BCOP 522-18

INSURANCE SERVICE MANAGEMENT

UNIT–III

IRDA Act: Salient feature, duties, powers and functions of the authority, financial Accounts and
audit, power of Central Government to issue directions, IRDA (Protection of Policy Holders
Interest) Regulation 2002, Rationale of opening up of the insurance sector to the private sector.
Credit and deposit Insurance: Nature, terms and conditions, claim, recovery etc. public liability
insurance, emergency risk insurance.

TOPICS COVERED

IRDA Act 2
Salient feature 5
DUTIES, POWERS AND FUNCTIONS OF AUTHORITY 8
FINANCE, ACCOUNTS AND AUDIT 11
Power of Central Government to issue directions 13
IRDA (Protection of Policy Holders Interest) Regulation 2002 14
Privatization of insurance 18
Deposit Insurance 21
PUBLIC LIABILITY INSURANCE 24
Emergency Risks Insurance Scheme 28

OBJECTIVES

 To understand the salient features of IRDA Act

 To study the duties, power and functions of Authority
 To analyze the IRDA Regulation, 2002
 To study rationale to allow private sector in Insurance Business
 To study various other types of Insurance such as Credit and deposit Insurance, public
liability insurance, emergency risk insurance.
 IRDA Act
Insurance Regulatory and Development Authority of India, commonly known as, IRDA, is the
supreme authority that authorizes the insurance business in India. It was established by
the Insurance Regulatory and Development Authority of India Act, 1999 after the declaration
made by the former President of India, Pranab Mukherjee, on Insurance Laws (Amendment)
Ordinance of 2014.

Establishment of IRDA

The Insurance Regulatory and Development Authority of India was established on the
recommendations made by the Malhotra Committee in its report. This committee was headed by
Mr. R.N. Malhotra (retired Governor of the Reserve Bank of India). It was finally set up at New
Delhi on April 2000, but later on, it was shifted to Hyderabad, Telangana in 2001. The main
recommendation made by this committee was to allow the entrance of private sector companies
and foreign promoters and independent regulatory authority for the Insurance sector in India.

Objectives of IRDA

Following are the objectives of the IRDA:

To carry forward the interests of the policyholders.

To uphold the development of the Insurance industry.

To ensure speedy resolution of claims.

To prevent frauds and malpractices.

To ensure fair conduct on the part of the financial market and transparency when dealing

with insurance.

Composition of IRDA

According to Section 4 of the Insurance Regulatory and Development of Authority Act, 1999,
the members of the Authority will consist of the following:

a chairman
 not more than five full-time members

not more than four-part time members

And together they are supposed to work as a team, work cooperatively and not individually.

These members are to be appointed by the Government of India from amongst the persons
exhibiting qualities that would be useful to the Authority like, exceptional knowledge in the field
of life insurance, financial markets, economics, law, accountancy, general insurance. They
should have good experience in these fields, too. Though, the chairman and each of the five full-
time members are expected to have knowledge and experience in life insurance, general
insurance, or actuarial science respectively. It has the right to sue the other party on its name. It
can also be sued in its name. Also, if any of the members dies or resigns, the Authority will
continue to work.

Chairman of IRDA

The present (as of August 2019) Chairman of the Insurance Regulatory and Development of
Authority of India is Subhash Chandra Khuntia. He was appointed in 2018. The Government
had short-listed eight candidates for the appointment.

He holds office for a term of five years, according to Section 5 Insurance Regulatory and
Development of Authority Act, 1999.

Role of IRDA (additional Points)

The role of IRDA includes:

To ensure interests and fair treatment to the insurance policy holders.

To ensure the development of the insurance industry or sector and to impart benefits to

people and long-term funds to increase the growth of the economy.

To promote and apply high standards of integrity, fair dealing, the ability of all those

companies that it administers.

 To ensure clarity and accuracy while contracting with the insurance policyholders. The

Authority has to ensure that true information has been rendered regarding products and
services. Also, to make policyholders aware of the different plans and policies that are
being implemented by the Insurance sector.
To provide speedy trials in case of disputes and to prevent fraud or any other misconduct.

To initiate new standards where they are needed or where there is lack of such standards.

To promote self-regulation in daily activities with the necessary regulations

Conclusion

Insurance is an important aspect of the economy which requires changes from time to time
according to the needs of the people. An individual should be aware of the opportunities that are
available to him in the form of health and life insurances. The Insurance Regulatory and
Development Authority of India plays a significant role in ensuring that the interests of the
policyholders remain secured. Though competition has increased with necessary changes, the
objectives of the insurers and policyholders can be achieved.
 Salient feature

IDRA stands for Insurance Regulatory and Development Authority of India. It is an

autonomous and statutory body which regulates as well as promotes the insurance industries in
India.

The salient features of IDRA act 1999 are:

1. Act to Establish the Regulatory Authority

The preamble of the Act states that it is, “An Act, to provide for the establishment of an
authority to protect the interests of holders of insurance policies, to regulate, promote and
ensure orderly growth of the Insurance Industry and for matters connected there with or
incidental thereto.”
It is clear from the preamble that the Act is to establish authority which will:
Protect the interests of holders of insurance policies;
Regulate, promote and ensure orderly growth of Insurance Industry;
and other matters which may be connected with or incidental to the above mentioned
purposes.
Section 3 of the Act, provides that the authorities shall be a Body Corporate with the name
“The Insurance Regulatory Authority”. It also provides that it, shall have the perpetual’
succession and a common seal. Subject to the Act, it shall have the power to acquire, hold
and dispose of the property both movable and immovable. It shall have contractual authority
as well as power to sue and be sued.

2. Composition of Authority
Section 4 of the Act, lays down the Composition of the Authority to be as follows:
The Authority shall consist of the following members, namely:
a Chairperson;
not more than five whole-time members;
not more than four part-time members;
to be appointed by the Central Government from amongst persons of ability, integrity and
 standing who have knowledge or experience in life insurance, general insurance, actuarial
science, finance, economics, law, accountancy and administration.
The Chairman and every other whole time member shall hold an office for a term of five
years from the date of his joining and shall be eligible for reappointment. The age of
retirement for whole time members is sixty two years and for the Chairperson sixty five
years. Similarly, there can be part time members.
The Chairman and the whole time members are barred from taking up an employment within
two years from leaving the office under Central Govt., State Govt. or an insurance company
except with the approval of the Central Govt.

3. Insurance Advisory Committee

Section 25 of the Act provides that an Insurance Advisory Committee consisting of not more
than twenty five members (including ex-officio) will be constituted. The members will
represent the interest of commerce, industry, transport, agriculture, consumer forum,
surveyers, agents, inter -mediaries, organisations engaged in safety and loss prevention,
research bodies and employees’ association of the Insurance sector. The Chairperson and the
members of the Authority shall be ex officio members of the committee.
The Authority in consultation with the committee can make regulations to achieve its
objectives. In exercise of this authority IRDA has framed a number of regulations. The
salient features emerging out of these regulations are discussed in – subsequent parts.

4. Ending the Monopoly of LIC and GIC

Section 30, 31, & 32 of the IRDA Act have amended certain provisions of the Insurance Act,
1938, LIC Act of 1956 and the General Insurance Business (Nationalisation) Act, 1972 in
line with First, Second and third schedule of the Act.
These amendments have ended the exclusive privilege of LIC, GIC and its subsidiaries to
carry on life and general insurance business respectively. Thus, it has allowed the entry of
private sector into life and non-life insurance.

5. The Insurance Business opened to Indian Companies Only

The business has been opened to Indian Companies only. The Indian Company for the
purpose has been defined by Section 2 of the Insurance Act, 1938, as follows:
 An Indian insurance company has been defined in Section 2 as an insurer being a
company:
formed and registered under the Companies Act, 1956;
in which the aggregate holdings of equity shares by foreign company either by itself
or through its subsidiary companies or nominees do not exceed 26 % of paid up
equity share capital of such Indian Insurance Company;
 After 2014, it is allowed not exceeding 49% shareholding of foreign companies
 DUTIES, POWERS AND FUNCTIONS OF AUTHORITY

Section 14 of IRDA ACT, 1999 laid down the duties, powers and functions of the authority

(1) Subject to the provisions of this Act and any other law for the time being in force, the
Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance
business and re-insurance business.
(2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers
and functions of the Authority shall include, -
(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or
cancel such registration;
(b) protection of the interests of the policy holders in matters concerning assigning of
policy, nomination by policy holders, insurable interest, settlement of insurance claim,
surrender value of policy and other terms and conditions of contracts of insurance;
(c) specifying requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents;
(d) specifying the code of conduct for surveyors and loss assessors;

(e) promoting efficiency in the conduct of insurance business;

(f) promoting and regulating professional organisations connected with the insurance and re-
insurance business;
(g) levying fees and other charges for carrying out the purposes of this Act;
(h) calling for information from, undertaking inspection of, conducting enquiries and
investigations including audit of the insurers, insurance intermediaries and other
organisations connected with the insurance business;
(i) control and regulation of the rates, advantages, terms and conditions that may be offered
by insurers in respect of general insurance business
(j) specifying the form and manner in which books of account shall be maintained and
statement of accounts shall be rendered by insurers and other insurance intermediaries
(k) regulating investment of funds by insurance companies;

(l) regulating maintenance of margin of solvency;

 (m) adjudication of disputes between insurers and intermediaries or insurance
intermediaries;
(n) supervising the functioning of the Tariff Advisory Committee;
(o) specifying the percentage of premium income of the insurer to finance schemes for
promoting and regulating professional organisations;
(p) specifying the percentage of life insurance business and general insurance business to be
undertaken by the insurer in the rural or social sector; and
(q) exercising such other powers as may be prescribed.

Learn any one way to write duties, power and function of authority, Following is given another
way to present your answer

DUTIES, POWERS AND FUNCTIONS OF AUTHORITY

Section 14 of IRDA ACT, 1999 laid down the duties, powers and functions of the authority

(1) (Sub section 1 ) Subject to the provisions of this Act and any other law for the time being in
force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the
insurance business and re-insurance business.

(2) (Sub section 2 ) The powers and functions of the Authority shall include, -

To avail the applicant a certificate of registration, renewal, modification, withdrawal,

suspension or cancellation of such registration.

To protect the interests of the policy holders in cases related to assigning and nomination

of policy holders, understanding of insurance claims, insurable interests, surrendering

of the value of the policy and other terms and conditions of the insurance contract.
To specify the necessary qualifications, code of conduct and practical training for

intermediary or insurance intermediaries and agents.

Explaining the required code of conduct to the surveyors and loss assessors.

To ensure that the proficiency and efficiency of the conduct of the business of insurance.

To encourage and regulate the relationship between the professional organisations and

the insurance and reinsurance businesses.

To levy charge to carry out the purpose of the Act.

To call for the information, undertaking an inspection of, conducting enquiries and

investigations including the audit of insurers, intermediaries, insurance intermediaries

and other organisations connected with the insurance business.
To control and regulate the rates, benefits, terms and conditions which are offered to the

insurer in respect of general insurance business.

To specify the manner in which the books are to be maintained and the way in which the

statement of accounts shall be rendered by insurers and other insurance companies.

To maintain the investment funds by the insurance companies.

To regulate the maintenance of margin solvency.

Deciding the disputes between the insurers and the intermediaries of insurance

intermediaries.
Administering the functioning of the Tariff Advisory Committee.

To set down the percentage premium income of the insurer of finance schemes for

promoting and regulating the professional organisations.

To protect the interests of the policyholders in cases related to assigning and nomination

of policyholders.
To set out the percentage of life insurance business and general insurance business to be

taken forward by the insurer in the rural or social sector.

Exercising other powers as may be prescribed.
 FINANCE, ACCOUNTS AND AUDIT

Section 15: GRANTS BY CENTRAL GOVERNMENT.

The Central Government may, after due appropriation made by Parliament by law in this behalf,
make to the Authority grants of such sums of money as the Government may think fit for being
utilised for the purposes of this Act.

Section 16: CONSTITUTION OF FUNDS.—

(1) There shall be constituted a fund to be called "the Insurance Regulatory and Development
Authority of India Fund" and there shall be credited thereto-
(a) all Government grants, fees and charges received by the Authority;
(b) all sums received by the Authority from such other source as may be decided upon
by the Central Government;
(c) the percentage of prescribed premium income received from the insurer.
(2) The Fund shall be applied for meeting -
(a) the salaries, allowances and other remuneration of the members, officers and other
employees of the Authority;
(b) the other expenses of the Authority in connection with the discharge of its functions
and for the purposes of this Act.

Section 17: ACCOUNTS AND AUDIT.--

(1) The Authority will have to maintain accounts and annual statements in accordance with
the guidelines prescribed by the Government.

(2) The accounts and the annual statements of the Authority will be maintained by the
Comptroller and Auditor General of India. If any expense is incurred by the Comptroller
and Auditor General in maintaining such accounts then, the Authority will have to pay
the Comptroller and Auditor General.
(3) Any person appointed by the Comptroller and Auditor General of India concerning the
maintenance of the accounts and annual statements of the Authority will have the same
rights and privileges as that of the Comptroller and Auditor General. These rights include
the right to demand the production of books of accounts, connected vouchers, and other
relevant documents and papers.

(4) The audit report prepared by the Comptroller and Auditor General of India and the other
person appointed by him will be forwarded annually to the Central Government. The
Government, in turn, will present it before each House of the Parliament.
 Power of Central Government to issue directions

Section: 18
(1) The Central Government can issue directions to the Insurance Regulatory Authority on
matters related to questions of policy, other than those relating to technical and administrative
matters. Such directions will bind the Authority to act according to the Government’s
directions, as the Central Government may give in writing to it from time to time

PROVIDED: That the Authority shall, be given an opportunity to express its views before
any direction is given under this sub-section.

(2) The decision of the Central Government, whether a question is one of policy or not, shall be
final.
 IRDA (Protection of Policy Holders Interest) Regulation 2002

The most important regulations governing protection of policyholders interest is the Insurance
Regulatory and Development Authority of India (Protection of Policyholders’ Interests)
Regulations, 2002

The Authority, in consultation with the Insurance Advisory Committee, made the regulations.
Following are some of the important regulations specified.

Point of Sale

 A prospectus of any insurance product shall clearly state the scope of benefits, the extent
of insurance cover and in an explicit manner explain the warranties, exceptions and
conditions of the insurance cover.

 The allowable rider or riders on the product shall be clearly spelt out with regard to their
scope of benefits.

Proposal for insurance

 Except in cases of a marine insurance cover, where current market practices do not insist
on a written proposal form, in all cases, a proposal for grant of a cover, either for life
business or for general business, must be evidenced by a written document.

 It is the duties of an insurer to furnish to the insured free of charge, within 30 days of the
acceptance of a proposal, a copy of the proposal form.

Grievance redressal procedure

(1) Every insurer shall have in place proper procedures and effective mechanism to
address complaints and grievances of policyholders efficiently and with speed and the
same along-with the information in respect of Insurance Ombudsman shall be
communicated to the policyholder along-with the policy document and as maybe found
necessary.
(2) Every insurer shall inform and keep informed periodically the insured on the requirements
to be fulfilled by the insured regarding lodging of a claim arising in terms of the policy and the
procedures to be followed by him to enable the insurer to settle a claim early.

Claim procedure in respect of a general insurance policy

(1) An insured shall give notice to the insurer of any loss arising under contract of insurance at
the earliest or within such extended time as may be allowed by the insurer. On receipt of such a
communication, a general insurer shall respond immediately and give clear indication to the
insured on the procedures that he should follow.

In cases where a surveyor has to be appointed for assessing a loss/ claim, it shall be so done
within 72 hours of the receipt of intimation from the insured.

(2) Where the insured is unable to furnish all the particulars required by the surveyor or
where the surveyor does not receive the full cooperation of the insured, the insurer or the
surveyor as the case may be, shall inform in writing the insured about the delay that may result in
the assessment of the claim.

(3) On receipt of the survey report or the additional survey report from surveyor, as the case
may be, an insurer shall within a period of 30 days offer a settlement of the claim to the
insured. If the insurer decides to reject a claim under the policy, it shall do so within a period of
30 days from the receipt of the survey report or the additional survey report, as the case may be.

(4) Upon acceptance of an offer of settlement by the insured, the payment of the amount due
shall be made within 7 days from the date of acceptance of the offer by the insured. In the cases
of delay in the payment, the insurer shall be liable to pay interest at a rate which is 2% above
the bank rate prevalent at the beginning of the financial year in which the claim is reviewed by it.

Policyholders’ Servicing

(1) An insurer carrying on life or general business, as the case may be, shall at all times, respond
within 10 days of the receipt of any communication from its policyholders in all matters, such
as:

(a) recording change of address;

(b) noting a new nomination or change of nomination under a policy;

 (c) noting an assignment on the policy;

(d) providing information on the current status of a policy indicating matters, such as,
accrued bonus, surrender value and entitlement to a loan;

(e) processing papers and disbursal of a loan on security of policy;

(f) issuance of duplicate policy;

(g) issuance of an endorsement under the policy; noting a change of interest or sum assured
or perils insured, financial interest of a bank and other interests; and

(h) guidance on the procedure for registering a claim and early settlement thereof.

GENERAL

(1) The requirements of disclosure of “material information” regarding a proposal or policy

apply, under these regulations, both to the insurer and the insured.

(2) The policyholder shall assist the insurer, in the proceeding or in the matter of recovery of
claims which the insurer has against third parties.

(3) The policyholder shall furnish all information that is sought from him by the insurer and
also any other information which the insurer considers as having a bearing on the risk to enable
the latter to assess properly the risk sought to be covered by a policy.

(4) Any breaches of the obligations cast on an insurer or insurance agent or insurance
intermediary in terms of these regulations may enable the Authority to initiate action against
each or all of them, jointly or severally, under the Act and/or the Insurance Regulatory and
Development Authority Act, 1999.

Policyholder Protection Committee

 IRDAI has put forth many measures to protect the policyholders’ interests. Insurers have
been told to strengthen their grievance redress procedures, consumer complaint resolving
procedures where they are found weak. An important step taken by IRDAI is that it has
made it compulsory that each company forms a Policyholder Protection Committee
in the Board of Directors. This is part of the Corporate Governance guidelines issued by
 IRDA and will have the effect of ensuring that insurers’ internal systems are monitored
effectively at the highest level of the company, that is, the Board.

 Policyholder’s protection committee is responsible for overseeing the interest of

policyholders of the company. The committee is headed by independent director though
not mandatory.

IRDAI has always looked out for insurance policyholder's interest as evidenced by IRDAI
(Protection of Policy Holders' Interests) Regulations 2002. With changes in the products offered,
especially in the life segment, IRDAI has come out with a new set of regulations to protect the
interest of the policyholder, with effect from January 2014. These new regulations are seen as a
move towards making life insurance policies more transparent and efficient

These regulations have improved the policyholder's benefits, reduce complaints of wrong selling
and bring transparency and clarity to a field where misconceptions and lack of awareness still
exist.
 Privatization of insurance

1. Insurance has always been a politically sensitive subject in India. Within less than 10
years of independence, the Indian government nationalized private insurance companies
in 1956 to bring this vital sector under government control to raise much needed
development funds.

2. Since then, state-owned insurance companies have grown into monoliths, lumbering and
often inefficient but the only alternative. They have been criticized for their huge
bureaucracies, but still have millions of policy holders as there is no alternative.

3. LIC of India was formed in 1956 to take over the insurance business in India.

4. GIC was formed in 1972.

The Narasimha Rao government (1991-96) which unleashed liberal changes in India's
rigid economic structure could not handle this political hot potato. Ironically, it is the
coalition government in power today which has declared its intention of opening up
insurance to the private sector. Ironical because this government is at the mercy of
support from the left groups which have been the most vociferous opponents of any such
move.

All segments of the financial sector had been opened to private players with better
product, services & social objective

OBJECTIVES OF PRIVATIZATION OF INSURANCE

1. To develop the competition in the business of insurance and to make both the private and
public sector to work efficiently in the insurance business.

2. To create more option on the side of customers to purchase the policies.

3. To attract more and more people towards the insurance business.

4. To earn foreign exchange form the non-resident Indians by getting them involved in
assuring them.

5. To raise the capital investment of the people and which can result in improving the
economic development of the country.

6. To create more chances of employment in the insurance business sector.

ADVANTAGES OF PRIVATIZATION OF INSURANCE

1. Privatization of Insurance eliminates the monopolistic business of life insurance
Corporation of India. It helps to introduce new range of products which covered wide
range of risks.

2. It resulted in better customer services and help improve the variety and price of insurance
products.

3. The entry of new player has speed up the spread of both life and general insurance.

4. Entry of private players will ensure the mobilization of funds that can be utilized for the
purpose of infrastructure development.

5. The participation of commercial banks into insurance business helped to mobilization of

funds from the rural areas because of the availability of vast branches of the banks.

6. Employment opportunities were created in the field of insurance.

7. The world’s best insurance companies will come forward to involve in insurance business
using the global technologies.

DISADVANTAGES OF PRIVATIZATION OF INSURANCE

1. The private companies try to convince the people much more but it happens that the
insured may not have a capacity to pay the premium after some years and hence the
customers have to lose the interest benefits on their investments.
2. Due to competitions among the insurance companies the companies adopt strategies
which may lead to making the customers fools in investing in the insurance.

3. Company may relieve the employees who are unable to put in getting the minimum target
of their expectations. Thus this will create danger against the employee, actually
imparting their services in insurance companies.

4. It is possible that the foreign insurance company may transfer the profit margins to their
own country and hence our country will not be benefited by the investment of our people.

5. People have no trust in non-government companies and hence there seems to be less
chance for the development of private insurance business.

Examples of Life Insurance Companies in India

AEGON Religare Life Insurance

Aviva Life Insurance Company India Limited
Bajaj Allianz Life Insurance
Bharti AXA Life Insurance Company Ltd.
Birla Sun Life Insurance Co. Ltd

Examples of General Insurance Companies in India

Agriculture Insurance Co. of India Ltd.

Apollo Munich Health Insurance Co. Ltd.
Bajaj Allianz General Insurance Co. Ltd.
Bharti Axa General Insurance Co. Ltd.
 Deposit Insurance
Deposits with Federal Bank are insured by the Deposit Insurance and Credit Guarantee
Corporation subject to the following terms and conditions.

Type of Deposits covered:

DICGC protects all deposits such as savings, fixed, current, recurring, etc except the following
types of deposits that are payable in India.

 Deposits of foreign Governments

 Deposits of Central/State Governments

 Inter-bank deposits

 Deposits of the State Land Development Banks with the State co-operative bank

 Any amount due on account of any deposit received outside India

 Any amount, which has been specifically exempted by the corporation with the previous
approval of Reserve Bank of India.

Maximum deposit amount insured

Each depositor is insured up to a maximum of Rs.5,00,000 (Rupees Five Lakhs) for both
principal and interest amount held by him in the same capacity and same right as on the date of
liquidation/cancellation of bank's license or the date on which the scheme of
amalgamation/merger/reconstruction comes into force. The deposits kept in different branches of
the bank are aggregated for the purpose of insurance cover and a maximum amount up to Rupees
Five Lakhs is paid.

Right to Set-Off
Banks have the right to set off their dues from the amount of deposits. The deposit insurance is
available after netting of such dues.

1. Deposit insurance is a protection cover for deposit holders in a bank when the bank fails and
does not have money to pay its depositors.

2. This insurance is provided by Deposit Insurance and Credit Guarantee Corporation (DICGC)
which is a wholly owned subsidiary of the RBI.

3. DICGC insures all bank deposits, such as savings, fixed, current and recurring deposit for up
to the limit of Rs 5 lakh per bank.

4. If the total of all the deposits held by an individual in a single bank exceeds Rs 5 lakh, then he
will be able to get only Rs 5 lakh inclusive of principal and interest amount if the bank goes
bankrupt.

5. DICGC covers depositors of all commercial banks and foreign banks operating in India, state,
central and urban co-operative banks, local area banks and regional rural banks provided the
bank has bought the cover from DICGC.
 PUBLIC LIABILITY INSURANCE

What is Public Liability Insurance?

Any business which has to deal with public, clients, employees or agents is recommended to take
public liability insurance. If your business operations lead to financial or legal liabilities on you
by the third party, you must consider taking appropriate public liability insurance to stay away
from problems related to such unfortunate events.

Types of Public Liability Insurance

In India, Public Liability Insurance is classified into three major types:

1. Public Liability Insurance (Industrial Risks): This is meant for manufacturing units
and warehouses.
2. Public Liability Insurance (Non-Industrial Risks): This is meant for any non-
manufacturing units like hospitals, retail outlets, schools, IT Companies, BPOs, clubs,
etc.
3. Public Liability Insurance under the Public Liability Act: The Environment
Protection Act 1986 and the Public Liability Insurance Act 1991 make it mandatory for
the business dealing in a hazardous environment to take suitable insurance.

What all Public Liability Insurance Covers?

In general, any unexpected event arising out of your business operations that may be posing
problems in your business will be covered by this insurance. However, you have to specify the
nature of the event and limit of financial compensation based on the risks perceived. The claims
related to public liability are less predictable and may arise out of any unfortunate events, many a
times not directly linked to the business operations. Most common coverages are:
  Claims arising out of the accident, injury or damage on your business premises or arising
out of events in connections with your business
 The Act of God events
 Legal liability
 Transportation hazards
 Pollution and contamination

Eligibility Criteria

The insurance premium and the other details depend on the type of business and the associated
risks. Let us understand who all are eligible for public liability insurance:

 Manufacturing units
 Other entities like IT companies, BPOs, hotels, schools, restaurants and clubs
 Units dealing with hazardous substances under Public Liability Act, 1991

Public Liability Insurance Claim Process

Once you have bought the public liability insurance policy, you should also understand the claim
process, in case there arises the need to make a claim. Let us see how the claim is made:

 Evaluate and analyse the loss and damage you have encountered
 Inform the insurance company as soon as possible; this should be done in writing
 Collect the evidence and proof
 Apt medical certificates in case of injury or death
 Submit duly filled in claim form along with the required documents
 An assessor will evaluate the case and decide whether to accept or reject the claim
 In case you are not satisfied with the decision, you can approach the court

Documents Required for Claim Process

To get claims under public liability insurance, following documents are needed to make the
claims:
  Duly filled in claim form along with the required documents
 Medical certificates in case of injury or death
 Copies of evidence and proof

Cases Where one Can’t Claim Public Liability Insurance (Exclusions)

Though the public liability insurance covers most of the cases, there are certain situations not
covered under this insurance. These are also called exclusions. Some of these cases are:

 Lapse in performing legal or contractual liability

 Intentional non-compliance of safety or legal provision
 Loss of goodwill, mental loss or damage, libel, slander, false arrest, defamation and other
similar cases

Companies Offering Public Liability Insurance in India

India is a developing country with industries under various sectors that would need public
liability insurance because of associated risks involved. Some of the companies providing public
liability insurance in India are:


 TATA AIG
 HDFC Ergo
 United India Insurance
 Bajaj Allianz

Advantages of Buying Public Liability Insurance

Looking at various levels of risks involved with various kinds of business, it makes sense to
purchase a public liability insurance. Some of the advantages of this insurance are:

 It will cover for any kind of accident the public faces because of your business
 It will cover any damage to public property caused due to your business
 It will let you continue with your work without any hindrance in spite of liability issues
  It will help get coverage for legal fees, in case you need to go to the court for some
liability case

Alternatives to Public Liability Insurance

General liability insurance covers everything public liability insurance does. It also covers
personal and advertising injury. Advertising injury occurs when a business is sued for false or

misleading advertising.5  Since general liability insurance is more comprehensive and more
readily available, it's a better insurance choice for most businesses. This coverage is relatively
rare in the US, and it's the equivalent of general liability in the UK.
 Emergency Risks Insurance Scheme

1. Short title, extent and commencement.-

(1) This scheme may be called the Emergency Risks (Goods) Insurance Scheme.

(2) It extends to the whole of India.

(3) It shall come into force on the 10th day of December, 1971.

2. Scope and extent of the scheme.-

(1) The Central Government hereby under takes in relation to the undertakings to which the Act
applies, the liability of insuring such properties insurable under the Act against emergency risks
to the extent provided by the Act.

(2) The Central Government also hereby undertakes in relation to any person in India the liability
of insuring such person against emergency risks in respect of any property insurable under the
Act which is not owned by him but in which he has an interest, upto the extent of such interest.

3. Insurance of completed properties.-

(1) Every owner of an undertaking in existence at the commencement of this scheme shall,
within the period specified in the notification, take out a policy of insurance against emergency
risks in accordance with this Scheme.

(2) Every owner of an undertaking who is required by the Central Government to reconstruct the
insured property which has suffered damage shall, before the commencement of the quarter next
following that in which the reconstruction of the property is completed, take out a policy of
insurance against emergency risks in accordance with this scheme.
(3) Where the owner of an undertaking which is a factory is not the occupier thereof, the
occupier of the factory shall, unless the owner has already taken out a policy of insurance,
himself take out the policy and when such a policy is taken out, the occupier shall be deemed to
act as the agent of the owner and shall be entitled to receive from the owner all sums paid by him
as premiums on the policy.

4. Rate of premium.-

(1) The premium payable under any policy of Insurance issued in respect of the quarter ending
on the 31st December, 1971, shall be payable at the rate of fifteen paise for every hundred rupees
or any part thereof of the sum insured.

(2) The amount of the premium payable under sub-paragraph (1) shall be rounded off to the
nearest rupee and shall be payable in one lump sum in respect of the entire quarter for which the
policy is or is continued in force

5. Form and duration of policy.-

Every policy of insurance issued under the scheme shall be in the form set out in the Second
Schedule, and shall be in respect of the period ending on the last day of the quarter for which the
policy is issued.

6. Each undertaking to be covered by one policy.-

(1) Every policy shall be in respect of property insurable under the Act appertaining to a single
undertaking provided however that when any plant, machinery or materials appertain to more
factories than one, such plant, machinery or materials may be insured separately under a single
policy issued in relation to the owner or occupier of any one of those undertakings.

(2) If during the currency of a policy, any additions are made to the property insurable under the
Act appertaining to the undertaking, a supplementary policy shall be taken out in respect of such
additions.
 7. Provision for safeguarding of property insurable under the Scheme.-

(1) The Central Government may make regulations for safeguarding any property insurable
under the scheme against loss or damage as a result of emergency risks or for minimising any
such loss or damage.

(2) Any order issued under sub-paragraph (1) may require the owner or occupier as the case may
be, of an undertaking or a factory in respect of which any payment towards the restoration of
property has been made under this scheme to reconstruct the property or to alter the premises
thereof in such manner as to avoid or minimise the consequences of any future emergency risks
or to provide for such safety or precautionary measures as may reasonably be necessary or if it is
considered expedient or necessary so to do, to remove the property to any other site.

(3) Every owner or occupier shall comply with the requirements of any regulations or orders
made in this behalf.

(4) Where the Central Government requires the owner or occupier as the case may be, of the
undertaking to remove the property to any other site as provided for in sub-paragraph (2), the
Central Government shall pay to such owner or occupier the cost of removal of the property and
the cost of replacement of any property for which compensation may not be otherwise payable
but which may be lost of or damaged as a result of such removal, on the receipt of a claim from
the owner or occupier.