The Insurance Act of 1938
- The Insurance Act of 1938 was the first legislation governing all forms of insurance to provide strict state control over insurance business.
Life Insurance Corporation Act
- Life insurance in India was completely nationalized on 19 January 1956, through the Life Insurance Corporation Act.
- The Government of India issued an Ordinance on 19 January 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year.
- The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all.
General Insurance Business (Nationalisation) Act
- In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1 January 1973.
- 107 insurers were amalgamated and grouped into four companies, namely -
2. New India Assurance Company Ltd.
3. Oriental Insurance Company Ltd.
4. United India Insurance Company Ltd.
- The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on 1 January 1973.
- The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before that, the industry consisted of only two state insurers:
- Life Insurers (Life Insurance Corporation of India, LIC)
- General Insurers (General Insurance Corporation of India, GIC).
- GIC had four subsidiary companies. With effect from December 2000, these subsidiaries have been de-linked from the parent company and were set up as independent insurance companies:
- Oriental Insurance Company Limited, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited.
- The IRDA Act, 1999 was passed as per the major recommendation of the Malhotra Committee report (7 jan,1994) which recommended establishment of an independent regulatory authority for insurance sector in India. Later, It was incorporated as a statutory body in April, 2000.
- The IRDA Act, 1999 also allows private players to enter the insurance sector in India besides a maximum foreign equity of 26 per cent in a private insurance company having operations in India.
7 Principles of Insurance
1. Nature of contract:
- Nature of contract is a fundamental principle of insurance contract. An insurance contract comes into existence when one party makes an offer or proposal of a contract and the other party accepts the proposal.
- A contract should be simple to be a valid contract. The person entering into a contract should enter with his free consent.
- Under this insurance contract both the parties should have faith over each other.
- As a client it is the duty of the insured to disclose all the facts to the insurance company.
- Any fraud or misrepresentation of facts can result into cancellation of the contract.
- Under this principle of insurance, the insured must have interest in the subject matter of the insurance.
- Absence of insurance makes the contract null and void. If there is no insurable interest, an insurance company will not issue a policy.
- An insurable interest must exist at the time of the purchase of the insurance.
- For example, a creditor has an insurable interest in the life of a debtor, A person is considered to have an unlimited interest in the life of their spouse etc.
- Indemnity means security or compensation against loss or damage.
- The principle of indemnity is such principle of insurance stating that an insured may not be compensated by the insurance company in an amount exceeding the insured’s economic loss.
- In type of insurance the insured would be compensation with the amount equivalent to the actual loss and not the amount exceeding the loss.
- This is a regulatory principal. This principle is observed more strictly in property insurance than in life insurance.
- The purpose of this principle is to set back the insured to the same financial position that existed before the loss or damage occurred.
- The principle of subrogation enables the insured to claim the amount from the third party responsible for the loss.
- It allows the insurer to pursue legal methods to recover the amount of loss,
- For example, if you get injured in a road accident, due to reckless driving of a third party, the insurance company will compensate your loss and will also sue the third party to recover the money paid as claim.
6. Double insurance:
- Double insurance denotes insurance of same subject matter with two different companies or with the same company under two different policies.
- Insurance is possible in case of indemnity contract like fire, marine and property insurance.
7. Principle of proximate cause:
- Proximate cause literally means the ‘nearest cause’ or ‘direct cause’.
- This principle is applicable when the loss is the result of two or more causes.
- The proximate cause means; the most dominant and most effective cause of loss is considered.
- This principle is applicable when there are series of causes of damage or loss.
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