How Safe Are Private Insurance Companies?
People always think twice before investing in a private insurance
company. They have a doubt whether their investment will be safe with private
insurers in India or not. With globalization in the year 2000, there has been a
surge of private insurance companies
in the Indian economy. But even now the attitude of the investors’ is
skeptical. The private insurers are relatively new in the country and do not
have a past record, and thus people often doubt their credibility.
People keep wondering before investing in ANY private insurance company
whether their investment is safe or not? Whether they will get back their money
after maturity or not? What happens if the company winds up and leaves the
country before the policy matures? Will they get their claim easily on death of
the life insured or maturity of the policy? In the unfortunate event of death
of the life insured, will they get the claim at all? And many more doubts.
Well, to clarify on behalf of all private insurance companies, investing
with them is as safe as keeping the money with you.
How and Why Invested amount is
safe:
1. Since all these
companies are regulated by the Insurance Regulatory and Development Authority
(IRDA) and the policies launched and issued by them are also under the
guidelines of the IRDA, there is indeed no need to be worried about the safety.
The IRDA is a very strict regulator and all insurance company operating in
India has to abide by their guidelines.
2. According to Section
64VA of the Insurance Act 1938 there is a Solvency Margin of Rs 150 crores that
needs to be maintained by each and every insurance company. It needs to be
submitted to the Reserve bank of India under the supervision of the Insurance
Regulatory and Development Authority of India (IRDA), as safety deposit money
which is kept for repayment to customers in case the company declares
bankruptcy before paying out the claim. Also the Solvency Margin keeps
increasing as and when the insurance company increases its portfolio. Thus,
even if the insurer winds up its business and decides to move out of the
country, RBI can repay the customers from the security deposit money that it
keeps on behalf of the insurance company.
3. Also, each Insurance
company is attached with a Re-Insurance company who takes up the liability of
repayment to customers in case of a very large claim if the Insurer is unable
to pay.
4. Also if there is any
dispute with any insurer, policyholders can approach the Insurance Ombudsman.
The Ombudsman is a non-judicial authority which settles disputes between the
policyholder and the insurer upto a certain limit and within a limited time frame. The award passed by the Ombudsman says is binding on the insurer but
not on the policyholder. He can go to the Consumer Forum or the Court of Law if
the award passed by the Ombudsman is not satisfactory.
Considering the above factors, you can completely trust all private
insurers in India who are under a strict regulation of the IRDA, the insurance regulator in India which is a government
of India appointed body. Hence purchasing any policy from any of the private
insurers do not involve in any risks. All you need to decide what kind of
policy you need and then choose the best plan which suits your and your
family’s financial requirements.
We can understand in brief under points given below:-
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
• 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 hypothetical 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.
• 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 hypothetical 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.
1 Comments
Nice post and thanks for sharing with us.
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