Legal aspects of insurance and related laws in India

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Insurers, reinsurers and insurance intermediaries in India are governed by the IRDAI. The first legislation regulating the Indian insurance sector comprises the Insurance Act 1938 (the Insurance Act) and therefore the Insurance Regulatory and Development Authority Act 1999 (the IRDA Act). Pursuant to the powers granted thereto under both of those statutes, the IRDAI has issued various regulations governing the licensing and functioning of insurers, reinsurers, and insurance intermediaries.

  • Appeals against orders issued and decisions made by the IRDAI have also mentioned the Securities Appellate Tribunal in accordance with the procedural rules notified during this regard.
  • The year 2018 was significant for the insurance sector as several regulations and guidelines issued by the IRDAI were notified, including the subsequent.
  • The IRDAI (Insurance Brokers) Regulations 2018 were issued to interchange the previous IRDA (Insurance Brokers) Regulations 2013.

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IRDAI (Insurance Brokers) Regulations 2018

The IRDAI (Reinsurance) Regulations 2018 (the Reinsurance Regulations), which are applicable to life, general and health insurers, were issued to interchange the IRDAI (General Insurance – Reinsurance) Regulations 2016 and IRDAI (Life Insurance – Reinsurance) Regulations 2013. They also amend to some extent the IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers aside from Lloyd’s) Regulations 2015 and also the IRDAI (Lloyd’s India) Regulations 2016. The Reinsurance Regulations prescribe significant changes to the erstwhile order of preference Indian insurers were required to follow for placement of reinsurance business and also expressly govern engineering, aviation, crop, trade credit, liability, oil and energy lines of reinsurance business. Non-admitted insurers who are listed with the IRDAI as cross-border reinsurers can reinsure risks in India in accordance with the IRDAI’s regulations on the reinsurance of life and general insurance business and subject to compliance with the order of preference for cessions. Further, the Reinsurance Regulations also provide that Indian Insurers may now adopt alternative risk transfer solutions (also called ‘financial reinsurance’ in life reinsurance business) to suit their specific needs and profile, subject to obtaining the prior approval of the IRDAI.

The IRDAI (Unit Linked Insurance Products) Regulations 2019 and also the IRDAI (Non-Linked Insurance Products) Regulations 2019 were issued to interchange the erstwhile IRDA (Linked Insurance Products) Regulations 2013 and also the IRDA (Non-Linked Insurance Products) Regulations 2013, respectively. The new regulations started revised norms in relevancy the planning and issuance of linked and non-linked life assurance policies by life insurers in India.

In addition, and as mentioned above, The IRDAI’s recent exposure draft of the IRDAI (Regulatory Sandbox) Regulations 2019 proposes fitting a sandbox environment within the insurance sector to foster further innovation.

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Insurable risk

As the case under English law, Indian law also requires someone moving into an insurance contract to possess stake within the subject material of the contract. interest must be present all told forms of insurance, failing which it might be a wagering contract, which is void.

Neither the Insurance Act nor the IRDAI regulations started out precisely what constitutes stake or an exhaustive list of risks which will and can't be insured. However, there's guidance provided by way of other statutes, court judgments and also the IRDAI regulations.

‘Insurable interest’ has been defined under Section 7 of the Marine Insurance Act 1963 as follows:

Insurable interest defined – 

  1. Subject to the provisions of this Act, every one has an interest who is curious about a marine adventure.
  2. Particularly someone is inquisitive about a marine adventure where he stands in any legal or equitable respect to the journey or to any insurable property in danger therein, in consequence of which he may benefit by the protection or due arrival of insurable property, or is also prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof.
    To have an interest in anything, there must be material to insure, the insured should have some legally recognised relationship with the topic matter and therefore the loss of the property should cause pecuniary damage to the insured. If the insured suffers a loss or derives benefit, he or she has an stake within the subject material of the insurance contract. The courts have held that ‘[i]nsurable interest isn't complete ownership. It needn't necessarily even strictly be title and interest within the object insured.’

Further, Paragraph 6(b) of the rules on Product Filing Procedures for General Insurance Products of 18 February 2016 states that ‘[t]he product should be a real insurance product covering an insurable risk with a true risk transfer. “Alternate risk transfer” or “financial guarantee” business in any form shall not be accepted including indirect insurance products like insurance derivatives.’

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There are specific requirements as far as trade credit policies are concerned, for example, they can not cover 

  1. factoring, reverse factoring, and bill discounting; and 
  2. any receivable arising from a financial service or consultancy service.

Further, Indian law recognises the principle that the law won't help a criminal to recover any reasonably take pleasure in or for his or her crime. Accordingly, the results of a criminal act will typically not fall for canopy under an policy and no benefits extended to the perpetrator.

Non-admitted insurers aren't permitted to directly insure property in India or any ship, other vessel, or aircraft registered in India. However, an individual resident in India is permitted to require or still hold a insurance policy issued by an insurer outside India provided the mixture remittance doesn't exceed the bounds prescribed by the banking company of India (RBI). during this regard, an individual resident in India may take or still hold a insurance policy issued by an insurer outside India, subject to certain exchange requirements stipulated within the Master Direction – Insurance of 1 January 2016 (as amended) issued by the RBI. Similarly, an individual resident in India may take or still hold a general contract issued by an insurer outside India, given that the policy is held subject to the conditions provided under the interchange Management (Insurance) Regulations 2015.

In addition to the above, foreign reinsurers are now allowed to access the Indian market and are permitted to line up branch offices in India or operate through service companies founded in India under the IRDAI (Lloyd’s India) Regulations 2016. Non-admitted insurers who are listed with the IRDAI as cross-border reinsurers can reinsure risks in India in accordance with the IRDAI’s regulations on the reinsurance of life and general insurance business and subject to compliance with the order of preference for cessions. The restrictions on non-admitted insurers mean that cross-border insurance disputes involving insurers and insureds are scarce during this jurisdiction. Further, even within the case of policies obtained by Indian residents from insurers residing abroad, the Insurance Act 1938 gives policyholders a right to override contrary policy terms in favour of Indian law and jurisdiction as long because the insurance business is transacted in India.

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Fora and dispute resolution mechanisms

There aren't any exclusive procedures or judicial venues for resolution of insurance disputes. Insurance disputes, within the absence of an article, will be litigated before the civil courts or consumer forums. the choice to approach the buyer forums, however, lies only with the insured within the event of a dispute. The civil and consumer courts have territorial and pecuniary jurisdiction to adjudicate disputes. The civil courts or consumer forums that decide the matter will vary consistent with the worth of the dispute and also the geographical limits of the defendant underwriter within which the explanation for action for the dispute arises.

India incorporates a three-tier hierarchy of courts to listen to civil disputes. There are approximately 600 district courts at all-time low level, 24 high courts within the middle and also the Supreme Court of India at the highest of the pyramid. The high courts of Delhi, Mumbai, Chennai and Kolkata have original jurisdiction to listen to matters over a specific pecuniary value, therefore the civil courts and judges under them don't hear matters involving values beyond that limit. all told other cases, district courts and therefore the competent courts of first instance have a vast pecuniary jurisdiction to listen to any insurance dispute. there's no right to a hearing before a jury and cases are decided by judges.

The Indian legislature enacted in 2015 the Commercial Courts Act 2015 (the Commercial Courts Act) for fast-track resolution of economic disputes. Special commercial courts were founded under the Commercial Courts Act for exclusive adjudication of economic disputes. The Commercial Courts Act defines an advertisement dispute to incorporate insurance and reinsurance disputes over the worth of roughly 300,000 rupees. Recent amendments to the Commercial Courts Act have proposed compulsory mediation for parties before filing an ad suit. The authority liable for conducting mediation has not been designated yet.

The insured also has the choice to approach the patron courts, founded under the patron Protection Act 1986 (the Consumer Protection Act). the patron Protection Act lists insurance as a service and provides for a three-tier hierarchy to listen to consumer disputes. There are 626 district consumer disputes redressal commissions, which until recently could accept claims up to a worth of roughly 2 million rupees. There are 36 state consumer disputes redressal commissions, accepting claims of up to approximately 10 million rupees and appeals against the choices of the district commissions. At the apex is that the National Consumer Disputes Redressal Commission (NCDRC), accepting matters with a worth of over 10 million rupees and appeals against the selections of the state commissions.

However, the central government recently introduced the patron Protection Act 2019, which has increased the aforementioned pecuniary jurisdiction of the patron courts as follows: (1) the district consumer disputes redressal commissions can now accept claims up to a price of roughly 10 million rupees; (2) the state consumer disputes redressal commissions can accept claims of up to 100 million rupees; and (3) the NCDRC can now only accept matters valued at over 100 million rupees. However, the new Act is yet to come back into force by way of a proper notification.

As a mechanism of different dispute redressal, the insured may approach the Insurance Ombudsman for disputes that don't exceed 2 million rupees in value. The Insurance Ombudsman isn't a judicial authority and doesn't have power to enforce its decisions against the insurer.

1. What are legal aspects of insurance?
2. How many types of insurance are there?