Karuna Trust, Karnataka - ZEF

Good and Bad Practices in MicroinsuranceKaruna Trust, IndiaThe following sections discuss the regulatory implications of insurers operating under theCompanies Act, as provident societies, and as mutuals or cooperatives.Insurance Companies Operating under the Companies ActEvery insurer must register with IRDA. Four registry actions exist: application, annualrenewal, modification or cancellation. The fee to register (different from the paid-up equitycapital mentioned below) is a maximum of Rs. 50,000 ($1,136) per insurance class. Theannual renewal fee is 0.25% of the gross premium written per insurance class or Rs. 50million ($1.14 million) per class (whichever is less) with a minimum of Rs. 500 ($11).The IRDA regulates the following operational issues:• Conditions of insurance contracts (standards for premiums, terms and conditions that cangovern the relations between policyholder and insurer);• Management (quality, remuneration, conflicts of interests);• Intermediaries (registration, code of conduct, quality). Maximum length of contract is 10years, beyond that period a new contract is necessary. The Authority may alter theseregulations in case of cooperatives or mutuals acting as agents/chief agents.• Permitted forms of holding/investing funds and assets (s. 27A Insurance Act). The listcontains e.g., government securities, municipality securities (permitted by the stategovernment), first mortgages on immovable properties situated in India under anyhousing or building scheme condition, preference shares of any company on whichdividends have been paid for the five years immediately preceding, loans of life interest,shares in cooperative societies;• Solvency margins; and• Accounting and reporting (insurers and insurance intermediaries).Rural and social obligations. Under its development agenda, the IRDA also requiresspecific investments in the rural and social sectors. To comply with the rural requirements,insurers must sell a minimum level (quota) of their total portfolio (see Table 1.2).Table 1.2 Rural and Social Obligation QuotasLife InsuranceGeneral Insurance5% in the first financial year of the insurer’s operation 2% in the first financial year7% in the second financial year 3% in the second financial year10% in the third financial year 5% thereafter12% in the fourth financial year15% in the fifth yearIn addition, every insurance company (both life and general) must sell at least a predefinednumber of insurance policies to persons in the social sector, which includes people in theinformal economy and economically vulnerable classes. The requirement begins with 5,000lives in the first financial year and increases steadily to 20,000 lives in the fifth year.Capital requirements. An application for life insurance or general insurance registration willbe considered only with deposit of a paid-up equity capital of one billion Rupees (about $22.73