Insurance Law

INTRODUCTION The whole idea of insurance has developed on the fact that human life is full of uncertainties and the life of a person itself is very uncertain. It is well said that “Life is full of risks. For property, there are fire risks, for shipment of goods, there are perils of sea, for human life, there is the risk of death or disability and so on and so forth”.1 The scheme of life insurance provides an assurance that if such an event happens, the person or his dependents would get financial assistance to bear the loss. Insurance may be described as a social device to reduce or eliminate risk to life and property. It is rightly defined as a social device for reducing risk by combining a sufficient number of exposure units to make their individual losses collectively predictable, the predictable loss is then shared proportionally by all these in the combination. 2 There are two branches of insurance that is general insurance and life insurance. General insurance deals with the exposure of risks of goods and property, whereas life insurance is a way to meet the contingencies of physical death and economic death. MEANING AND DEFINITION To understand life insurance we have to first understand the scheme of insurance. Insurance is a co-operative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to insure themselves against the risk.3 Under the plan of insurance, a large number of people associate themselves to share different types of risks attached to human life and property. The aim of all types of insurance is to make provision against such risks. In this way, life insurance is a social device to share the risk of loss of life. In simple words, it means an agreement in which one party agrees to pay a given sum of money upon the happening of a particular event contingent upon duration of human life in 1G. Gopalkrishna, “The Social Security Character of Life Insurance”, The ICFAI University Journal of Insurance law, Vol. VI, No. 4, (2008), p.12. 2 (Rober Mehr, Emesson Cammack, 2000). 3 M. N. Mishra, “Law of Insurance”, Eighth Edition, (2010), p.1, Central Law Agency, Allahbad.

exchange of the payment of a consideration. The person who guarantees the payment is called Insurer, the amount given is called Policy Amount, the person on whose life the payment is guaranteed is called Insured or Assured. The particular event on which the payment is guaranteed to be given may be Death or Life. The consideration is called the Premium. The document evidencing the contract is called Policy.4 There is no statutory definition of life insurance, but it may be defined as a contract whereby a person (insurer) agrees for a consideration (that is payment of a sum of money) or a periodical payment, called the premium to pay to another (insured or his estates) a stated sum of money on happening of an event dependent on human life.5 “Life insurance is a contract to pay a certain sum of money on the death of a person in consideration of the due payment of a certain annuity for his life calculated according to the probable duration of life.”6 “Life insurance is a contract in which one party agrees to pay a given sum of money upon the happening of a particular event contingent upon the duration of human life in consideration of immediate payment of a smaller sum or other equivalent periodical payments by the other.”7 In light of the above definitions the essential features of life insurance8 can be summed up as under: (i) It is a contract relating to human life (ii) There need not be an express provision that the payment is due on the death of the person. 4 M. N. Mishra, “Law of Insurance”, Eighth Edition, (2010), p.1, Central Law Agency, Allahbad. 5 Federation of Insurance Institute, Mumbai. 6 Dalby v. India and London Life Assurance Company (1854) 15 CB 365:139 AII ER465. See also Goparatnam & ors v. LIC of India & 2 ors,2006 (2)Andh LD (Cons. Reporters) 10; Law Finder Doc Id # 400314. 7 Joseph v. Law Integrity Insurance Company (1912) 82 LJ187. 8 Avtar Singh, “Law of Insurance”, (2004), p.41, Eastern Book Company, Lucknow.

(iii) The contract provides for payment of lump sum money. (iv) The amount is paid at the expiration of certain period or on death of the person.

HISTORY OF LIFE INSURANCE The history of life insurance in India started after the establishment of a British firm, in 1818 Oriental Life Insurance Company, the first life insurance company on Indian soil started functioning. 1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its business. 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 1956: 245 Indian and foreign insurers and provident societies are taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British.

In 1818 a British firm called the Oriental Life Insurance Company was formed in Calcutta to serve the interest of those who came from Europe. This was followed by the establishment of the Bombay Life Assurance Company in 1823 in Bombay. The Madras Equitable Life Insurance Society in 1829 and The Oriental Government

Security Life Assurance Company in 1874. It is a telling comment on the British view of Indians that prior to 1871, Indian lives were treated as sub-standard and attracted an extra premium of 15 to 20 percent. The Bombay Mutual Life Assurance Society, an Indian insurer formed in 1871, was the first one to charge normal rates for Indian lives. There were no specific regulations for the life insurance business until 1912, when it came to be formally regulated under the provisions of the Indian Life Assurance Companies Act 1912.In 1928 the Indian Insurance Companies Act was enacted to enable the government to collect statistical information about both the life and the non-life insurance business including the provident insurance societies. During the period from 1912 to 1930 the insurance business witnessed a setback. A number of changes took place from 1930 to 1938 and the Government of India passed Insurance Act 1938, with comprehensive provisions for the detailed and effective control over the insurers so as to protect the interest of insuring public.

In India, Life Insurance business is defined under Section 2 (11) of Insurance Act, 1938, which reads as : “ Life Insurance business” means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent upon human life and any contract which is subject to payment of premium for a term dependent on human life and shall be deemed to include the granting of :

CONTRACT OF LIFE INSURANCE A contract of insurance is a contract either to indemnify a person against a loss which may arise on the happening of an event or to pay a sum of money on the happening of some or any event for an agreed consideration. Under such a contract one party agrees to take the risk of another person’s life, property or liability in consideration of certain comparatively small periodic payments.

The object of insurance should be lawful. The person proposing for insurance must have interest in the continued life of the insured and would suffer pecuniary loss if the insured person dies. This is known as Insurable Interest. In Life Insurance the presence of insurable interest is essential at the time of effecting the Contract of Insurance .If there is no insurable interest, the contract becomes wagering and hence illegal. Every individual has unlimited insurable interest on his/her life.Husband has insurable interest on the life of his wife and vice versa. The creditors have insurable interest on the lives of debtors to the extent of indebtedness. Business partners have insurable interest in the lives of other partners to the extent of their financial interest in the partnership ..Employers have insurable interest in the lives of employees who are key to the profitability of the business.

NATURE OF LIFE INSURANCE CONTRACT

The nature of contract of life insurance may be summarized under the following heads: (a) Unilateral Contract

It is that type of contract where only one party to the contract makes legally enforceable promise.52 Here it is the insurer who makes an enforceable promise. The insurer can repudiate the contract of payment of full policy, but he cannot compel the insured to pay the subsequent premiums. On the other hand, if the insured continues to pay the premium, the insurer has to accept them and continue the contract.53

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Principle of Indemnity …Insurance contracts other than life insurance contract are contracts of indemnity in the sense that the amount payable by the insurer in case of the contingency stated in the policy occurring is limited to the loss that the insured will suffer. The insurance contract promises to keep the insured indemnified against the financial loss that he would suffer on account of the happening of the event

(b) Contract of Utmost Good Faith

In Life Insurance contracts, a very high degree of good faith is required to exist between the parties to the contract, viz., the insurer and the insured. This is called the principle of utmost good faith (Uberrima fides) ..It is the duty of the proposer to disclose the material information for proper assessment of risk by the insurer All the required information for the assessment of risk is known only to the proposer and the insurer has no knowledge of the risk ..The proposer may not be having technical knowledge about the insurance products, the benefits, pricing aspects etc. and hence will have to rely upon the insurer to ensure that the terms of the contract are fair and equitable.

An insurance contract is a contract of utmost good faith and therefore, the contracting parties are placed under a special duty towards each other, not merely to refrain from active misrepresentation but to make full disclosure of all material facts within their knowledge.54 It has been said that ‘there is no class of

documents to which the strictest good faith is more rightly required in courts of law than policies of insurance’.55 (c) Conditional Contract

Life insurance is subject to the conditions and privilege provided on the back of the policy. The conditions put the obligation on a party to fulfill certain conditions before the proof of death or of disability are the parts of the contract. The conditions whether precedent or subsequent of the legal rights must be fulfilled in order to complete the contract. (d) Aleatory Contract

In such a kind of contract, no mutual exchange of equal monetary value is done. It is the happening of the contingency on which the payment is made. If death occurs only after payment of a few premiums, full policy amount is paid. (e) Contract of Adhesion

The terms of the contract are most of the times fixed by one party (the insurer) and with minor exceptions, must be accepted or rejected in total by the other party (the proposer).

In such a contract, the terms of the contract are not arrived at by mutual negotiations. Similarly, in a life insurance contract, the contract is decided upon by the insurer only. The party on the other side has to choose between the two options, i.e. either to accept or reject the policy. (f) Contract of Certain Amount

Life insurance contract does not provide an indemnity. It is in the nature of a contingency contract by providing for the payment of the agreed amount on the happening of the event.

(g) Standard Form of Contract

In the life insurance, all the essentials of a general contract as provided by the Indian Contract Act, 1872, for a valid contract are present.

Formation of Life Insurance Contract Like any other contract, a contract of life insurance must satisfy the essentials of a valid contract. All the agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void

OBJECTIVE OF LIFE INSURANCE-

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Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the

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country and providing them adequate financial cover against death at a reasonable cost. Maximize mobilization of people's savings by making insurance-linked savings

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adequately attractive. Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive

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return. Conduct business with utmost economy and with the full realization that the moneys

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belong to the policyholders. Act as trustees of the insured public in their individual and collective capacities. Meet the various life insurance needs of the community that would arise in the changing

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social and economic environment. Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy.

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Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective.

LIC ACT The Life Insurance Corporation of India is the largest insurance and investment group owned by Indian State with assets, funds and policies. The Parliament enacted the Life Insurance Corporation Act in 1956 which came into force on July 1, 1956.The Act provides for the establishment of the Life Insurance Corporation of India which shall start functioning on September 1, 1956. The LIC is a corporate having perpetual succession and a common seal with the power to acquire hold and dispose of property and can by its name see and be sued.  ConstitutionSection 3 of the LIC Act,1956: Establishment and incorporation of life insurance Corporation of India

1.with effect from such date as the central government may by notification in the official Gazette, appoint, there shall be establish a corporation called the life insurance corporation of India. 2.The corporation shall be a body corporate having perpetual succession and a common seal with power, subject to the provisions of this act to acquire, hold, and dispose of property and may by its name sue and be used.  CapitalThe original capital of the corporation shall be five crores of rupees provided by the central government after due appropriation made by parliament by law for the purpose, and the terms and conditions relating to the provisions of such capital shall be such as may be determined by the central government. The central government may on the recommendation of the corporation, reduce the capital of the corporation to such extent and in such manner as the central government may determine.  Transfer of servicesAll the employees except chief agent will be vested into new life business. The salary and terms of employment will remain the same unless insurance business thinks fit to change the terms of employment for the benefit of the policyholder. If any term is not acceptable to an employee, he can be terminated by paying three months salary as compensation. Subject to such rules as the central government may make in this behalf, every whole-time salaried employee of a chief agent of an insurer whose controlled business has been transferred to and vested in the corporation.  Authorities(a)Managing Director The corporation may appoint, one or more persons to be the Managing Director or Directors of the corporation and every Managing Director shall be a whole-time officer of the corporation, and shall exercise such powers and perform such duties as may be entrusted or delegated to him by the executive committee or the corporation.

(b)Zonal Managers The corporation may entrust the superintendence and direction of the affairs and business of a zonal office to a person, whether a member or not, who shall be known as a zonal manager and the zonal manager shall perform all such functions of the corporation as may be delegated to him with respect to the area within the jurisdiction for each of the Zonal office.

Conclusion In a period of half a century and less, the insurance sector in the country has come a full circle, from being an open competitive market to full nationalization and then back again to a liberalized market, in which private players and public sector companies are on a level of playing field. It becomes imperative at this instance to appraise the performance of Life Insurance Corporation of India succeeding sectoral reforms. And for evaluating whether the performance of LIC is in progression, key determinants are identified and listed. CONCLUSIONAfter overhauling the all situation that boosted a number of Pvt. Companiesassociated with multinational in the Insurance Sector to give befittingcompetition to the established behemoth LIC in public sector, we come atthe conclusion that :1) There is very tough competition among the private insurance companieson the level of new trend of advertising to lull a major part of Customers.2) LIC is not left behind in the present race of advertisement.3) The entry of the Pvt. Players in the Insurance Sector has expandedthe product segment to meet the different level of the requirement of thecustomers. It has brought about greater choice to the customers.4) Private insurers have restricted reach to the customers.5) LIC has vast market and very firm grip on its traditional customers andmonopoly of life insurance products.6) Bank assurance - that allows life insurers to leverage on the risk productthrough bank network, was adopted by private players. But LIC was also notleft behind as picking up majority stake in the corporation Bank and largeequity stake in the Oriental Bank of Commerce.IRDA is also playing very comprehensive role by regulating

normsmandating to private players in this sector, that increases the confidencelevel of the customers to the private playersEmmanuel Savio Page 33St. Andrew’s College T.Y.B.B.I

Abstract The insurance industry has undergone a drastic change since liberalization, privatization and globalization of the Indian economy in general and the insurance sector in particular. For almost four decades LIC has been sole player with virtual monopoly in the life insurance sector. The entry of so many companies in this sector was likely to affect the performance of Life Insurance Corporation. Thus the LIC public sector giant, which never faced competition earlier, now has to compete with the private players who boast of the rich and long experience of their partners from the developed countries of the world. It becomes imperative at this instance to appraise the performance of Life Insurance Corporation of India, succeeding sectoral reforms. And for evaluating the performance of LIC in progression, key determinants are identified and listed.

Conclusion In a period of half a century and less, the insurance sector in the country has come a full circle, from being an open competitive market to full nationalization and then back again to a liberalized market, in which private players and public sector companies are on a level of playing field. It becomes imperative at this instance to appraise the performance of Life Insurance Corporation of India succeeding sectoral reforms. And for evaluating whether the performance of LIC is in progression, key determinants are identified and listed.

Functions of the Corporation.— (1) Subject to the rules, if any, made by the Central Government in this behalf, it shall be the general duty of the Corporation to carry on life insurance business, whether in or outside India, and the Corporation shall so exercise its powers under this Act as to secure that life insurance business is developed to the best advantage of the community. (2) Without prejudice to the generality of the provisions contained in sub-section (1) but subject to the other provisions contained in this Act, the Corporation shall have power— (a) to carry on capital redemption business, annuity certain business or reinsurance business insofar as such reinsurance business appertains to life insurance business; (b) subject to the rules, if any, made by the Central Government in this behalf, to invest the funds of the Corporation in such manner as the Corporation may think fit and to take all such steps as may be necessary or expedient for the protection or realisation of any investment; including the taking over of and administering any property offered as security for the investment until a suitable opportunity arises for its disposal; (c) to acquire, hold and dispose of any property for the purpose of its business; (d) to transfer the whole or any part of the life insurance business carried on outside India to any other person or persons, if in the interests of the Corporation it is expedient so to do; (e) to advance or lend money upon the security of any moveable or immovable property or otherwise; (f) to borrow or raise any money in such manner and upon such security as the Corporation may think fit;

(g) to carry on either by itself or through any subsidiary any other business in any case where such other business was being carried on by a subsidiary of an insurer whose controlled business has been transferred to and vested in the Corporation under this Act; (h) to carry on any other business which may seem to the Corporation to be capable of being conveniently carried on in connection with its business and calculated directly or indirectly to render profitable the business of the Corporation; (i) to do all such things as may be incidental or conducive to the proper exercise of any of the powers of the Corporation. (3) In the discharge of any of its functions the Corporation shall act so far as may be on business principles.