CHAPTER 15
INSURANCE
PART A - GENERAL INSURANCE
PART B - LIFE INSURANCE
INSURANCE
General
15.1 General insurance business in India is the monopoly of
General Insurance Corporation of India (GIC) and its subsidiaries. Life
insurance business is the monopoly of Life Insurance Corporation of India (LIC).
Exchange Control regulations governing general and life insurance business in
India are set out in two separate Memoranda (GIM and LIM). This Chapter
highlights the provisions which are relevant to authorised dealers.
PART A - GENERAL INSURANCE
Introduction
15A.1 Persons, firms, companies, etc. resident in India are
not permitted to take general insurance of any kind with insurance companies in
foreign countries without prior approval of Reserve Bank. Besides, permission of
Government of India under General Insurance Business (Nationalisation) Act,
1972, is also required in such cases. Proposals for direct insurance outside
India should be submitted to Reserve Bank explaining reasons for seeking such
insurance cover and producing a certificate issued by GIC or any of its
subsidiaries to the effect that the proposed insurance cover cannot be obtained
from them.
Marine Insurance on Exports
15A.2 GIC has been permitted to accept premiums in rupees from
exporters against export of goods from India on production of certificate from
them to the effect that -
- the insurance charges on the shipment in question have to be borne by
exporter in terms of the contract with overseas buyer and that he is not
making the payment on behalf of any non-resident;
or
- the exporter is defraying the insurance charges on the shipment in
question on account of overseas buyer of the goods and that he undertakes to
add the amount on the invoice and recover the payment so made from the buyer
in an approved manner.
While handling shipping documents against exports contracted on f.o.b., c.&
f. or any other terms under which liability on account of marine insurance
on the shipment rests with overseas buyers but exporters have taken the
insurance cover on non-resident party's account, authorised dealers should
verify that the actual premium has been added on the invoice for being
recovered from buyers.
NOTE:
Certain countries operate restrictions requiring importers in their
countries to obtain marine insurance cover from local insurers, settlement
under which in favour of exporters in India may not be permissible in the
event of cargo getting lost before reaching the port of destination due to
Exchange Control regulations governing remittances against imports into
those countries. Exporters may in such cases avail of contingency marine
insurance policies from GIC and its subsidiaries in order to protect their
interests till the goods are paid for. Claims on such policies will be
payable only to exporter in India and such policies will not be assignable
to overseas buyer or any other party. In such cases, the insurance premium
paid to GIC will not be recoverable from overseas buyers.
Protection against Transit Risks under f.o.b., c.& f., etc. Contracts
for Exports
15A.3 Sometimes in case of exports contracted on f.o.b., c.&
f., etc. terms, exporters ship cargo without verifying that the goods have been
adequately insured against transit risks by overseas buyers. Unless the cargo is
insured for the entire duration of transit and insurance is available for
protection of exporter until ownership in the goods passes to buyer, the
exporter will be liable to suffer financial losses apart from loss of foreign
exchange caused by damage/loss to the goods, except where the export is covered
by an irrevocable letter of credit opened by buyer. It is, therefore, necessary
for the exporter to verify even before goods are shipped out of India that they
are insured against all risks of loss or damage during the entire course of
transit and that such insurance is available to him by virtue of incorporation
of sellers' interest clause in the policy. In cases where exporter is not
assured that his interests are protected fully through insurance, he may also
avail of contingency insurance cover from Indian insurers on the analogy of the
provisions in the Note under paragraph 15A.2.
Marine Insurance on Imports
15A.4 GIC has been permitted to accept premiums in rupees from
importers against import of goods into India on production of a certificate from
them to the effect that -
- the insurance charges on the shipment in question have to be borne by
importer in terms of the contract with the overseas seller,
and
- where the import is covered under an Import Licence, he undertakes to
ensure that the amount of insurance premium paid will be endorsed on the
import licence in due course.
Claims against Marine Insurance Policies covering Exports
15A.5
- GIC and its subsidiaries have been permitted to settle claims against
marine insurance policies covering exports from India out of foreign
currency balances held by them, provided they are satisfied that ownership
of the goods lost, damaged, etc. vests in such claimant and that the latter
is not making the claim merely as agent of the real owner of the goods in
India. In cases where the funds held by the insurers abroad are inadequate,
claims will have to be settled by remittance from India. Authorised dealers
may permit such remittances without reference to Reserve Bank, on
application from insurers on form A2 together with documents listed in
paragraph A.7 of Memorandum GIM after verifying that the statement of claim
has been duly completed and signed by an authorised official of the insurer
and that the remittance is prima facie in order. Where any document is not
produced in original, an explanation for the insurer's inability to do so
should be obtained. In all cases, the statement of claim (form GIM1) should
be enclosed to form A2 and submitted to Reserve Bank with appropriate R
Return. The other documents may be returned to the applicant insurer after
marking them.
- GIC and its subsidiaries may sometimes make arrangements with overseas
claims-settling agents for facilitating speedy settlement of claims relating
to exports from India. In such cases, authorised dealers may on receipt of
requests from GIC/its subsidiaries, open revolving letters of credit in
favour of established claims-settling agents abroad providing payment
against production of documentary evidence viz. statement of claim, survey
report or other documentary evidence of loss/damage, original policy or
certificate of insurance, etc. Reimbursement of claims under the credit may
be made by authorised dealers on verification of the required documents.
- Where GIC and its subsidiaries have settled claims against marine
insurance policies covering exports from India in favour of Indian
exporters, authorised dealers may allow remittance of claims by Indian
exporters to overseas buyers on production of documentary evidence in
support of the claim, provided export proceeds have been realised in full by
the exporter. A declaration from the Indian exporter that the overseas buyer
has not been compensated in any other manner for the loss of/damage to goods
exported from India in respect of which claim has been settled by GIC or its
subsidiary, should also be obtained.
Claims against Marine Insurance Policies Covering Imports into India and
Merchanting Trade
15A.6 Remittances against claims under marine insurance
policies covering imports into India may be allowed by authorised dealers on
verification of the certificates regarding ownership of the goods etc. as laid
down in paragraphs A.8 and A.9 of Memorandum GIM. Authorised dealers should
specifically confirm on form A2 that the necessary documentary evidence has been
verified and conditions laid down in paragraphs A.8 and A.9 of Memorandum GIM
are fulfilled.
Premium for Extension of Insurance Cover on Imports
15A.7 Sometimes, importers may not retire documents received
under letters of credit promptly and goods may meanwhile arrive at the Indian
port and remain unprotected in the docks. In cases where marine insurance has
been taken abroad and normal period has expired, authorised dealers have been
granted permission to have the insurance cover extended and to remit the
insurance premium (See paragraph 7A.14). War etc.
Risk Insurance on Marine Hulls
15A.8 GIC is operating a scheme of comprehensive insurance on
Indian marine hulls covering all risks against war and other allied risks
arising out of civil commotion, political or labour disturbances, etc.
Shipowners should, therefore, normally obtain such insurance cover only in
India.
Remittances to P & I Clubs and Claims Settling Agents Abroad
15A.9
- Authorised dealers may allow remittances towards membership subscription
of Overseas Protection and Indemnity Clubs ( P & I Clubs), on behalf of
shipping companies who are their constituents, on production by the shipping
company concerned the approval granted by Government of India under the
General Insurance Business (Nationalisation) Act, 1972.
- Where Indian ships are involved in collision with foreign ships, P & I
Clubs provide guarantee for payments towards claims made by the foreign
shipowners. GIC and its subsidiaries have been permitted to provide
counter-guarantee to P & I Clubs in respect of 3/4th collision liability to
be borne by them as insurers. Similarly, whenever any Indian ship gets
involved in a casualty in the mid-sea or is grounded, the services of
independent salvers are required to be engaged. GIC and its subsidiaries
have been permitted to provide 100% counter-guarantee to overseas claims
settling agents/brokers/ bankers in respect of salvage security provided by
them without any limit. Authorised dealers may, therefore, issue the
necessary guarantees/counter-guarantees on behalf of GIC and its
subsidiaries and also make remittances thereagainst on the basis of claims
made by the overseas parties, under intimation to Reserve Bank. A copy of
the claim and other relevant documents should be enclosed with such reports.
Reinsurance
15A.10
- Reinsurance arrangements of GIC and its subsidiaries are reviewed
annually and approved by the GIC Board. Remittances falling due under
approved reinsurance arrangements may be made by authorised dealers
designated by GIC in accordance with the terms and conditions laid down by
the GIC Board. A copy of the application received from GIC and its
subsidiaries giving full particulars of the remittance to be made including
particulars of remittances already made for the year in question should be
forwarded to Reserve Bank alongwith form A 2. Authorised dealers should also
specifically confirm on form A 2 that the relative documentary evidence in
original has been verified by them.
- Applications for remittance of reinsurance premia received from local
brokers of insurance companies should, however, be referred to Reserve Bank
for approval.
Overseas Medical Insurance Schemes
15A.11 GIC through its four subsidiaries in India is operating
the following Medical Insurance Schemes approved by Reserve Bank for the benefit
of resident Indians going abroad for certain approved purposes.
|
Scheme |
Risk |
Covered Premium |
| 1. |
Overseas Medical Insurance Scheme for Indians Travelling Abroad for
Business and other purposes (OMIS) |
Expenses on services such as physician's attention, hospitalisation,
physician ordered medical services, transport, etc. incurred while the
traveller is abroad are covered under the scheme. |
In Indian rupees |
| 2. |
Overseas Mediclaim Insurance Scheme for Employment and
Studies[OMIS(E&S)] |
Expenses incurred for sudden and unexpected sickness or accident
while abroad are covered under the Scheme |
In Foreign Currency |
Details of the Scheme may be ascertained from GIC or its subsidiaries.
Miscellaneous Product Liability for Merchandise Exports and Errors and
Omission for Computer Software Exports
15A.12 GIC and/or its subsidiaries have been permitted to
issue Product Liability Insurance policies for merchandise exports and Errors
and Omission Insurance policies in respect of computer software exports in
foreign currency, against receipt of premium in Indian rupees without obtaining
permission of Reserve Bank and also to settle claims in foreign currency against
such policies. Authorised dealers may, on receipt of specific requests from GIC
and/or its subsidiaries, open letters of credit in favour of their claim
settling agents abroad, providing for payments towards claims against the
respective policy subject to submission of statement of claim, survey report or
other documentary evidence of loss/damage, original policy or certificate of
insurance etc. in support of claim.
PART B - LIFE INSURANCE
Payment of Premiums by Non-residents
15B.1 Payment of insurance premiums by policy holders resident
outside India may be made by remittance in foreign currency or by payment from
their Ordinary Non-resident Rupee/ Non-resident (External) Rupee/FCNR accounts
with authorised dealers in India. Manner of settlement of claims on policies is
dependent on the exact manner in which premium payments have been made by policy
holders. Accordingly, settlement of claims in foreign currency will be allowed
only in the proportion that premiums paid in foreign currency or in a manner
which has resulted in accrual of foreign exchange to India [e.g. payment by
debit to Non-resident (External) Rupee accounts or FCNR accounts] bear to the
total premiums paid. When non-resident policy holders pay their premiums locally
in rupees by debit to their Ordinary Non-Resident Rupee accounts, settlement of
claims by remittance in foreign currency will not ordinarily be allowed. In
order that LIC can maintain a systematic record of premium payments which would
facilitate identification of the source of funds at a later date when claims
have to be settled, authorised dealers should advise LIC the exact manner of
premium payment and the type of account debited as and when instructions in this
regard from their non-resident constituents are complied with.
Assignment of Policies
15B.2
- Resident policy holders are not permitted to assign rupee life insurance
policies in favour of any person resident outside India without prior
approval of Reserve Bank except in favour of policy holder's non-resident
wife or other dependent relative without consideration. Similarly,
assignment of a rupee life insurance policy held in an Indian register by a
non-resident in favour of another non-resident in a different country
requires prior approval of Reserve Bank. There is, however, no objection to
technical assignments by non-resident policy holders in favour of overseas
banks situate in the same country for the purpose of obtaining loans etc.
abroad. Transfer of any claims eventually to the assignee bank will require
prior approval of Reserve Bank (See paragraph 15B.4 also).
- Technical assignments of rupee life insurance policies may be freely
made by non-residents in favour of banks or LIC in India for obtaining
loans, provided the loan amount is paid locally in rupees to the policy
holders or their close relatives in India.
Foreign Currency Policies held by Residents
15B.3 For purposes of Section 9 and 19 of FERA 1973, life
insurance policies are regarded as securities. Foreign currency life insurance
policies are, therefore, foreign securities for purpose of these provisions.
Restrictions imposed on acquisition, holding and disposal of foreign securities
without prior permission of Reserve Bank under Section 19(1)(e) of the Act are,
therefore, applicable to foreign currency life insurance policies. Persons
resident in India holding foreign currency life insurance policies should
declare them to Reserve Bank and obtain licences for holding them except where
they are covered under the general exemption (See Note below). Applications for
obtaining licences should be made to the Central Office of Reserve
Bank(Non-residents Foreign Accounts Division). While granting holding licences,
Reserve Bank will stipulate that maturity proceeds or any claim amounts due on
the policies should be repatriated to India through an authorised dealer.
NOTE:
In terms of Reserve Bank Notification No. FERA.118/92-RB dated 7th September
1992, persons who have returned to India after being a non-resident for a
minimum continuous stay of one year abroad have been granted exemption from the
requirement of obtaining permission of Reserve Bank for holding any life
insurance policies taken out of foreign exchange lawfully acquired by them while
they were resident outside India. They would also be free to retain the maturity
proceeds or any claim amounts received on such policies in their foreign
currency accounts in India (RFC accounts) or abroad.
Remittance of Premiums on Foreign Currency Policies
15B.4 Persons who are permanently resident in India are not
permitted to take life insurance policies with foreign insurance companies. In
case of foreign currency life insurance policies taken out from foreign
insurance companies by persons while they were resident outside India and have
returned to India for permanent residence, premiums due on such policies can be
paid by them out of their entitlements under the Returning Indians Foreign
Exchange Entitlement Scheme (RIFEE Scheme) or out of funds held in their foreign
currency accounts abroad or in India (RFC accounts). Remittances from India
will, however, be allowed provided
- the policy had been in force for at least three years prior to policy
holder's return to India;
and
- an undertaking has been furnished by the policy holder to repatriate to
India the maturity proceeds or any claim amounts due on the policy through
an authorised dealer.
Assignment of foreign currency policies will not ordinarily be permitted by
Reserve Bank. Similar regulations are applicable to foreign currency
policies taken with overseas offices of LIC.
Reinsurance
15B.5 Reinsurance arrangements of LIC are reviewed annually
and approved by Government of India. Remittances falling due under approved
reinsurance arrangements may be made by authorised dealers in accordance with
the terms and conditions laid down by the Government of India. A copy of the
application received from LIC giving particulars of the remittance to be made
including particulars of remittances already made for the year in question
should be forwarded to Reserve Bank along with the relative form A2. Authorised
dealers should also specifically confirm on form A2 that the relative
documentary evidence in original has been verified by them