Insurance Terminologies – II


I started this series of posts related to the terminologies used in insurance. In this second installment, let us know few of them which is discussed below.

  • Premium: It is the consideration that one pays in monetary value for buying the insurance policy. The money paid by you to purchase the insurance policy is known as the premium. As per Section 64VB of Indian Insurance Act 1938, premium should be paid in advance before the risk coverage starts. Hence, no coverage will be provided before paying the premium.
  • Indemnity: Indemnity means bringing back to the same financial condition as if the loss didn’t occurred. This is one of the basic principles of insurance which states that there should be no benefit out of the coverage. Meaning that if the person suffers a loss of INR 10000 due to the peril covered in the policy, the insurance company will pay only the amount of loss i.e INR 10000 and not more than that even though the policy cover is of greater value say INR 100000. The amount paid by the insurance company is subject to the total amount covered in the policy. This principle is applicable in general insurance while in life insurance, principle of indemnity is not applicable.
  • Endorsement: This means any alterations or modifications in the insurance policy. Endorsement can be financial or non financial. Financial endorsement includes change in the sum insured, change in premium etc. Non-financial endorsement endorsement includes change in address, change of contact details, email id etc. A written application by the policyholder has to be given to the insurance company for any endorsement.

Ashish Kumar

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About IRDAI


The insurance industry in India is regulated by Insurance Regulatory and Development Authority of India (IRDAI), headquartered at Hyderabad. IRDAI was formed by an Act of Parliament in 1999. The IRDA Act, 1999 paved the way for the formation of IRDAI. The history goes back to the recommendations of Malhotra Committee where the need for a regulator for insurance sector was suggested. Being the regulator IRDAI carries various functions like:

  • Protecting policyholder’s interest.
  • Granting of license to insurers, brokers etc.
  • Renew, modify, suspend, and cancel the registration.
  • Promoting efficiency in the conduct of insurance business.
  • Regulating investment funds by insurance companies.
  • Regulating maintenance of margins of solvency etc.

Apart from Hyderabad where it is headquartered, the Authority also has office in New Delhi and Mumbai. The composition of Authority as defined in Section 4 of IRDA Act, 1999 consists of 10 members which comprise of the following:

  • A Chairman
  • Five whole time members
  • 4 part-time members.

All the members are appointed by Government of India.

IRDAI is the regulating all forms of insurance except pension funds and postal insurance. Pension fund is regulated by Pension Fund Regulatory and Development Authority (PFRDA). Postal insurance include Postal Life Insurance (PLI) and Rural Postal Life Insurance (RPLI).

One of the reform measures initiated by IRDAI for general insurance industry came in 2007 when general insurers were allowed to price the premium accordingly. Prior to that, premium pricing was decided by Tariff Advisory Committee (TAC). Hence this is also known detariffing where general insurers are now allowed to decide the price of the premium. General insurers are allowed to decide the premium price to all forms of insurance except motor third party liability where the premium price is decided by IRDAI.

IRDAI is also the promoter of the following organizations:

  • Institute of Insurance and Risk Management (IIRM), Hyderabad: IIRM Hyderabad was established jointly by IRDAI and Government of Telangana in 2002. The institute provides quality education in insurance, risk management, Financial services, Acturial Science etc. The institute provides 1 year International Post Graduate Diploma (IPGD) and two year full time masters i.e Post Graduate Diploma in Management (PGDM). It is one of the rare institutes in the country providing MBA in insurance and related fields. The insurance course is accredited by Chartered Insurance Institute (CII), London and Insurance Institute of India (III), Mumbai. This is a good platform for those who wish to build their carrier in insurance.
  • Insurance Information Bureau of India (IIB): IIB was promoted by IRDAI in 2009 with the participation of stakeholders from insurance sector, with the objective of supporting the insurance industry with sector-level data to enable data based and scientific decision making including pricing and framing of business strategies.

This was a brief introduction about IRDAI and I hope it will be informative. I will be coming up with various other topics related to insurance from time to time. Stay tuned.

– Ashish Kumar