Laws & Regulation

v_1.0_Sept_09

Objectives

By the end of the session you will be able to :

• The salient features of:

• Insurance act 1938

• Life insurance corporation act,1956

• IRDA Act,1999

• Consumer protection act,1986

• Ombudsman

• Income tax act

• Married women’s property act

• Understand the importance of financial planning

• Understand the difference between savings and investment and know various savings and investment instruments

• Understand the concept of safety, liquidity and return

• Draw out advantages of life insurance products over other savings/investment instruments

Insurance Act 1938

• Aimed to consolidate and amend the law relating to the

business of insurance

• Came into force with effect from 1st July, 1939

• Amendments have been made in the Insurance Act 1938 in

1950 and later through the IRDA Act 1999

Insurance Act 1938

Licensing of agents, and their remunerations. Prohibition of rebates. Protection of policyholder’s interest

Provisionsplacing limits on the expenses of the insurers. Use of funds and patterns of investments.Maintaining the solvency levels

The Act vests IRDA with powers to inspect documents, appoint additional directors. Issue instructions, to take over management of an insurer and to appoint administrators

The Act contains provisions regarding

The IRDA has powers to adjudicate on disputes between the insurers and intermediaries or between intermediaries up to Rs.2000

Life Insurance Corporation Act 1956

• Consists of not more than 16 members appointment by Central Government• One member is appointed as Chairman

• The act was the basis for the establishment of the LIC of India.

• Section 30 of this Act gave LIC the privilege to transact life insurance business in India.

• This exclusive privilege ceased as a result of the amendment made in 1999.

• LIC is a corporate body.

IRDA Act 1999

Passed by the Parliament in December 1999 provided for the establishment of the authority to protect the interest of policy holders.

To regulate, promote and ensure orderly growth of insurance industry of India.

IRDA IS A CORPORATE BODY

• It is advised by insurance advisory committee consisting of not more than 25 members

• These members represent the interest of commerce, industry, transport, agriculture, consumer forums, surveyors etc.

IRDA Act 1999

It replaces the ‘controller of insurance’ to administer the provisions of the act

Including registrations, licensing and laying down regulations for proper conduct of business and protection of the interest of policy holders

IRDA Act 1999

Consumer Protection Act 1986(COPA)

It has developed as a reaction to business ignoring the rights of consumers and exploiting them

Consumerism is a movement to safeguard the interest of the customer

Under this act an individual can approach various forums for redress in case he is not satisfied with the goods or services provided

A defect or deficiency is a fault, imperfection or shortcoming or inadequacy in the quality, nature or manner of performance in any goods or services

Consumer Protection Act 1986

The following are the four basic consumer rights

The Right To Safety

The Right To Be Informed

The Right To Choose

The Right To Be Heard(Redress)

In order to attend to complaints under this Act , consumer dispute

redressal forums are established in each district and state.

CONSUMER FORUM

Complaints Up to Rs.20,00,000District LevelDistrict Level

Complaints Up toRs.1 Crore

State LevelState Level

Complaints Above Rs.1crore

National CommissionNational Commission

Consumer Protection Act 1986

Consumer Protection Act 1986

COPA also applies to the insurance business

The agent can help to mitigate the complaint or grievance by taking due care at the time of proposal

The majority of disputes are related to repudiation of or delay in settlement of claims

When giving a written presentation always to ensure correct information is being given

Personal intervention of agent can help reduce the delay in office procedures which are mainly due to non-compliance with requirements or ambiguity in title

Ombudsman

• Ombudsmen are appointed by the governing body of the insurance council.

• Their function is to resolve complaints in respect of dispute between policyholders and insurers in cost effective, efficient and impartial manner.

Ombudsman: Types Of Complaints Received

Partial Or Total Repudiation Of Claims

Any Dispute Regarding Premium Paid Or Payable In Terms Of The Policy

Any Dispute On The Legal Construction Of The Policy

Relating To Claims

Delay In Settlement Of Claims

Non Issue Of Any Insurance Document To Customer

After Receipt Of Premium

Ombudsman :Consideration Of The Complaint

• Ombudsman shall act as councilor and mediator in matter's

within its term of reference.

• It is not a judicial authority and has no rights to summon

witnesses

• It has to make its decision on the basis of documents submitted

to it

• The complainant and insurer are permitted to make their

personal submissions but lawyers are not permitted to argue in

this case

Ombudsman :Consideration Of The Complainant

• His decision as to whether the complaint is fit and proper for

being considered by it or not shall be final.

• Complaint to the ombudsman shall be entertained only when

insurer has rejected the complaint or no reply was received

within 1 month of the complaint to the insurer or the reply

was unsatisfactory.

Ombudsman :Consideration On The Complaint

• A complaint can be made within 1 year after the insurer has rejected the representation.

• The subject matter should not be before any court or consumer forum or arbitration.

Ombudsman:Acceptance Of The Recommendation

• Shall make a recommendation within 1 month from the date of

receipt of complaint.

• The complainant may accept this recommendation.

• A copy of the recommendation shall be sent to a insurer who

shall comply within 15 days of such recommendation and inform

the ombudsman accordingly.

Ombudsman :Non Acceptance Of The Recommendation

If the complainant does not accept ombudsman’s recommendation

The amount shall not be in excess of what is required to cover the loss suffered by the complainant as a direct consequence of the insured peril or for an amount not exceeding Rs.20,00,000 which ever is lower.

The ombudsman shall pass an award in writing, stating the amount awarded

Ombudsman :Award

• Award has to be passed within 3 months of the receipt of the complainant

• Complainant has to be intimated within 1 month of the award

• The insurer has to comply with the award within 15 days and inform the ombudsman

• If the complainant does not intimate the acceptance, the award shall not be implemented

Income Tax Act

The tax laws in India encourage people to save through life insurance and other instruments by providing relief from tax liabilities

Knowledge of tax provisions is important for an agent as it affects the benefits under a policy

Income Tax Act

The income tax provisions affecting insurance are of three types

ExemptionExempts the income from

tax-no tax is payable

DeductionReduces the taxable

Income

RebateReduces the income tax payable

Income Tax Act- Exemption

• Income tax exemption on maturity/death claim proceeds

• Any sum received under life insurance policy including the bonus additions is exempt from income tax

• Maturity claim payments are taxable if the premium paid in any one year exceeds 20% of the sum assured

Exception-

• Insurance premiums paid under partnership insurancepartnership insurance or key key man insurances man insurances are allowed as expenses

Income Tax Act

Some income tax provisions under it Act, 1961

• Section 80C- on amounts paid or deposited in any investment like insurance , NSC ,PPF, KVP etc -to the extent of Rs.1,50,000/-

• Section 10(10d)-on claim of life insurance, the claim amount will be treated as non-taxable.

• Section 80 DD- on amount deposited in a plan taken for the maintenance of a handicapped relative-to the extent of Rs. 40,000

• Section 80D - on amount invested for medical insurance to the extent of Rs. 10,000

Wealth Tax Act

• The wealth tax act exempts life insurance policies totally provided premiums are payable for more than 10 years or more

• If the policy term is less than 10 years proportionate value of the right or interest of the assesses in the policy will be exempted

• Such policies have to be included in the net wealth as on the date of the valuation

Married Women’s Property Act (MWPA) 1874

Section 6 of the MWP Act provides that a policy of insurance

effected by any married man on his own life and expressed on

the face of it for the benefit of his wife and children, shall be

deemed to be a trust for the benefit of his wife and children and

shall not be subject to the control of the life assured or his

creditor or form part of his estate.

Rural And Social Sector

In case of rural areas

•1st financial year – 7 %

•2nd financial year – 9 %

•3rd financial year – 12%

•4th financial year – 14%

•5th financial year – 16%

On total policies written direct

In case of social areas

•1st financial year - 5000 lives

•2nd financial year - 7500 lives

•3rd financial year-10,000 lives

•4th financial year-15,000 lives

•5th financial year- 20,000 lives

As per IRDA regulation 2002,every insurer has to do a minimum business from this sectors

Micro Insurance(IRDA Regulation 2005)

• Covers small families including husband wife, dependent parents and up to three children.

• Term plan cover ranging from Rs.5000 to Rs.50,000 SA.

• Endowment cover limit Rs.5000 to Rs. 30,000 SA.

• Policy term should be within 5 to 15 years.

• Age of entry between 18 to 60 years

• Covers Health Insurance, Hut, Livestock Or Tools Of Instruments And Personnel Accidents.

• Health Insurance Cover Range Rs.5,000 To Rs.30,000 Sa.

• For Health Insurance Policy Term Should Be In Between 1 To 7 Years.

• For Accidental Benefit The Term Is 5 To 15 Years.

Provides smaller risk coverage

Micro insurance agents have to go for 25 hours training

Micro insurance agents receive 10% Commission on single premium and 20% on Regular premiums

Thank You