The insurance industry has never been in such lime light as it is now. It is witnessing an unprecedented boom. The massive upheavals in insurance sector have opened gates for private insurers as well.

The Indian market of life insurance business is flooded with the private companies vying with each other to create a niche for themselves. LIC is an established name in the insurance market. Other major private players are ICICI Prudential, Max New York, OM Kotak Mahindra, Birla Sun Life & SBI Life. In total there are 14 private players in the market.

Indian   customers   express apprehension about security of their investments in private insurance companies. The Indian customer has witnessed securities scam and UTI scams wherein genuine investors suffered heavily.

However the Government has taken great care through IRDA bill (Insurance Regulatory and Development Authority Bill) to protect, the investors choosing to invest in private insurance companies.

The writer proposes to discus various safety measures taken by the Government through IRDA to ensure safety of customer’s money.

Financial regulations
•  It is mandatory for each and every private insurer to deposit an amount of Rs. 100 crores, as paid up capital, with the Reserve Bank of India, prior to grant of license by IRDA

•  This step will take care that small players do not make insurance business a crowded business

•  85% of the premium collected by any insurer in any financial year has to be invested in the Government sector i.e. Central government, State government and other approved infrastructure bonds and securities. Balance 15% can only be invested by the company with its own prudence. This will ensure that money invested by the investor in the insurance schemes, will remain in the hands of Government, hence there is no chance of insecurity to public money

•  Although all private insurers have one foreign partner to maximum extent of 26% in their equity, still not a single rupee can be invested out of India i.e. no foreign investments

•  This will ensure funds availability for Indian industry

•  An amount equal to 95% of the profits generated, every year has to be compulsorily   distributed amongst the policy holders as Bonus. This is the minimum limit. This will force the insurance companies to provide maximum benefits to the policy holders

•  Even a check on management expenses has been sought. These can not exceed 15% of the total earnings of the insurance company in a year.
This will ensure that the public money is not -spent leisurely by the management of the insurance company

Administrative regulations
•  An amount equal to the 50% of the total sum insured, assured by the company, has to he kept as Reserve Fund or Life Insurance Fund, at all the times

•  No insurer for the sake of issue of bonus to the policy holders or for the sake of issue of dividends to its shareholders can utilize Life Insurance Fund

•  Every insurer shall invest and keep invested at all  times, assets equal to or not less than the sum of all liabilities to the policy holders on account of matured claims (+) maturing claims (-) amount of premium which has fallen due (-) amount due to the policy holders as loans granted

•  Every insurer shall furnish to the IRDA a certified copy of every report including abstract of proceedings of general meetings

•  The IRDA has prohibited loan distributions. No insurer shall grant any loans or temporary advances either on hypothecation or on personal security to any of the directors, managers, managing agent, actuary or any other officer of the company

•  IRDA has put restrictions on the excessive remuneration to any of the directors, managers or officers of the insurance company.
If at any time IRDA feels that any officer or director is being paid higher salaries than the standard norms of the industry, it can call upon the insurer to alter such remuneration or seek resignation of the officer, in case he refuses to accept such alteration

•  IRDA has the power to appoint such staff and at such places for the scrutiny of returns, statements and information furnished by the insurers under this Act and generally to ensure the efficient performance of the insurance company

•  Every insurer shall, in respect of all the insurance business transacted by him in India, at the expiry of each financial year, submit a Balance Sheet, in the set form and a Revenue Account.
All these documents are subject to audit under the Indian Companies Act 1913, by a certified auditor. An Actuary Report is also required to be submitted to IRDA, clearly indicating the financial health including a valuation of its liabilities

•  Penalties are sought to be imposed under this Act, in case any insurance company fails to comply with or acts in contravention of this Act or gives false statements:
     •  It  shall  be  liable to  a penalty not exceeding Rs. 5 lakhs for each such failure
     •  It shall be punishable with imprisonment, which may be extended to 3 years or with a fine for each such failure
     •  In case an insurer doesn’t discharge the obligation of doing business in rural area or unorganized sector and backward classes, it shall be liable   to   a penalty   not exceeding Rs. 25 lakhs for each such failure

•  IRDA has provided for the application of Indian Constitution to the policies issued in India i.e. the policy holders shall have the right, notwithstanding any thing to the contrary contained in the policy, in any court of jurisdiction in India, i.e. Tribunals, District Courts, High Courts and the Supreme Court

In the light of above regulatory provisions, IRDA has taken every possible caution that no private insurer could cheat the investors and it is a reality that money would remain in the hands of Indian Government. But, the returns on insurance business have to go with the market.

As life insurance business plays a major part in the development of any nation, let us all look at it as yet another revolution of 21st century, helping India grow at a much faster pace.

Business share of private insurance companies as on 31st March, 2006