Health Insurance – Insurance Law and Practice Important Questions

Health Insurance – Insurance Law and Practice Important Questions

Question 1.
Life insurance business is a long-term business and to ensure that resources are available to an insurer for meeting the claims, there must be an efficient system of investment of the funds. State how the IRDAI has ensured that this happens in the Indian market.
Answer:
Life insurance is a long term contract and hence, it is essential that the Life Insurance Company should be able to meet its future obligations and commitments in the form of claims that may arise.
In other words, it means that the company should have resources available anytime and hence, must have a strong Investment policy so that all the premiums received are amicably invested in safe investments so that the company remains solvent and sustainable at the same time.

Hence, in a bid to direct long term savings, the recently amended investment regulations of the Insurance Regulatory Development Authority (IRDA) provide the IRDA (Investment) Regulations, 2000 as amended from time to time for Insurance Companies with regards to the investments.

As per Regulation 3, a life insurer, for the purposes of these regulations, shall invest and at all times keep invested, the Investment Assets forming part of the Controlled Fund as defined in Section 27 of the Act as under:

• all funds of Life Insurance business and One Year Renewal pure Group Term Assurance Business (OYRGTA), and non-unit reserves of all categories of Unit-linked life insurance business, as per Regulation 4;
• all funds of Pension, Annuity and Group Business [as defined under Regulation 2 (d) of [IRDA (Actuarial Report and Abstract) Regulations, 2000] as per Regulation 5;
• the unit reserves portion of all categories of Unit linked funds, as per Regulation 6.

Question 2.
Outline the Insurance Regulator’s guidelines with respect to financial inclusion.
Answer:
Insurance Regulatory & Development Authority (IRDA) has been making immense efforts to educate and empower the common citizens about insurance industry in India and their rights and responsibilities. IRDA has been at the forefront of insurance sector deepening, protecting the rights of policyholders, regulating insurance companies and advisors and bringing about insurance inclusion in India for all segments especially the poor.

Some of the steps taken by IRDA for financial inclusion include the following:
National Strategy for  Financial Education:
The National Strategy recognises that financial literacy and financial education play a vital role in financial inclusion and inclusive growth and envisages ways towards creating awareness and educating consumers on access to financial services, availability of various types of products and their features; changing attitudes to translate knowledge into responsible financial behaviour and making consumers of financial services understand their rights and obligations.

Website on Insurance Education:
In an attempt to increase insurance awareness levels across the country, the authority has taken a number of consumer education initiatives and has recently launched an exclusive insurance education website www.policyholder.gov.in this website has self-explanatory menus and gives information in simple language.

Grant of Corporate Agency license to Department of Postal:
To promote financial inclusion, insurance regulator, Insurance Regulatory and Development Authority (IRDA) has granted corporate agency license to the Department of Post for distributing insurance products.

Emphasis on educating insurance agents to weed out mis-spelling:
IRDA has been emphasizing specialized training to the country’s 2.5 million insurance agents after they clear the basic examination to qualify as a licensed agent to sell insurance products. The training, aimed at instilling seriousness among insurance agents about sales as a career and stop unfairly selling insurance schemes just to earn commissions.

Question 3.
Do you agree with the statement that the roles played by a third-party administrator and a surveyor in the matter of after-sales service of an insurance product are the same? Discuss.
Answer:
A surveyor and a Third Party Administrator (TPA) both come into picture for a claim settlement purpose for insurance products but their roles are quite different.

The primary responsibility of a Surveyor is to estimate the liability of the loss incurred by the policyholder who has take insurance cover, to enable the assurance company to arrive at the amount to be indemnified to the policyholders under the terms of the insurance contract.

A surveyor has to be a qualified person both academically as well as technically with experience in the field in which he is required to offer his services for survey. Surveyors come into the picture when estimated losses are in excess of ₹ 50,000 for a motor insurance claim and over ₹ 1 lakh in other insurance claims, such as for fire or marine insurance.

Third-Party Administrator (TPA) is a person (generally a company) complying with certain requirements as stipulated under the Act. TPAS are appointed by an insurance company to render services in connection with health insurance business. TPAS are also required to deal with the claim settlement process in case of health insurance policies but they do not act like surveyors as they do in case of general insurance business.

A person can act as a TPA only with a valid licence issued by IRDAI to perform the functions of a TPA. It is generally only a company registered under the Companies Act which is allowed the licence to act as a TPA. The main object of the Memorandum of the company should provide for carrying out of the business as TPA in the health services. Further engaging in any other business than IPA is prohibited. The company must have minimum paid-up capital of ₹ 1 crore at all times.

Thus, the role of surveyor for a general insurance (motor, marine and fire) and role of TPA for health insurance come under after-sales services of the insurers and before and during the settlement of claim. Prima facie the roles look to be the same, but functionally their roles are quite different. The surveyor only assesses the quantum of the claim and reports to the insurer whereas the TPA besides offering health-related services also processes the documents for the health insurance claims and communicates with the insured on behalf of the insurer.

Question 4.
Evaluate the pros and cons of portability feature introduced in health insurance policies in India.
Answer:
Portability is the right accorded to the policyholder to transfer the credit gained by the pre-existing conditions and time-bound exclusions from one insurer to another insurer or from one plan to another plan of the same insurer. It is the right conferred on a policyholder who decides to move from one general or health insurer to another or to another plan of the same general or health insurer.

Portability is not applicable to fixed benefits payable under Health insurance policies issued by a Life Insurer. The advantage of portability is the carry forward of the credits accrued on account of having a policy with previous insurer Request for portability should be given by filling up a portability form to the existing insurer, earlier than 45 days but not before 60 days from the date of expiry.

Portability form should be submitted to the old insurer who shall send it through a portal to the new insurer. New insurer may request the claims history and other details from the previous insurer who shall submit the required details within a period of 7 days from the date of receipt of request.

An insurer may reject the request for portability if the policyholder approaches 60 days before or within 45 days of the date of expiry of the insurance policy. However, an insurer may at their option consider the request for portability even outside the above period.

New insurer is under obligation to accept or reject within a period of 15 days from the date of receipt of the portability form. If the new insurer does not convey any decision within the aforesaid 15 days he is deemed to have accepted the request for portability. No charges for portability can be levied either by the previous insurer or the new insurer No commission shall be paid to any agent or intermediary for the policy which is ported from one insurer to another insurer.

Question 5.
Shri Prithipal Singh, 48 years of age, on 7th May 1990, secured for himself a medical claim policy from X General Insurance Co. Ltd. Necessary formalities were completed by him in this regard after due consultation with and guidance of the insurance company’s agent. Shri Singh nominated his wife Smt. Satwant Kaur as the beneficiary under the policy. The policy was for a period of due year and has to run from 7th May 1990 to 6th May 1991. The annual premium charged by the company was ₹ 1,500 which was duly paid in cash by the insured.

In filling the proposal form leading to the issue of the policy Shri Singh, while answering questions 10 and 11 thereof, had clearly stated that he had not suffered from any illness in the past and that he had not undergone any medical procedures.

On 11th September 1990, Shri Singh fell ill suddenly and was admitted to a local hospital at Ludhiana where he was residing. The Ludhiana hospital, in the course of the treatment, suggested his shift to a specialised hospital and hence on 7th December 1990, Shri Singh was shifted to the Madras Institute of Nephrology, Chennai also known as Vijaya Health Centre. While under treatment the Chennai hospital, Shri Singh’s condition deteriorated and ultimately he died in the Chennai hospital on 26th December, 1990.

Smt. Satwant Kaur intimated the insurer X General Insurance Co. Ltd., of her husband’s death early in January 1991 and followed up the intimation with a claim statement in February 1991 in which she had claimed reimbursement of medical and hospital charges of ₹ 5,23,500.

The insurance company made enquiries with the Madras Institute of Nephrology and obtained a certificate from them on 6th May 1992 stating that the deceased Shri Singh was a known case of chronic renal failure/diabetic nephropathy; that he was on a regular haemo-dialysis for some years and also after admission into their Institute and suffered from severe breathlessness leading to the development of a sudden cardiac arrest leading to death on 26th December 1990. Their certificate also mentioned that the insured was a confirmed diabetic for the last 16 years of his life. In the circumstances, the insurance company by its letter of 30th August 1993 repudiated the claim and informed Mrs. Singh so.

Feeling aggrieved, Mrs. Singh approached the Consumer Dispute Redressal Forum with the prayer that the insurance company should be directed to pay her claim fully along with interest on the claim amount at 24% per annum and also compensation for causing her mental agony. Additionally, she claimed that the litigation expenses should be fully granted to her. The insurance company, in defence, stated before the authority that the claim was unsustainable and had been refused by it on the strength of the report of the treating hospital.

The insurer also pointed out that while filling the proposal form, the insured had specifically started against columns 10 and 11 that he had always been in sound health and had not undergone any medical treatment or operation in the 12 months prior to the date of proposal.

The medical report issued by the Madras hospital confirmed that the insured was a confirmed diabetic and was suffering from chronic renal failure or diabetic nephropathy. The insurer also relied on certificates obtained from two independent doctors to state that the claim was not payable as material facts relating to the health of the insured had been concealed at the time of taking the policy. They indicated that even though they had not treated the insured personally, they were of the view that the facts established that the claim could not be paid.

After hearing the parties, the District Forum rejected the opinion/view of the independent doctors since they had neither seen nor treated the deceased. The Forum also held that the report of the Chennai hospital was not supported by any circumstantial evidence and was thus not to be relied upon. On this basis, the Forum held in favour of the claimant and against the insurance company and that the claim be paid.

The District Forum also concluded that the insurance company was guilty of deficiency of service and that the repudiation of the claim was not based on any full material information. The forum also felt that there was an inordinate delay on the part Of the insurance company in dealing with the claim under the policy. The forum directed the insurance company to pay the claim along with interest at 12% per annum from 1st April 1991, that is, 3 months after the death of the insured, till date of payment. The forum also directed the insurance company to pay Mrs. Singh ₹ 1,000 as costs of litigation.

Not satisfied with the District Forum’s decision, the insurance company filed an appeal before the State commission reiterating the same facts as had been pressed before the District Forum. The State commission, on hearing the parties, allowed the appeal of the insurance company and part of its order dated 31st December 1998 read as under: “Death of the insured occurred within seven months of taking the mediclaim policy and section 45 of the Insurance Act is not even remotely attracted.

We are of the considered view that repudiation of the claim was on a consideration of the aforesaid record of the Madras Institute of Nephrology and therefore answer to col. 10 of the proposal form amounted to misrepresentation of and suppression of material facts regarding health made by the policyholder. No case of deficiency in service has been established.”

Mrs. Singh filed a revision petition before the National Commission. The National Commission dismissed the revision petition stating that as it was a case of concurrent finding of facts recorded both by the District Forum and the State Commission, “there was no reason to interfere and hence dismissed.” However, the learned counsel for the respondent submitted that the repudiation of the claim was fully justified because at the time of submission of the proposal form, the proposer had made a false declaration that he was possessing a sound health and had not undergone any treatment in the last 12 years and taking the facts disclosed as correct, the policy was issued.

It was urged that the mediclaim policy was issued solely on the basis of facts disclosed and the representation made by an insured in the proposal form filled in and submitted by him without subjecting the insured to any medical tests. It was also pointed out that the proposal form contained a declaration to the effect that if after the insurance is effected, it was found that any statements answer or particulars stated in the proposal form and its questionnaire were found to be incorrect or untrue in any respect, the insurance company shall incur no liability under the policy.

It was thus asserted that the insured having suppressed the fact of his suffering from chronic renal failure/diabetic nephropathy, which fact was within his knowledge, the insurance company was justified in repudiating the claim. There was a clear suppression of material facts in regard to the health of the insured and, therefore, the insurance company was fully justified in repudiating the insurance claim/contract. The National Commission did not find any merit in the revision petition and dismissed it. No order was made by the Commission as to the costs of litigation.

Based on the facts given above, deal with the following issues:
(a) Was the insurance company justified in repudiating the claim? Was there any breach of faith in the case?
(b) Define the principle of utmost good faith and state the pertinent interpretation of IRDAI with regard to material facts.
(c) What is the implication of Section 45 of the Insurance Act? Is a reference to that section relevant to the above case?
(d) Explain the coverage available under a mediclaim policy and state the exclusions under such a policy.
(e) Explain the importance of conditions and warranties as applicable to medi-claim insurance with reference to the above case. Was there any breach of such provisions?
Answer:
(a) In the present case, the core question for consideration is whether the fact that at the time of taking out the mediclaim policy, the policyholder was suffering from Chronic Diabetes and Renal failure was a material fact. It is indeed a material fact as, it would have influenced the decision of the company in giving him a policy in the first place. And moreover, this fact was not disclosed by him in his application also.

Therefore, on account of non-disclosure of this fact in the proposal form, the respondent Insurance Company was justified in law in repudiating the claim of the appellant. The National Commission also opined the same thing and held that in the light of the material on record, answer to the question posed has to be in the affirmative.

There was a breach of faith in this case. The principle of “Utmost good faith” has indeed been violated company can refuse to pay for the claim.

(b) The principle of Utmost good faith can be defined as a positive duty voluntarily to disclose, accurately and fully, all facts material to the risk being proposed, whether requested or not. Uberrimae Fidei – ‘Fidei’ means faith and Uberrimae means utmost. Faith is complete between both the parties of contract. Thus, it needs little emphasis that when an information on a specific aspect is asked for in the proposal form, an assured is under a solemn obligation to make a true and full disclosure of the information on the subject which is within his knowledge.

Therefore, a fundamental principle of insurance law, is that utmost faith must be observed by the contracting parties. Good faith forbids either party from non-disclosure of the facts which the party privately knows. The assured’s duty to disclose can be summarized as under:” …the assured must disclose to the insurer all facts material to an insurer’s appraisal of the risk which are known or deemed to be known by the assured but neither known nor deemed to be known by the insurer. Breach of this duty by the assured entitles the insurer to avoid the contract of insurance so long as he can show that the non-disclosure induced the making of the contract on the relevant terms.

IRDA has made the 15 days free look-in period a ‘mandatory regulation’. The company spends heavily to train its agents/advisors so that they are able to guide and give the right product to the customers.
As per the Regulation 2(l)(d) of the Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002, which explains the meaning of term “material”.

The Regulation reads thus: “Proposal Form” means a form to be filled in by the proposer for insurance, for furnishing all material information required by the insurer in respect of a risk, in order to enable the insurer to decide whether to accept or decline, to undertake the risk and in the event of acceptance of the risk, to determine the rates, terms and conditions of a cover to be granted. The explanation for “Material” for the purpose of these regulations shall mean and include all-important, essential and relevant information in the context of underwriting the risk to be covered by the insurer.”

Thus, the Regulation also defines the word “material” to mean and include all “important, “essential” and “relevant” information in the context of guiding the insurer to decide whether to undertake the risk or not. In a Contract of Insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a “material fact”.

If the proposer has knowledge of such fact, he is obliged to disclose it, particularly while answering questions in the proposal form. Needless to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a Contract of Insurance.

As per IRDAI matters to be stated in general insurance policy states that “a company has a provision for cancellation of the policy on grounds of misrepresentation, fraud, non-disclosure of material facts or non-cooperation of the insured”.
(c) As per Section 45 of Insurance Act, “Policy not to be called in question on ground of misstatement after 2 years”. In other words, it means that no policy of life insurance effected before the commencement of the Insurance Act shall, after the expiry of two years from the date of the commencement of the Act and no policy of life insurance effected after the coming into force of this Act shall, after the expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal for insurance or in any report of a medical officer, or referee, or friend of the insured, or in any other document leading to the issue of the policy, was inaccurate or false, unless the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policyholder and that the policyholder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose.

In the present case, there is no dispute that Section 45 of the Insurance Act, 1938, which places restrictions on the right of the insurer to call in question a life insurance policy on the ground of misstatement after a particular period, has no application on facts at hand, in as much as the said provision applies only in a case of life insurance policy. The present case relates to a mediclaim policy, which is entirely different from a life insurance policy. A mediclaim policy is a non-life insurance policy meant to assure the policy holder in respect of certain expenses pertaining to injury, accidents or hospitalizations.

It is a contract of insurance falling in the category of contract ubemimae Fidei, means a contract of utmost good faith on the part of the assured. Therefore, in the present case, Section 45, cannot apply and it is not relevant also. Generally, an insurer would believe the information given in the application form or proposal form as it is generally called. Based on the information given in the form, the insurance company deems it to be true as the applicant also gives in a declaration at the end of the form. Hence, the insurance company issues a policy based on the facts disclosed in the application form.

Moreover, a Mediclaim or any general insurance policy is issued only for one year tenure only and so the insurance company will believe the information furnished by the policyholders. Only when a claim is lodged, the insurance company starts verifying the facts of the case with the information furnished in the proposal form. However, in the case of a life insurance policy, since it is a long term contract, the law gives the insurance company a right to repudiate or cancel the policy if any discrepancy of information is found within a period of two years only.

Therefore, in the present case, the mention of Section 45 is irrelevant and does not hold good.
(d) “Health insurance business” can be defined as a contract that provides for sickness benefits and medical expenses on the basis of an indemnity, reimbursement, service or prepaid plan. A Mediclaim Insurance Policy provides for reimbursement of hospitalization/ domiciliary hospitalization expenses arising out of illness/diseases or injury, administered through TPA. The policy provides for Family discount in premium, Cumulative bonus for claim, free renewals, Cost of health check-up once in 4 claim-free years of policy renewals @ 1 % of the average Sum Insured, Room, Boarding Expenses as provided by the hospital/ nursing home, Nursing expenses, Surgeon, Anesthetist, Medical practitioner, Consultants fees, Anesthesia, Blood, Oxygen, Operation theatre charges, Surgical Appliances, Medicines and Drugs, Diagnostics material, and X-rays. Dialysis, Chemotherapy, Radiotherapy, Cost of pacemaker, artificial limbs, and Cost of organs, and similar expenses.

The Policy however excludes:

• Expenses of pre and post-hospital treatment
• Expenses incurred for the treatment for any of the following diseases: like Asthma
• Bronchitis / Chronic Nephritis
• Diarrhea / Epilepsy / Hypertension / diabetes
• Influenza, cough and cold, pyrexia
• All psychiatric disorders
• Tonsillitis and respiratory infection
• Pre-existing diseases
• First 30/First-year exclusion
• Injury/disease caused by war, invasion, act of foreign enemy, warlike operations
• Cosmetic surgery or plastic surgery
• Cost of spectacles, hearing aids, contact lens
• Dental treatment / Intentional self-injury, use of drugs / alcohol / Aids / Vitamins and tonics
• Pregnancy-related treatment
• Naturopathy treatment
• War-related
• Elective cosmetic surgery
• non-accident related dental care
• Eye test, glasses, hearing examination, hearing aid
• Pregnancy and childbirth except complications
• Work-related injury and Experimental surgery.

(e) A warranty in an insurance policy is a promise by the insured party that statements affecting the validity of the contract are true. Most insurance contracts require the insured to make certain warranties.

For example, to obtain a health insurance policy, an insured party may have to warrant that he does not suffer from a terminal disease. If a warranty made by an insured party turns out to be untrue, the insurer may cancel the policy and refuse to cover claims.

However, not all misstatements made by an insured party give the insurer the right to cancel a policy or refuse a claim. Only misrepresentations on conditions and warranties in the contract give an insurer such rights. To qualify as a condition or warranty, the statement must be expressly included in the contract and the provision must clearly show that the parties intended that the rights of the insured and insurer would depend on the truth of the statement.

Sometimes it will exclude claims arising either directly or indirectly from pre-existing conditions. Sometimes it will exclude only claims that are directly connected to the pre-existing condition. There can sometimes be confusion between pre-existing medical conditions and “nondisclosure”: For example, where a consumer has failed to disclose a pre-existing condition in response to a question. But these are usually confined to long term policies (for example, income protection or critical illness) – where traditional proposal forms are used and the consumers are given the opportunity to answer detailed questions about their health.

From the above discussion, it was clear that there is breach of such provisions indicated in the case because of “non-disclosure” of pre-existing medical conditions.

Question 6.
X is an individual, non-Indian, non-citizen and non-resident of India and controls a group of organizations engaged in the financial sector located outside India. He intends to set up a life insurance company in India and after due diligence has decided to align himself with an Indian Company.

The negotiated terms and conditions of the joint venture agreement are as under:
(i) The authorised capital of the company will be ₹ 150 crore and the issued and paid-up capital ₹ 100 crore.

(ii) The capital will be divided into equity and cumulative preference shares in equal measure. The Preference shares will carry a dividend of 8% p.a.

(iii) The proposed insurance company will also issue 9 year secured debentures carrying an interest rate of 11% p.a. The issue will be of ₹ 25 crore, the whole of which will be subscribed to by the companies controlled by X.

(iv) Two companies controlled by X will hold 30% and 25% of the issued equity shares of the proposed company.

(v) The Indian Company, who is a partner in the joint venture, together with associated organisations will hold 45% of the proposed issued equity in the new company.

(vi) Preference shares of the face value of ₹ 20 crore will be held equally by X and the Indian partners.

(vii) The proposed insurance company will also carry out health insurance business in addition to life insurance business in India.

(viii) It is agreed to between X and the Indian partners that the CEO of the proposed insurance company will be an expatriate (non-Indian) who will be in control of the insurance business.

(ix) The Indian insurance company, when setup, proposed to appoint a British Citizen as the actuary.

(x) The proposed insurance company plans to recruit a number of persons from the Indian market, train them in the marketing of insurance products and appoint them as agents for marketing of the policies.

(xi) As part of the understanding between X and the Indian promoter, there is a proposal to invest 10% of the net premium every year in the group companies owned and controlled by X.

On the basis of the above understanding, an application seeking registration of an Indian insurance company has been made to the Insurance Regulatory and Development Authority of India.
What will be the approach of the authority to this proposal? Comment with the necessary explanations with respect to the relevant statutory provisions as applicable against all the points as mentioned above from (i) to
Answer:
The setting up of an insurance company in India is governed by the Insurance Act, 1938, IRDA, 1999 and other related Acts. The proposed company intends to carry out Life Insurance Business and Health Insurance Business in India where the partners are non-Indian and an Indian partner.

As required they have to set up a public limited company in India (comply with all the requirements of the Companies Act, 2013). As per the present rules the foreign shareholding cannot exceed 49%. The registration is 2 stage process R1 and R2. Every company desirous of seeking insurance business registration from IRDAI has to first apply in Form R1 giving all the details as required therein to IRDAI.

Once R1 is approved which is based on the due diligence of the proposed management and fulfilling of the other criteria for authorized capital, paid-up capital etc. Once R1 is accepted and approved the proposed company can proceed to file form R2 in details and then on being satisfied for all the aspects of the company as required under the Act(s), IRDAI will grant a certificate of registration to the applicant company to carry on the insurance business in India.

(i) Every insurer carrying on insurance business in India shall have a minimum paid-up capital of ₹ 100 crores for life insurance and general insurance business. The proposed company while applying to IRDAI is keeping the authorized share capital at ₹ 150 crores and the issued and paid-up capital at ₹ 100 crores which is well within the stipulated requirements of the Act. Hence this condition would be acceptable to the authority.

(ii) The Act earlier required that the capital of an insurance company shall consist of only Equity Share Capital and no other forms of capital are allowed. However as per amendments made in 2015, insurance companies are allowed to issue total quantum of preference shares and debentures not exceeding 25% of the equity share capital. Further, there is a progressive decrease in the proportion in which the instruments are included as part of the capital (for the purposes of calculation of “Available Solvency Margins”) for the final five years prior to maturity of such instruments.

Here the proposal is to divide the total capital into equity and preference shares in equal measure, i.e., 50% of equity and 50% of preference share capital. As per the Act this is not allowed and hence the proposed company is required to make necessary amendments on the proposed capital structure to comply with total cap of 25% of equity capital for total of preference shares and debentures. The company must have paid-up equity capital of ₹ 100 crores.

(iii) As stated above the company has to have a cap of 25% of equity capital for preference capital and debentures. Thus the company needs to rework out the amounts of preference capital and debentures to meet the requirements as stipulated by the law. This it is not advisable to consider the proposal of issuing 11% Secured Debentures for 9 years of value of ₹ 25 crores to be held by group company of X.

(iv) As per the present law the maximum holding allowed to a foreign partner for insurance business is 49% (with up to 26% foreign investment being under the automatic route) hence the proposal of X company holding total 55% (30% and 25% by two companies of X) will not be permitted. Hence, the proposal have to be revised and maximum 49% can be the company holding.

(v) The Indian partner in an insurance business company is required to hold minimum 51% of the total share capital in the new company would not be approved by the Authority.

(vi) The quantum of preference capital will have to be reworked by both the partners of the proposed company to comply with the requirements of the capital structure as stipulated by the law as it is more than 25% of the equity capital.

Based on the above, the proposed company of X and the Indian partner need to review the proposal and rework the whole proposal and arrive at a new joint venture agreement to proceed further with IRDAI to get the certificate of registration.

(vii) The proposal to carry out the health insurance business in addition to the life insurance business in India will be acceptable to the authorities as long as other conditions of grant of registration are suitably complied with by the proposed company.

Registration and Scope of Health Insurance Business:
(a) Health Insurance products may be offered only by entities with a valid registration granted to carry on Life Insurance or General Insurance or Health Insurance Business under the Insurance Regulatory and Development Authority (Registration of Indian Insurance Companies) Regulations 2000 as amended from time to time.

(b) Life Insurers may offer long term Individual Health Insurance products i.e., for term of 5 years or more, but the premium for such products shall remain unchanged for at least a period of every block of three years, thereafter the premium may be reviewed and modified as necessary.

Provided that a life insurer may not offer indemnity based products either Individual or Group. All existing indemnity based products offered by life insurers shall be withdrawn as specified under these Regulations.
Provided also that no single premium health insurance product shall be offered under Unit Linked platform.

(c) General Insurers and Health Insurers may offer individual health products with a minimum tenure of one year and a maximum tenure of three years, provided that the premium remains unchanged for the tenure.

(d) Group Health Policies may be offered by any insurer for a term of one year except credit linked products where the term can be extended up to the loan period not exceeding five years. Provided General Insurers and Health Insurers may also offer Credit Linked Group Personal Accident policies for a term extended upto the loan period not exceeding five years. Provided further, notwithstanding the provisions of Regulation 4 (b) of these Regulations, Life Insurers may offer Group Health Insurance Policies as specified in Regulation (3)(d).

(e) Group Personal Accident Policies may be offered by General Insurers and Health insurers with term less than one year also to provide coverage to specific events. Other Insurance Products offering Travel Cover and Individual Personal Accident Cover may also be offered for a period less than one year.

(f) Overseas or Domestic Travel Insurance policies may only be offered by General Insurers and Health Insurers, either as a standalone product or as an add-on cover to a health or personal accident policy.

(viii) The proposal to appoint an expatriate (non-Indian) as CEO of the proposed insurance company will also be acceptable as long as other conditions of the management structure of the proposed company are fulfilled as required under the law.

(ix) As per the Appointed Actuary Regulations, 2000 the person to be appointed as an Appointed Actuary of Life Insurance Company in India shall be:
(a) Ordinarily resident in India,
(b) A fellow member of an affiliate member in accordance with the Actuaries Act, 2006.
(c) An employee of life insurer in case of life insurance business etc. Now if the Britisher who is proposed to be appointed as the Appointed Actuary of the proposed life insurance business company in India fulfills the requirements as stipulated under the Act, the authority will permit such appointment otherwise not.

(x) Recruitment of persons from Indian market and training them for marketing of insurance products as agents of the company will also be permitted if these persons to be appointed as agents of the company fulfil the requirements to be appointed as agents. They are required to be provided with practical training, pass the exams conducted by IRDAI for life insurance agents, pay the prescribed fees as required and obtain the certificate to act as Life insurance agents.

(xi) The understanding between X and the Indian promoter to invest 10% of the net premium every year in group companies owned and controlled by X will not be allowed as these fall under Prohibited investments as per Sections 27A(5) and 27C of the Insurance Act, 1938. These are companies outside India and hence investments in these companies are not allowed. If these companies were in India the total limit for investment in such companies is set at 5% of the aggregate funds of the insurer.

Thus based on our observations, the terms and conditions of the understanding have to be reviewed and revised to meet the requirements of the Insurance Act, 1938 and the IRDAI provisions to get the certificate of registration for Life Insurance Business in India.

Question 7.
Write short notes on:
(b) Powers/Functions of IRDA
Answer:
Powers/Functions Of Irda:
Under Section 14 of the IRDA Act, IRDA has the following powers:

• Issue of Certificate of Registration to insurance companies, renew, modify, withdraw, suspend or cancel the certificate of registration.
• Protection of interests of policyholders in matters concerning assignment of policies, nomination, insurable interest, claim settlement, surrender value and other terms and conditions of insurance contract.
• Specification of requisite qualifications, practical training and code of conduct for insurance agents and intermediaries.
• Specification of code of conduct for surveyors and loss assessors.
• Promoting efficiency in the conduct of insurance business.
• Promoting and regulating professional organizations connected with insurance and reinsurance business.
• Levying fees and other charges for carrying out the purposes of the Act.
• Calling for information from or undertaking inspection of insurance companies, intermediaries and other organisations connected with insurance business.
• Control and regulation of rates, advantages, terms and conditions that may be offered by general insurance companies.
• Specifying the form and manner in which books of account shall be maintained by insurance companies and intermediaries.
• Regulation of investments of funds by insurance companies.

Regulation of maintenance of margin of solvency.

Question 8.
Write a brief on the history of regulation of insurance business in India.
Answer:
Regulation of Insurance Business in India: This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of R. N. Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.

The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.

The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests.

Today there are 24 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 23 life insurance companies operating in the country.
Besides IRDA Act and Insurance Act, 1938, there are some common Acts/Regulations to the General and Life Insurance Business in India and some Acts have been made for specific requirements of Life Insurance/General Insurance.

Acts/Regulations common to General and Life Insurance Business in Indian:
The following Acts regulate the Insurance Business in India.

• Insurance Act, 1938
• IRDA Act, 1999
• Insurance Amendment Act, 2002
• Exchange Control Regulations (FEMA)
• Insurance Co-op Society
• Indian Stamp Act, 1899
• Consumer Protection Act, 1986
• Insurance Ombudsman.

CS Professional Insurance Law and Practice Notes