CHANDIGARH BUSINESS SCHOOL OF ADMINISTRATION B.

COM(H) ( 5TH SEM)

Notes
Subject: INSURANCE SERVICE MANAGEMENT
Subject Code: BCOP 522-18

Unit –III
IRDA Act: Salient features, duties, powers and functions of the authority, financial Accounts and
audit, power of Central Government to issue directions, IRDA (Protection of Policyholders
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
Introduction
The IRDA or Insurance Regulatory and Development Authority came into being in 1999 after
the Government of India felt the necessity to bring the insurance industry to par with the
structural changes that were taking place in the financial sector. Hence, the IRDA was formed to
bring in a higher degree of regulation and control in the insurance industry.

What is IRDA?
The IRDA (Insurance Regulatory and Development Authority) is a statutory body meant to
regulate, promote and ensure the orderly growth of insurance and reinsurance business in India.
The IRDA Act, of 1999 also paves the way for opening up of the insurance sector to private
Indian Companies, LIC and GIC will no longer have monopolies and they will have to work
under the directions of the IRDA and compete with other companies that may be set up in the
private sector.

Brief History of IRDA:

● 1991: Government of India begins the economic reforms programme and financial
sector reforms
● 1993: Committee on Reforms in the Insurance Sector, headed by Shri R. [Link]
(Retired Governor, Reserve Bank of India) set up to recommend reforms in insurance
sector.
● 1994: Malhotra Committee recommends reforms after studying the insurance sector and
taking inputs from all the stakeholders. Key recommendations of Malhotra Committee
are:
○ Private sector companies should be allowed to promote insurance companies
○ Foreign promoters should also be allowed
○ Government to vest its regulatory powers on an independent regulatory body
answerable to Parliament
● 1996: Setting up of an interim body called the Insurance Regulatory Authority
● 1999: Enactment of the Insurance Regulatory and Development Authority (IRDA) Act,
1999
 ● 2000: Formation of the Insurance Regulatory and Development Authority as an
autonomous regulatory body on 19.4.2000

Since 2000, IRDA has been serving as an independent regulatory authority for the insurance
industry and to instill confidence among the policyholders in the financial viability of the
insurance companies. IRDA has been playing a pivotal role in the insurance sector with a
fundamental commitment to discharge its mandate for orderly growth of insurance sector. IRDA
has played a very important role in the growth and development of the sector by protecting
policyholders' interests; registering and regulating insurance companies; licensing and
establishing norms for insurance intermediaries, regulating and overseeing premium rates and
terms of non-life insurance covers; specifying financial reporting norms, regulating investment
of policyholders' funds and ensuring the maintenance of solvency margin by insurance
companies; ensuring insurance coverage in rural areas and of vulnerable sections of society;
promoting professional organizations connected with insurance and all other allied and
development functions.

Features of IRDA
The salient features of the IRDA Act (1999) are as follows;
● The IRDA Act (1999) marks the opening of India’s insurance sector to private entities.
The Act’s second and third schedules outline the removal of existing corporations or
companies that engage in life and non-life insurance business in India.
● An Indian insurance company is defined as a company registered under the Companies
Act, of 1956, where foreign equity does not exceed 26% of the total equity shareholding,
including that of NRIs, FIls, and OCBs.
● After the ten-year period, excess equity above the 26% limit will be divested according to
a phased program outlined by IRDA. The Central Government has the authority to extend
the ten-year period on a case-by-case basis and set higher ceilings for Indian promoter
shareholding.
● Foreign promoters are subject to a maximum operational limit of 26% equity and cannot
hold equity beyond this threshold at any stage.
 ● The Act grants statutory status to the Interim Insurance Regulatory Authority (IRA),
which was established by the Central Government through a Resolution in January 1996.
● All the powers currently exercised by the Controller of Insurance (Col) under the
Insurance Act, 1938, will be transferred to IRDA.
● The IRDA Act also allows for the appointment of a Controller of Insurance by the
Central Government when the Regulatory Authority is superseded.
● The minimum required paid-up equity capital is Rs. 100 crore for both life and general
insurance and Rs. 200 crore for reinsurance.
● The solvency margin, which represents the surplus of assets over liabilities, is mandated
to be at least Rs. 50 crore for life and general insurance and Rs. 100 crore for reinsurance
in each case.
● Insurance companies are required to deposit Rs. 10 crore as a security deposit before
commencing operations.
● In the non-life insurance sector, preference is given to companies that offer health
insurance.
● Safeguards for policyholders’ funds include a prohibition on investing these funds
outside India and adherence to IRDA policy guidelines for investments, including those
in social and infrastructure projects.
● Every insurer must offer life insurance or general insurance policies, including crop
insurance, to individuals in rural areas, workers in the unorganized or informal sector,
economically vulnerable or disadvantaged groups, and other categories specified by
IRDA regulations.
● Failure to meet these social obligations may result in a Rs. 25 lakh fine, and persistent
non-compliance could lead to license cancellation.

Duties, Powers and Functions of the authority

CHAPTER IV
Section 14 of IRDAI Act, 1999 lays down the duties, powers and functions of
IRDAI:
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, intermediaries, 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 not so controlled and regulated by the Tariff
Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938);
(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 referred to in clause (f);
(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
Financial Accounts and audit
CHAPTER V
FINANCE, ACCOUNTS AND AUDIT
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.
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.

17. ACCOUNTS AND AUDIT.-- (1) The Authority shall maintain proper accounts
and other relevant records and prepare an annual statement of accounts in such form as may be
prescribed by the Central Government in consultation with the Comptroller and Auditor-General
of India.
(2) The accounts of the Authority shall be audited by the Comptroller and Auditor-General
of India at such intervals as may be specified by him and any expenditure incurred in connection
with such audit shall be payable by the Authority to the Comptroller and Auditor-General.
(3) The Comptroller and Auditor-General of India and any other person appointed by him
in connection with the audit of the accounts of the Authority shall have the same rights,
privileges and authority in connection with such audit as the Comptroller and Auditor-General
generally has in connection with the audit of the Government accounts and, in particular, shall
have the right to demand the production of books of account, connected vouchers and other
documents and papers and to inspect any of the offices of the Authority.
(4) The accounts of the Authority as certified by the Comptroller and Auditor-General of
India or any other person appointed by him in this behalf together with the audit-report thereon
shall be forwarded annually to the Central Government and that Government shall cause the
same to be laid before each House of Parliament.

Rationale of opening up of the insurance sector to the private sector

Insurance was the only sector which had been fully nationalized and change in that was started
only when the country completed its first decade of economic reform. Privatization of India's
insurance did not happen in the form of disinvestment rather as a policy decision to keep the
public sector insurance companies intact and allow private companies to conduct business. The
insurance sector was opened up for private participation on the ground that in spite of enormous
contributions made by the public sector to expand the coverage and spread awareness about
insurance, the interests of the consumers would be better served if there is competition among
the insurers. It was also recognized that the country has a vast potential waiting to be tapped and
this can be done only when we have a large number of companies spreading their wings across
the country and offering a variety of products catering to the demands of different sections of the
population. It was also felt that competition would generate a healthy attitude towards redressal
of consumer grievances and improve the quality of service.
India's insurance sector was opened to private participation in 2000 for several key reasons:
1. Increase Competition and Efficiency: Introducing private players aimed to break the
monopoly of state-owned insurers, which would lead to enhanced competition, better customer
service, and more efficient operations.
2. Improved Product Offerings: Private insurers were expected to innovate and offer diverse,
customized products to meet the varied insurance needs of the population.
3. Capital Infusion: Public insurers faced capital constraints, and private sector participation
brought in fresh capital, both domestic and foreign, enabling the expansion of insurance
coverage.
4. Penetration and Reach: The goal was to increase insurance penetration, especially in rural and
underserved areas. Private companies could bring in better marketing, distribution channels, and
technology to reach a broader audience.
5. Regulatory Framework: The Insurance Regulatory and Development Authority (IRDA) was
established in 1999 to regulate the industry, ensuring that private and public companies operated
under a uniform regulatory framework to protect consumer interests.
6. Job Creation: Opening the sector to private players contributed to job creation in the insurance
industry, benefiting from private sector agility and innovation.
7. Global Best Practices: With foreign players allowed up to 26% ownership initially (now
raised), the sector benefited from international expertise, best practices, and technological
advancements.
8. Financial Inclusion: Opening the sector to private players aimed to boost financial inclusion
by offering insurance products to segments of the population that had limited or no access to
formal insurance coverage, thereby reducing vulnerability to financial shocks.
9. Reduce Fiscal Burden on Government: The government wanted to reduce its financial burden
in the insurance sector, especially in funding public sector insurance companies. Allowing
private companies to share the market lowered the pressure on public finances and reduced the
reliance on state-backed insurance.
10. Technological Advancements: Private players brought in modern technology, such as digital
platforms and advanced analytics, to improve underwriting, claims processing, and customer
service, making the insurance process more efficient and accessible.
These factors collectively aimed to modernize the insurance sector and make it more
competitive, transparent, and responsive to the growing needs of India's economy.

CHAPTER VI
MISCELLANEOUS
18. POWER OF CENTRAL GOVERNMENT TO ISSUE DIRECTIONS.-- (1) Without
prejudice to the foregoing provisions of this Act, the Authority shall, in exercise of its powers or
the performance of its functions under this Act, be bound by such directions on questions of
policy, other than those relating to technical and administrative matters, as the Central
Government may give in writing to it from time to time.
PROVIDED that the Authority shall, as far as practicable, 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.

19. POWER OF CENTRAL GOVERNMENT TO SUPERSEDE AUTHORITY.--(1) If at any

time the Central Government is of the opinion-
(a) that, on account of circumstances beyond the control of the Authority, it is unable to
discharge the functions or perform the duties imposed on it by or under the provisions of this
Act, or
(b) that the Authority has persistently defaulted in complying with any direction given by
the Central Government under this Act or in the discharge of the functions or performance of the
duties imposed on it by or under the provisions of this Act and as a result of such default the
financial position of the Authority or the administration of the Authority has suffered; or
(c) that circumstances exist which render it necessary in the public interest so to do,
the Central Government may, be notification and for reasons to be specified therein, supersede
the Authority for such period, not exceeding six months, as may be specified in the notification
and appoint a person to be the Controller of Insurance under section 2B of the Insurance Act,
1938 (4 of 1938), if not already done :
Provided that before issuing any such notification, the Central Government shall give a
reasonable opportunity to the Authority to make representations, if any, of the Authority.
(2) Upon the publication of a notification under sub-section(1) superseding the Authority, -
(a) the Chairperson and other members shall, as from the date of supersession, vacate
their offices as such;
(b) all the powers, functions and duties which may, by or under the provisions of this Act,
be exercised or discharged by or on behalf of the Authority shall, until the Authority is
reconstituted under sub-section(3), be exercised and discharged by the Controller of Insurance;
and
(c) all properties owned or controlled by the Authority shall, until the Authority is
reconstituted under sub-section(3), vest in the Central Government.
(3) On or before the expiration of the period of supersession specified in the notification
issued under sub-section(1), the Central Government shall reconstitute the Authority by a fresh
appointment of its Chairperson and other members and in such case any person who had vacated
his office under clause(a) of sub-section(2) shall not be deemed to be disqualified for
reappointment.
(4) The Central Government shall produce a copy of the notification issued under sub-
section(1) and a full report to any action to be laid before each House of Parliament at the
earliest.

20. FURNISHING OF RETURNS, ETC., TO CENTRAL GOVERNMENT.--(1) The Authority

shall furnish to the Central Government at such time and in such form and manner as may be
prescribed, or as the Central Government may direct to furnish such returns, statements and other
particulars in regard to any proposed or existing programme for the promotion and development
of the insurance industry as the Central Government may, from time to time, require.
(2) Without prejudice to the provisions of sub-section(1), the Authority shall, within nine
months after the close of each financial year, submit to the Central Government a report giving a
true and full account of its activities including the activities for promotion and development of
the insurance business during the previous financial year.
(3) Copies of the reports received under sub-section(2) shall be laid , as soon as may be after
they are received, before each House of Parliament.

21. CHAIRPERSON, MEMBERS, OFFICERS AND OTHER EMPLOYEES OF AUTHORITY

TO BE PUBLIC SERVANTS.---The Chairperson, members, officers and other employees of
Authority shall be deemed, when acting or purporting to act in pursuance of any of the
provisions of this Act, to be public servants within the meaning of section 21 of the Indian Penal
Code (45 of 1860).
22. PROTECTION OF ACTION TAKEN IN GOOD FAITH.-- No suit, prosecution or other
legal proceedings shall lie against the Central Government or any officer of the Central
Government or any member, officer or other employee of the Authority for anything which is in
good faith done or intended to be done under this Act or the rules or regulations made
thereunder:
Provided that nothing in this Act shall exempt any person from any suit or other proceedings
which might, apart from this Act, be brought against him.

23. DELEGATION OF POWERS.--(1) The Authority may, by general or special order in

writing, delegate to the Chairperson or any other member or office of the Authority subject to
such conditions, if any, as may be specified in the order such of its powers and functions under
this Act as it may deem necessary.
(2) The Authority may, by a general or special order in writing, also form committees of the
members and delegate to them the powers and functions of the Authority as may be specified by
the regulations.

24. POWER TO MAKE RULES.--(1) The Central Government may, by notification, make rules
for carrying out the provisions of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules
may provide for all or any of the following matters, namely :
(a) the salary and allowances payable to, and other terms and conditions of service of, the
members other than part-time members under sub-section(1) of section 7;
(b) the allowances to be paid to the part-time members under sub-section(2) of section 7;
(c) such other powers that may be exercised by the Authority under clause (q) of sub-
section(2) of section 14;
(d) the form of annual statement of accounts to be maintained by the Authority under
sub-section(1) of section 17;
(e) the form and the manner in which and the time within which returns and statements
and particulars are to be furnished to the Central Government under sub-section(1) of section 20;
(f) the matters under sub-section(5) of section 25 on which the Insurance Advisory
Committee shall advise the Authority;
 (g) any other matter which is required to be, or may be, prescribed, or in respect of which
provision is to be or may be made by rules.

25. ESTABLISHMENT OF INSURANCE ADVISORY COMMITTEE.--(1) The Authority

may, by notification, establish with effect from such date as it may specify in such notification, a
Committee to be known as the Insurance Advisory Committee.
(2) The Insurance Advisory Committee shall consist of not more than twenty-five members
excluding ex-officio members to represent the interests of commerce, industry, transport,
agriculture, consumer fora, surveyors, agents, intermediaries, organisations engaged in safety
and loss prevention, research bodies and employees' association in the insurance sector.
(3) The Chairperson and the members of the Authority shall be the ex officio Chairperson
and ex officio members of the Insurance Advisory Committee.
(4) The objects of the Insurance Advisory Committee shall be to advise the Authority on
matters relating to the making of the regulations under section 26.
(5) Without prejudice to the provisions of sub-section(4), the Insurance Advisory Committee
may advise the Authority on such other matters as may be prescribed.

26. POWER TO MAKE REGULATIONS.--(1) The Authority may, in consultation with the
Insurance Advisory Committee, by notification, make regulations consistent with this Act and
the rules made thereunder to carry out the purposes of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such
regulations may provide for all or any of the following matters, namely :-
(a) the time and places of meetings of the Authority and the procedure to be followed at
such meetings including the quorum necessary for the transaction of business under sub-
section(1) of section 10;
(b) the transactions of business at its meetings under sub-section(4) of section 10;
(c) the terms and other conditions of service of officers and other employees of the
Authority under sub-section(2) of section 12;
(d) the powers and functions which may be delegated to Committees of the members
under sub-section(2) of section 23; and
 (e) any other matter which is required to be, or may be, specified by regulations or in
respect of which provision is to be or may be made by regulations.

27. RULES AND REGULATIONS TO BE LAID BEFORE PARLIAMENT.--Every rule and

every regulation made under this Act shall be laid, as soon as may be after it is made, before
each House of Parliament, while it is in session, for a total period of thirty days which may be
comprised in one session or in two or more successive sessions, and if, before the expiry of the
session immediately following the session or the successive session aforesaid, both Houses agree
in making any, modification in the rule or regulation or both Houses agree that the rule or
regulation should not be made, the rule or regulation shall thereafter have effect only in such
modified form or be of no effect, as the case may be; so, however, that any such modification or
annulment shall be without prejudice to the validity of anything previously done under that rule
or regulation.

28. APPLICATION OF OTHER LAWS NOT BARRED.-- The provisions of this Act shall be in
addition to, and not in derogation of, the provisions of any other law for the time being in force.

29. POWER TO REMOVE DIFFICULTIES.--(1) If any difficulty arises in giving effect to the
provisions of this Act, the Central Government may, by order published in the Official Gazette,
make such provisions not inconsistent with the provisions of this Act as may appear to be
necessary for removing the difficulty:
Provided that no order shall be made under this section after the expiry of two years from the
appointed day.
(2) Every order made under this section shall be laid, as soon as may be, after it is made,
before each House of Parliament.

Credit and deposit Insurance

Credit Insurance
Credit insurance is designed to protect businesses and lenders from losses due to non-payment of
debts. It is primarily used to mitigate the risk of customer defaults, slow payments, or
bankruptcy. Credit insurance is common in trade transactions and is especially relevant for
businesses that offer trade credit to their clients.
Credit insurance can be a financial lifesaver in the event of certain catastrophes. However, many
credit insurance policies are overpriced relative to their benefits, as well as loaded with fine print
that can make it hard to collect.
Types of Credit Insurance
● Credit life insurance: Helps pay off the debts in case of the sudden death of the insured
person
● Credit disability insurance: If the insured faces permanent disability due to any reason,
the insurer will pay off existing debts
● Credit involuntary unemployment insurance: It aids in paying some or all of existing
debts if the insured is involuntarily unemployed
● Credit property insurance: It protects the insured’s collateral property subject to the theft,
loss or damage
● Trade credit insurance: It provides indemnity for bad losses in case of debt receivables
due to the failure of customer repayment

What are all Credit Insurance Covers?

Credit insurance covers 2 types of risks – commercial and political risks.
1. Commercial Risks:
● Insolvency of the buyer
● Non-payment by the buyer
2. Political Risks:
● General moratorium on payment by the government of buyer’s country
● Cancellation of import license
● Political events, economic difficulties, legislative or administrative measures
preventing payment
● Military or civil war, revolution, riot or insurrection
● Non-payment by government buyer
● Government decision preventing performance
Credit Insurance Claim Process
Many national and private insurance companies in India provide credit insurance policies in
India. However, the internal systems and processes may vary for different companies. Let’s go
through some of the general guidelines related to the claims process or settlement in India:
● Immediately inform the insurance company about the business loss or damage covered
under the policy document.
● This can be done through different channels like calling on their toll-free number,
sending e-mail or contacting the nearest branch office of the insurance company
● Inform the policy issuing office about the loss or damage in the claim form and submit it
for processing or settlement
● Any police report, if needed as per the case, must be submitted to the insurance company
● The process is followed by the insurance company checking all relevant documents like
accounts, sales sheets, invoices, balance sheet, or any other document requested by the
insurance executive
● If required, an arbitrator is appointed by the insurance company to calculate the value of
loss or damage and suggest the sum assured and other benefits payable to the
policyholder based on the individual credit insurance policy document
● Once all legal and internal processes are completed, a Final Report is submitted to the
internal panel for the claim amount to be given to the policyholder
● Policyholder would have to submit his/her ID proofs, Policy Document, and Bank Details
etc. for receiving the compensation arising out of the credit insurance claim
● Amount is transferred to the policyholder bank account based on the selected mode of
payment by the insurance company
Documents Required for Claim Process
● Duly filled in and signed claim form
● FIR report
● Accounts books and reports for inspection by insurance company
● ID proofs
● Bank details of the policyholder
● Any other documents asked by the insurance company
Exclusions Under Credit Insurance
Not all situations are covered by credit insurance, also called exclusions. Any problem to the
business due to following reasons are not covered:
● Any nuclear risk or contamination due to a radioactive substance
● Customer disputes with the buyer that may result in withholding of partial or full
payments by the buyer
● Any interest amount that gets accrued after the original due payment date
● Amount owed by any government entity which cannot be declared insolvent
● Currency fluctuations, Reverse Factoring Policies, pre-shipment risks

Deposit Insurance
Deposit insurance in India provides protection to bank depositors in the event of a bank failure. It
guarantees a fixed sum of money that depositors will receive if their bank becomes insolvent.
This insurance promotes confidence in the banking system by assuring the safety of a portion of
depositors' savings.
The Deposit Insurance and Credit Guarantee Corporation (DICGC):
The DICGC, a subsidiary of the Reserve Bank of India (RBI), is responsible for deposit
insurance in India. It was established in 1978 to provide insurance to depositors and guarantee
credit to the financial system.
Coverage under DICGC:
Insured Banks:
The DICGC covers all commercial banks, including regional rural banks (RRBs), cooperative
banks, and foreign bank branches operating in India. It does not cover deposits in non-banking
financial companies (NBFCs).
Types of Deposits Covered:
The following types of deposits are insured under DICGC:
● Savings deposits
● Fixed deposits (FDs)
● Current accounts
● Recurring deposits (RDs)
Coverage Limit:
 ● As of 2020, the DICGC insures deposits up to ₹5 lakh per depositor per bank.
This limit includes both the principal and interest amounts in aggregate across all
deposit accounts held in the same bank.
● If a depositor has accounts in multiple branches of the same bank, the insurance
coverage is limited to ₹5 lakh across all branches combined. However, if they
have accounts in different banks, each bank's deposits are insured separately.
Premiums:
● The banks pay the premium for deposit insurance to the DICGC. It is not directly
paid by depositors, and no costs are passed on to them.
● The premium rate is currently set at 12 paise per ₹100 of assessable deposits per
annum, although it may vary based on DICGC guidelines.
Conditions for Payout:
Deposit insurance is only activated if the bank fails, i.e., if it is liquidated, merged, or undergoes
a restructuring. Once a bank is declared insolvent, the DICGC steps in to compensate depositors
up to the insured limit of ₹5 lakh.
Exclusions:
The following are not covered under the DICGC scheme:
● Deposits of foreign governments
● Deposits of central and state governments
● Inter-bank deposits
● Deposits held in NBFCs
● Deposits in cooperative societies not registered with DICGC
Claim Process:
When a bank fails in India (meaning it becomes insolvent or unable to meet its financial
obligations), the Deposit Insurance and Credit Guarantee Corporation (DICGC) steps in to
protect the depositors. Here’s a step-by-step detailed explanation of how the claim process
works:
1. Bank Failure Event
A bank fails when it is unable to honor its financial obligations, such as repaying depositors or
creditors. When this happens, the Reserve Bank of India (RBI) steps in to declare the bank
insolvent and initiates proceedings to resolve the bank’s status, which may involve:
Liquidation: The bank is closed, and its assets are sold to pay off creditors, including depositors.
Merger or Amalgamation: In some cases, the bank may be merged with another solvent bank to
protect depositors.
2. Appointment of a Liquidator
If the bank is placed under liquidation (i.e., closure), the RBI appoints a Liquidator to manage
the winding-up process of the failed bank. The liquidator is a third party or institution
responsible for selling off the bank’s assets and distributing the proceeds to various stakeholders,
including depositors and creditors.
3. Filing the Claim with DICGC
Once the bank is declared insolvent and the liquidation process begins:
The Liquidator is responsible for submitting the claim on behalf of the bank’s depositors to the
DICGC.
The liquidator provides the DICGC with a list of all depositors and the amounts they are owed,
based on the bank's records.
The claim essentially represents the depositors' entitlement to insurance coverage provided by
the DICGC. The depositors themselves do not need to file any paperwork; the entire claim
process is handled by the liquidator.
4. Verification by DICGC
After receiving the claim from the liquidator, the DICGC begins a process of verification. This
involves:
Validating the Depositor Details: The DICGC checks the details provided by the liquidator,
ensuring that the claim reflects the accurate amounts held by each depositor.
Ensuring Compliance: DICGC verifies whether the deposit accounts are eligible for insurance
coverage (under the ₹5 lakh per depositor per bank limit). Any accounts that fall outside the
purview of DICGC coverage (e.g., government deposits, inter-bank deposits) will not be
included.
5. Determining the Insured Amount
Deposit Insurance Coverage: DICGC insures up to ₹5 lakh per depositor per bank, including
both principal and interest.
If a depositor has more than ₹5 lakh in total deposits across different accounts in the same bank,
they will receive only up to ₹5 lakh.
If a depositor has accounts in multiple branches of the failed bank, the insurance covers the
aggregate sum of deposits across all branches, with the same ₹5 lakh limit.
If a depositor has accounts in different banks, the insurance coverage is separate for each bank,
and they are entitled to up to ₹5 lakh from each failed bank.
6. Reimbursement to Depositors
Once the DICGC completes its verification process:
The DICGC reimburses the insured deposit amounts directly to the liquidator.
The liquidator is then responsible for distributing these funds to the depositors.
Timeframe: According to the DICGC Act, the payout to depositors must be made within two
months from the date the liquidator submits the claim to the DICGC. However, the actual time it
takes to reimburse depositors may depend on the complexity of the liquidation process and the
completeness of the bank’s records.

Public Liability Insurance

Public liability insurance protects individuals and businesses from legal liability for injury or
damage to third-party property. This type of insurance is particularly important for businesses
that interact with members of the public, such as retail stores, restaurants, and event venues.
Without public liability insurance, a business could face significant financial losses if a customer
or member of the public is injured on their premises.
Public liability insurance policy provides coverage for businesses or individuals if they are held
legally responsible for causing injury or damage to a third party. The purpose of this insurance is
to protect businesses and individuals from financial loss in the event of a lawsuit or claim.
Public liability insurance covers a wide range of incidents, including accidents that occur on a
business's premises, damage to property caused by a business's operations, and injuries or
illnesses caused by a business's products or services. It is important to note that public liability
insurance only covers claims made by third parties, not claims made by employees or the
policyholder.
In the Indian context, Public Liability Insurance Act, 1991 mandates companies dealing with
hazardous substances to take insurance to cover potential liabilities towards the public in case of
accidents.

Importance of Public Liability Insurance

● Protection Against Legal Costs: Public liability insurance helps cover legal costs if a
business is sued by a third party for damages or injuries. Litigation can be costly, and
without insurance, businesses could face significant financial strain.
● Compensation for Injuries or Property Damage: If a third party (such as a customer or
visitor) is injured or their property is damaged due to the insured’s business activities, the
insurance provides compensation to cover medical bills, repair costs, or loss of income.
● Business Continuity: A major legal claim can disrupt business operations or even result
in closure if not properly managed. Having public liability insurance ensures that
businesses can continue to operate while handling third-party claims.
● Compliance with Legal Obligations: For certain businesses, especially those handling
hazardous materials or operating in high-risk environments, public liability insurance is a
legal requirement. Failure to comply can result in penalties or the withdrawal of
operational permits.
● Safeguarding Reputation: When accidents occur, the financial protection offered by
public liability insurance enables the business to compensate affected parties without
hesitation, thereby maintaining goodwill and a positive public image.

Scope of Public Liability Insurance

Public liability insurance typically covers the following areas:
● Bodily Injury: If a third party suffers an injury due to the insured's business operations,
the insurance covers medical expenses, legal fees, and compensation for pain and
suffering.
● Property Damage: The insurance covers damage caused to third-party property, whether
accidental or due to negligence on the part of the insured business. This could involve
damage to a customer's home, vehicle, or personal belongings.
 ● Legal Costs: Public liability insurance covers the legal defense costs in the event of a
lawsuit, including lawyer fees, court costs, and settlement negotiations.
● Claims Related to Business Premises: Accidents or injuries occurring on the insured's
premises, such as slip-and-fall accidents or injuries caused by faulty equipment, are
covered.
● Accidents Caused by Business Operations: Accidents that occur during business
operations, such as construction site accidents, accidents in manufacturing units, or
accidents at customer locations, are covered under public liability insurance.
● Pollution Liability: In the case of businesses dealing with hazardous substances, public
liability insurance often includes pollution coverage for damages arising from
contamination or environmental harm.
● Defamation, Libel, or Slander: Some public liability insurance policies cover claims
made for non-physical damages, such as defamation or libel, resulting from business
activities.

Exclusions in Public Liability Insurance

While public liability insurance offers broad coverage, it typically excludes:
● Deliberate acts of harm or negligence.
● Injuries to employees (which would require worker’s compensation insurance).
● Contractual liabilities.
● Professional negligence (covered under professional indemnity insurance).
● Product-related claims (covered under product liability insurance).

Claims Process in Public Liability Insurance

The claims process under public liability insurance generally involves the following steps:
1. Incident Occurrence: An accident, injury, or property damage involving a third party
occurs due to the insured's business activities. The affected party (claimant) notifies the
insured business of the event.
2. Notification to Insurer: The insured business or individual must promptly inform the
insurance company about the incident and provide all necessary details, such as the time,
 date, location, and nature of the claim (injury, damage, etc.). Some policies may specify a
timeframe for notification.
3. Investigation: The insurer conducts an investigation to determine the validity of the
claim. This involves gathering evidence such as witness statements, medical reports,
photographs of the incident, and assessing the business’s liability.
4. Assessment of Liability: The insurer evaluates whether the insured party is legally liable
for the incident. This step includes determining whether the business was negligent or at
fault in causing the injury or damage.
5. Legal Representation: If a lawsuit is filed by the claimant, the insurer provides legal
representation to defend the insured party in court. The insurance policy typically covers
all legal fees and court expenses.
6. Settlement or Court Decision: Depending on the circumstances, the insurer may attempt
to settle the claim out of court by negotiating compensation with the claimant. If the
matter goes to court and the insured is found liable, the insurer pays the awarded
compensation to the claimant.
7. Claim Payout: Once liability is established and the compensation amount is decided
(either via settlement or court decision), the insurer pays the claim to the third party
(claimant), covering medical costs, repairs, or legal compensation.

Public Liability Insurance is essential for businesses to safeguard themselves from potential
third-party claims resulting from accidents, injuries, or property damage caused by their
operations. It ensures that businesses can manage the financial burden of legal claims, enabling
them to focus on their core activities without worrying about lawsuits. Furthermore, in industries
that deal with hazardous materials, it is a legal requirement, further underscoring its importance
in ensuring public safety and business continuity.

Emergency Risk Insurance

Emergency Risk Insurance is a specialized type of insurance designed to provide financial
protection in the event of unforeseen, catastrophic events or emergencies. These emergencies can
include natural disasters (earthquakes, floods, cyclones), pandemics, terrorist attacks, industrial
accidents, or other large-scale events that pose significant risk to individuals, businesses, or
communities.
This insurance is meant to cover the financial losses that arise as a result of these unpredictable
and high-impact emergencies, which can disrupt lives, businesses, and the economy. Emergency
risk insurance offers a safety net, helping policyholders recover more quickly and efficiently
from the impacts of such events.
Importance of Emergency Risk Insurance
1. Financial Security During Crises: During emergencies, individuals and businesses can
suffer heavy financial losses, from damage to property to the inability to operate or earn
income. Emergency risk insurance provides immediate financial relief to cover such
losses, ensuring economic stability.
2. Ensures Business Continuity: For businesses, major disasters can halt operations and lead
to significant losses. Emergency risk insurance can cover business interruptions,
providing financial assistance to help the business get back on its feet.
3. Protection Against Unpredictable Events: Emergency situations, like earthquakes or
pandemics, are difficult to predict. This type of insurance covers such events, ensuring
that individuals, companies, and governments are better prepared to handle the financial
aftermath.
4. Encourages Economic Recovery: Large-scale emergencies can lead to economic
recessions or slowdowns. Emergency risk insurance helps minimize these impacts by
providing financial support to affected parties, facilitating quicker recovery at both the
individual and societal levels.
5. Legal and Regulatory Compliance: In some industries (like construction, aviation, or
hazardous materials handling), emergency risk insurance may be legally required to
ensure protection against accidents or disasters that could lead to significant third-party
liability.

Scope of Emergency Risk Insurance

Emergency risk insurance policies can vary widely depending on the type of coverage needed.
However, some common areas covered by such policies include:
1. Natural Disasters: Coverage for damage caused by natural disasters like:
● Earthquakes
● Tsunamis
● Floods
● Cyclones
● Landslides
● Hurricanes
2. Industrial and Technological Disasters: Coverage for accidents such as industrial
explosions, fires, chemical spills, and nuclear incidents. This type of insurance is
especially important for industries dealing with hazardous materials or energy
production.
3. Terrorism and War: Some policies provide coverage for damages resulting from
terrorism or acts of war, including destruction of property, injuries, and business
interruptions.
4. Pandemics and Public Health Emergencies: In light of recent global pandemics (e.g.,
COVID-19), some policies have been expanded to include coverage for losses incurred
due to public health emergencies, such as business closures or medical costs for
treatment.
5. Evacuation and Emergency Assistance: Some emergency risk policies include coverage
for emergency evacuation costs, temporary relocation expenses, and assistance services
in case of sudden disasters.
6. Business Interruption Insurance: This covers the loss of income a business suffers after a
disaster due to its inability to operate. It may cover lost profits, fixed costs, and the costs
of moving to or setting up a temporary location.
7. Property and Asset Damage: Insurance covers damage to physical property such as
homes, businesses, and vehicles resulting from the emergency. It can include rebuilding
or repair costs, as well as replacement of damaged inventory.
8. Personal Accident and Life Cover: Many emergency risk insurance policies offer life
insurance components, compensating beneficiaries in case of death due to an emergency,
or covering medical expenses for injuries.
 9. Third-Party Liability: For businesses, this includes coverage for third-party injury, death,
or damage caused by the business’s operations during a disaster or emergency.

Claims Process in Emergency Risk Insurance

The claims process in emergency risk insurance can be detailed due to the complexity and scale
of emergencies. However, the general steps are as follows:
1. Incident Occurrence and Documentation: An emergency or disaster occurs, resulting in
damage or financial losses. Policyholders need to document the extent of the loss or
damage by taking photos, videos, and collecting any relevant receipts or records.
2. Notification to the Insurer: The insured party (individual or business) must promptly
notify the insurer of the emergency and file a claim. Depending on the policy terms, this
should be done within a specified time frame.
3. Claim Submission:Policyholders submit a formal claim, including details about the event,
estimated losses, and supporting documentation (such as photos, receipts, medical
reports, or police/fire department reports). For businesses, this may also include financial
statements showing income losses or proof of business interruption.
4. Assessment of the Claim: The insurer investigates the claim by assessing the nature of the
emergency and its coverage under the policy. This includes determining whether the
event is covered and whether the damage is accurately documented.
5. Independent Adjusters (if required): Insurers may send independent adjusters to assess
the damage in person. These adjusters inspect property damage, review business losses,
and ensure that the claims are justified.
6. Approval or Denial of Claim: If the claim is approved, the insurer will calculate the
payout amount based on policy limits, deductibles, and any exclusions. Policyholders are
compensated for covered losses, either as a lump sum or over time. If the claim is denied,
the insurer will provide reasons for the denial, often based on exclusions or insufficient
documentation.
7. Payout to Insured: Once approved, the insurer disburses the claim payout to the insured
party. This may cover repair costs, business interruption compensation, medical bills, or
any other covered expenses.
 8. Ongoing Monitoring (if needed): For long-term emergencies like pandemics or war-
related damage, insurers may continue to assess and process additional claims as the
situation evolves.
Emergency Risk Insurance is a crucial safety net for individuals, businesses, and governments,
providing financial protection against unpredictable, large-scale emergencies. It ensures quicker
recovery from disasters by covering property damage, business interruptions, and third-party
liabilities, enabling policyholders to rebuild their lives and operations efficiently.