowing it for 60 days
for non-life and 30 days for life for clearance by IRDA. This might be delayed due to lack of details
about the product, which is necessary to assess the product before approval is given by the
Authority.
Effect on Competition between Private and Public sector

As there is more demand from the customer for new, beneficial and improved insurance products,
there is a healthy competition amongst the insurers. This acts as a boon to the customer. Improved
products along with attractive schemes has been designed by the public sector to give tough
competition to the private sector.

Effect over Banks and Post Offices

With the increasing awareness amongst people about the benefits of insurance, the flow of funds
have shifted to the insurance industry from Banks and Post Offices. Insurance has become a
medium for not only covering losses and risks but has also become a popular way to save tax.

Bhopal Gas tragedy – Importance of Insurance

A Story of Industrial Disaster vis-à-vis Insurance Protection

In 1970, Union Carbide India Ltd (UCIL) established a pesticide manufacturing plant in Bhopal.
Pesticides are substances, which shield crops from being damaged by pests. Pesticides are toxic
chemicals. In December 3, 1984, a fatal gas, namely, Methyl Isocyanate (MIC) started leaking
from a tank at UCIL Bhopal plant. Due to leakage of this fatal gas, approximately 3,800 people
lost their lives and many other suffered other health related ailments.

Human life is precious and nothing can compensate the loss of a life. The company was bound to
pay compensation to the dependents of the victims to lost their lives. UCIL had to compensate for
the damages caused.

Even though human life is invaluable but this situations like these Insurance acts as a big relief.
Insurance helps to recover the losses to some extent as the resulting financial liabilities could be
transferred to the insurer. Insurance acts as a preventive measure for the unforeseen events, which
reduces the financial burden.

Ultimately, an Act was introduced to provide damages to the sufferers of the accidents, which has
resulted due to the handling of hazardous chemicals. The Act is Public Liability Insurance Act,
1991, which is applicable to all the owners, related with the manufacturing or handling of the
hazardous substance.

Workmen Compensation Act, 1923 also provide compensation to employees in case of injury at
the workplace. The employer is liable to pay compensation to the injured employee in case of
mishappening. The amount of compensation depends on various factors like nature of the injury,
age of the employee, the average monthly wage of the employee.

Furthermore, if the victims who died in the Bhopal gas tragedy had their lives insured, their
families would have received some amount of money as help. Money cannot compensate anyone’s
life but it can surely act as some support to tide over their loss. In today’s time of uncertainty,
everyone must take the benefit of insurance.

Conclusion

Indian economy is growing rapidly. There are several new players in the insurance industry, which
has opened new opportunities and has contributed the employment generation. Insurance
awareness is very important at different levels of the society. Individuals should know the
importance and the consequent benefits of insurance. In order to achieve higher levels of
penetration and spread of insurance among larger sections of the population, the insurance
companies should pay more concentration on the rural communities rather than the urban and the
higher segment of the society. With IRDA in place, the insurance sector is regulated and the
interest of the policyholders is ensured. IRDA also has to bring necessary changes whenever
required in consultation with the stakeholders.

Again………
IRDAI: Powers and Functions

LAST UPDATED ON OCTOBER 7, 2022 BY CLEARIAS TEAM

IRDAI is responsible for safeguarding the interests of policyholders, controlling,

encouraging, and guaranteeing the insurance industry’s orderly expansion.

The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous and
statutory body. It is responsible for managing and regulating the insurance and reinsurance
industry in India.

The Insurance Regulatory and Development Authority of India (IRDAI), which was established
by an act of parliament, specifies the composition of the Authority under section 4 of the IRDAI
Act of 1999.

Table of Contents
 History and Establishment of IRDAI
  Composition of IRDAI
 Aim of IRDAI
o Objective of IRDA
 Powers, and Functions of IRDAI
 IRDAI in Health Insurance Business
 IRDAI on Ease of Living of Senior Citizens
 Conclusion

History and Establishment of IRDAI

Up until the year 2000, the Indian government oversaw the regulation of the insurance sector.

However, the IRDA was created in 2000 to implement a stand-alone apex body at the advice of
the Malhotra Committee report from 1999.

The IRDA started accepting registration requests through invitations in August 2000 and started
allowing foreign businesses to invest up to 26% in the market.

Section 114A of the Insurance Act of 1938 has a number of rules and regulations that have been
set forth by the IRDA.

Regulations cover everything from safeguarding the rights of policyholders to registering

insurance businesses to do business in the nation.

There are currently 34 general insurance companies active in the country, including the ECGC and
the Agriculture Insurance Corporation of India, as well as 24 life insurance companies.

The main objective of the Insurance Regulatory and Development Authority of India (IRDAI) is
to enforce the provisions of the Insurance Act.

Composition of IRDAI
the Insurance Regulatory and Development Authority of India is constituted by an act
of parliament. The Authority is a ten-member body, specified in section 4 of the IRDAI Act of
1999, consisting of

 a Chairman;
 five whole-time members;
  four part-time members;

All of the appointments are done by the Government of India.

Aim of IRDAI
Ensuring fair treatment for policyholders and defending their interests.

To promote the insurance industry’s rapid and orderly expansion (including annuity and
superannuation payments), which will benefit the general public, as well as supply long-term
finance for the economy’s rapid expansion.

To take action when such standards are not sufficient or are not adequately applied.

To ensure that the industry operates with the appropriate level of self-regulation in accordance
with prudential regulation rules.

To establish, encourage, oversee, and uphold high standards for the competence, moral character,
and financial stability of those it regulates.

To ensure prompt resolution of legitimate claims, to stop insurance fraud and other wrongdoing,
and to set up efficient grievance redressal mechanisms.

To encourage fairness, openness, and lawfulness in financial markets that deal with insurance, and
to create a solid management information system to impose strict requirements for the financial
soundness of market participants.

Objective of IRDA
The IRDA’s primary goal includes fostering competition to boost consumer choice and lower
prices while maintaining the market’s financial stability in order to increase customer satisfaction.
The primary objective of the IRDA is:

to safeguard the policyholder’s interests and ensure fair treatment.

to effectively regulate the insurance sector and guarantee its healthy financial standing.

establishing regulations on a regular basis to make sure the sector runs well.
Powers, and Functions of IRDAI
Section 14 of the IRDAI Act, 1999 lays down the duties, powers, and functions of IRDAI.

Issue a certificate of registration to the applicant, renew, alter, withdraw, suspend, or terminate
such registration.

Safeguarding the interests of policyholders in matters pertaining to policy assignment, insurable

interest, payment of insurance claims, policy surrender value, and other terms and conditions of
insurance contracts.

Specifying the necessary credentials, moral standards, and practical training for insurance
intermediaries and agents.

Encouraging efficiency in the management of the insurance industry.

Charging fees and other amounts in order to carry out the objectives of this Act.

Governing insurance firms’ financial investments.

Rules governing the preservation of the solvency margin.

Resolution of conflicts involving intermediaries or insurance intermediaries and insurers.

Monitoring the activities of the Tariff Advisory Committee.

Contacting insurers, intermediaries, insurance intermediaries, and other organizations associated

with the insurance business to request information, inspect, inquire, and undertake investigations,
including audits.

Control and regulation of the rates, benefits, terms, and conditions that insurers may offer in
relation to general insurance business if the Tariff Advisory Committee has not done so in
accordance with section 64U of the Insurance Act of 1938 (4 of 1938).

IRDAI in Health Insurance Business

The apex authority, the IRDA, is in charge of establishing new regulations and standards for health
insurance in the country.
The Insurance Regulatory and Development Authority of India (IRDAI) has been continuously
working to lessen the compliance burden of all the regulated organizations as part of its promotion
of ease of doing business for insurance companies.

The following are the new IRDA guidelines that the regulator has released for health and
mediclaim insurance in 2020:

If the policyholder has renewed the policy for eight years without interruption or lapse, the insurer
cannot deny a claim. The moratorium period will be used to refer to this time frame. Except in
cases of fraud or when the claim is brought against a policy exclusion, the insurer cannot appeal
the denial of the claim to the IRDA.

With the advent of digitization, the medical industry has evolved, and one can now contact a doctor
online. The IRDA has requested that insurance companies include telemedicine consultations in
their insurance policies.

The insurance provider is responsible for paying interest on the claim amount if the insurer delays
the claim. It should guarantee that the claim is settled within 30 to 45 days following the
policyholder’s last document submission.

IRDAI on Ease of Living of Senior Citizens

IRDAI has relaxed the requirements for submitting a separate proposal form for taking Immediate
Annuity products from National Pension Scheme (NPS) earnings in this direction to make life
easier for elderly persons.

In the existing situation, NPS retirees submit an exit form to NPS and a proposal form to insurers
at the time of superannuation.

Additionally, in order to encourage the adoption of technology, insurers have been urged to use
Adhaar-based authentication for the validation of life certificates, such as Jeevan Pramaan, a
Government of India project on biometric-enabled digital services.

Conclusion
The enormous insurance industry is expanding rapidly, at a pace of 15-20%. Insurance services
together with banking services boost the nation’s GDP by roughly 7%. The thriving and advanced
insurance industry is beneficial for economic growth as it increases the country’s capacity to take
risks while providing long-term funding for infrastructure development.
Irdai thus plays a variety of roles. It must first defend the rights of insurance policyholders and
make sure they are handled fairly. To make sure that the interests of the average person are not
compromised, it must also keep an eye on policy issuers.

Again…………..

The Functions of the IRDA

As we have mentioned above, the insurance company started to set up in India in the year 1850,
and soon after the markets started to become competitive, which brought a flood of different
insurance companies. The major functions of the IRDA have been mentioned below:

The major functions of the IRDA defined in the 14th section of the IRDAI act of the year 1999,
include the following:

 The act includes issuing, changing, renewing, suspending, or canceling the different
registrations.
 It also must protect the interests of the policyholders.
 There is a need for a code of conduct for the surveyors and the loss of assessors.
 They also need to specify the qualifications, code of conduct, the training of the agents,
and the intermediaries.
 There is a need to promote the efficiency of the conduct in the insurance businesses, and
the regulation of the professional organizations which are connected to the insurance
companies or the reinsurance industry.
 There should be a proper regulation in the investments of the funds of the company and the
solvency in the margin.
 The also specifies the forms and how the accounts book should be kept. In addition to this,
how the issuers and the other issue intermediaries should make the statements of different
accounts.
 It also helps in specifying the percentage of the life and general insurance businesses that
are undertaken in India’s social sector and the rural sector.
 And helps in the passing on judicially of the disputes between the issuer and the
intermediaries.
Conclusion
As it has been mentioned above, The IRDA fully forms the Insurance Regulatory and Development
Authority of the country, India. The IRDA head office of the same is in Hyderabad, Telangana
earlier it was in New Delhi in the year 2001. There are ten members in the body of the IRDA
including the chairperson of the authority, five full-time, and four part-time members who are
appointed by the Indian government.

https://www.bajajallianz.com/blog/knowledgebytes/what-is-irda.html
https://blog.ipleaders.in/role-powers-irda-insurance-sector/

https://www.clearias.com/irdai/
https://unacademy.com/content/bank-exam/study-material/general-awareness/function-of-irda/