Foreign Exchange Management (Insurance) Regulations, 2000
AP (DIR Series) (2002-2003) Circular No.18, dated 12-9-2002
Attention
of authorised dealers is invited to the Notification No. FEMA 12/2000-RB
dated 3rd May, 2000 viz. Foreign Exchange Management (Insurance)
Regulations, 2000. The Memorandum of Exchange Control Regulations relating to
General Insurance in India (GIM) since brought out is enclosed. The major
changes in procedure as per the Memorandum are summarised in the Annexure.
2. Authorised
dealers may bring the contents of this circular to the notice of their
constituents concerned.
3. The
Directions contained in this circular have been issued under section 10(4) and
section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).
ANNEXURE
|
Sr. No. |
Subject-matter |
Changes |
|
1. |
Scope
of Memorandum |
The
earlier instructions of GIM covered only public sector general insurance
companies. The present instructions contained in the Memorandum are
applicable to public sector general insurance companies as well as general
insurance companies which are registered with IRDA. |
|
2. |
Reinsurance
Arrangement |
The
reinsurance arrangement of public sector general insurance companies
registered with IRDA are to be decided by the respective Boards of the
insurance companies and IRDA is to be kept informed. ADs designated by these
insurance companies are now permitted to make remittances falling under such
approved reinsurance arrangements without reference to the Bank. |
|
3. |
Remittance
of Reinsurance Premia by local brokers |
ADs
have been permitted to allow remittance of reinsurance premia by local
brokers of insurance companies after verifying debit notes from the overseas
insurance company, statement of account and CA’s certificate of broker
certifying the sum etc. |
|
4. |
Foreign
currency accounts abroad |
Public
sector general insurance companies and general insurance companies registered
with IRDA are permitted to open, maintain and hold a foreign currency bank
account with a bank outside India for the purpose of facilitating
transactions and expenses relating/incidental to general insurance business
undertaken in foreign countries. |
|
5. |
Settlement
of claims in foreign currency |
For
settlement of claims in foreign currency in respect of policies issued in
foreign currency, insurance companies are now permitted to make remittances
subject to certain condition as stipulated in the Memorandum, without reference
to Reserve Bank as required in the past. |
GIM
MEMORANDUM OF EXCHANGE CONTROL REGULATIONS
RELATING TO GENERAL INSURANCE IN INDIA
General insurance
business in India is undertaken by insurance companies which are registered
with Insurance Regulatory and Development Authority (IRDA).
(i) Exchange Control regulations governing
general insurance business written in India are set out in this Memorandum.
(ii)
Directions contained in this
Memorandum have been issued under section 10(4) and section 11(1) of Foreign
Exchange Management Act, 1999 (42 of 1999).
For the purpose of this
Memorandum, the terms “Person resident in India” and “Foreign Currency” will
have the same meaning as defined under Foreign Exchange Management Act, 1999.
Where Insurers have been
permitted to issue policies expressed in foreign currency against premium
payable in foreign currency, they should insist on submission of suitable
document to satisfy themselves that the premium has been received by foreign
exchange remittance through banking channels or in rupees derived by sale of
foreign exchange to an authorised dealer in foreign exchange or an authorised
money-changer.
Persons, firms,
companies etc. resident in India are not permitted to take insurance cover of
any kind with insurance companies in foreign countries without the prior
permission of Reserve Bank. Besides, permission of Government of India under
General Insurance Business (Nationalisation) Act, 1972, is also required to be
taken in such cases.
Indians, Nepalese and
Bhutanese resident in Nepal and Bhutan as well as offices and branches of
Indian, Nepalese and Bhutanese firms, companies or other organisations in these
two countries are treated as resident in India for purposes of transactions in
Indian rupees. Payment of claims to such persons against marine or non-marine
policies may be freely made in rupees. Payments in foreign currency towards
claims under marine or non-marine policies will require prior approval of
Reserve Bank, except where premiums thereon were also collected in foreign
currency.
7. The Memorandum is divided into four parts as under
PART A - MARINE INSURANCE
PART B - NON-MARINE INSURANCE
PART C - REINSURANCE
PART D - FOREIGN CURRENCY ACCOUNTS AND
INVESTMENTS ABROAD
PART A
MARINE
INSURANCE
(i) Marine insurance policies on coastal
shipments may be issued only in Indian rupees.
(ii)
Marine insurance policies on
shipments between India and other countries as also between two points outside
India may be issued in rupees or in any foreign currency.
Payment of premium on a
marine insurance policy on exports from India may be accepted in rupees
provided exporter furnishes to the insurer a certificate to the effect either
(a) that insurance charges on the shipment in question have to be borne by him
in terms of contract with overseas buyer and that he is not making the payment
on behalf of any non-resident or (b) that he is defraying insurance charges on
the shipment in question on account of overseas buyer of the goods and he
undertakes to add the amount on the invoice and recover the payment so made
from the buyer in an approved manner.
NOTES: A. Overseas
buyers may sometimes approach Insurers directly or through their overseas
offices/agents for extension of cover for additional risks or for extended transit
risks necessitated by circumstances not envisaged when the marine insurance was
originally covered in India with the Insurers. Such extensions may be made by
Insurers provided the additional premiums are collected from overseas buyers in
foreign currency.
B. Certain countries
operate restrictions requiring importers in their countries to obtain marine
insurance cover from local insurers, settlement under which may not be possible
in the event of cargo getting lost before reaching port of destination due to
Exchange Control regulations governing remittances against imports into those
countries. Insurers may issue in such cases, contingency marine insurance
policies to exporters to protect their interest till goods are paid for. The
policies should be issued with a condition that they will not be assignable to
overseas buyer or any other non-resident party. Claims on such policies should
be paid only to exporters in India.
(i)
Payment of premium on a marine insurance
policy on imports into India may be accepted in rupees provided importer
furnishes to the insurer a certificate to the effect that (a) the
insurance charges are required to be borne by him in terms of the contract with
the overseas seller and (b) where the import is made against an Import
Licence, he undertakes to ensure that the amount of insurance premium is
endorsed on the import licence in due course.
(ii)
In case of imports by the public
sector (viz. Central Government, any State Government, Statutory or
public bodies and Government undertakings), payment of insurance premium in
rupees may be freely accepted.
(iii)
In all other cases, where payment of
premium in respect of imports is offered in rupees, prior approval of Reserve
Bank will be required. Applications for the purpose should be made by letter
(in duplicate) furnishing full particulars.
Premiums
on Marine Policies covering Shipments between Countries outside India
(i)
Premiums on marine insurance
policies covering shipments between countries outside India must ordinarily be
received in foreign currency, but payment in rupees may be accepted provided a
certificate from an authorised dealer in foreign exchange is produced to show
that the rupees are derived by a remittance from abroad in an approved manner.
NOTE : Overseas offices
of the Insurers may grant marine insurance cover for trade between China and
third countries and receive premium/settle claims through foreign currency
accounts maintained by their overseas offices without prior approval of Reserve
Bank.
(ii)
Sometimes, firms and companies in
India finance merchanting trade i.e. goods shipped from one foreign
country to another and financed by an intermediary in India. In some of these
cases goods may be purchased on f.o.b./c.& f. terms and/or sold on c.i.f.
terms, the marine insurance cover being arranged by the intermediary in India.
Insurance companies registered with IRDA may issue policies covering transit
risks between the loading and the destination ports in rupees or in any foreign
currency in such cases, against payment of premium in rupees by the
intermediary, after satisfying themselves that the contract provides for marine
insurance being taken by the intermediary.
Claims against marine
insurance policies, when payable to persons, firms or companies in India should
be paid only in rupees, irrespective of the currency in which relative policies
had been issued. Where claimant is not a resident of India, Insurers may settle
the claim 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.
(i)
In the case of marine claims against
exports, remittances of claim will be permitted by authorised dealers in
foreign exchange on application on form A2 provided the Insurer has satisfied
himself that the ownership of the goods on which claim has arisen vests in the
non-resident claimant. Applications should be supported by following documents:
(a) Statement of claim duly certified by an
official authorised by the insurance company registered with IRDA for this
purpose.
(b) Insurance policy.
(c) Survey report or other customary proof of loss.
(d) Bill of lading/Airway bill.
(e) Certified copy of invoice.
(f) Any other documents ordinarily required to support the claim.
Where original documents
are not available for any reason, photo copies may be produced to authorised
dealer together with reasons for non-availability of the original documents.
This provision does not apply to remittances for replenishment of foreign
currency balances which will require specific approval of Reserve Bank.
NOTE : Insurers may
settle claims in rupees in favour of Indian exporters even in cases where title
to the goods has passed to foreign buyer, if a request to that effect has been
made by the non-resident claimant. A certificate indicating full particulars of
the transaction including number of relative GR/PP form and amount paid in
settlement of claim should be issued to the exporter to enable the latter to
obtain necessary approval from Reserve Bank for making replacement shipments.
(ii) Claims
against marine insurance policies covering exports may also be settled through
the overseas claims settling agents, if so desired by Insurers. Authorised
dealers have been permitted to open revolving letters of credit in favour of
established claims-settling agents abroad and reimburse claims under the credit
on verification of the necessary documentary evidence viz. statement of
claim, survey report or other documentary evidence of loss/damage, original
policy or certificate of insurance etc.
Although it is a basic
rule that marine claims on imports should be settled locally in rupees in favour
of importer in cases where ownership of the goods lost, damaged, etc. vests in
the importer, Insurers may settle claims from their foreign currency balances
in favour of overseas suppliers in the following categories of imports, in
order to facilitate early replacement of the lost, damaged, etc. goods, on
request being received in this regard from importers:
(a) Imports by Government Departments and
public sector undertakings
(b) Imports by private sector undertakings against foreign
credits provided the terms of the foreign credit require that insurance cover
should be taken in foreign currency for replacement of lost/damaged goods.
(c) In all other cases, where the ownership of the goods
lost/damaged, etc. vests with the overseas supplier and no payment has been
made towards any part of the cost of the goods.
These provisions are
applicable not only to marine policies, but also to marine-cum-erection
policies, whether issued separately or combined.
Claims arising from
marine insurance policies covering merchanting trade financed through India may
be settled by Insurers from their foreign currency balances only if—
(a) the ownership of the goods vests with
the overseas party and
(b) where the claim is proposed to be settled in favour of the
overseas supplier, payment for the goods has not been made to the supplier and
where claim is proposed to be settled in favour of the overseas buyer, payment
for the goods has been received by the Indian intermediary from the buyer.
PART B
NON-MARINE
INSURANCE
Insurance cover on risks
inside India (including All Risks Insurance)on assets in India owned by
residents of India may be issued only in rupees. This is also applicable to
assets of Indian branches/offices of foreign companies, banks, etc.
Non-marine risks in
respect of assets outside India owned by residents of India may be covered in
rupees or in foreign currency provided that in respect of immovable property
held outside India by Indian nationals, permission of Reserve Bank for holding
the property had been obtained, (where necessary). Settlement of claims under
such policies should be made only in rupees locally. Foreign currency policies
providing for payment of claims in foreign currency in the foreign country may,
however, be issued only if the premiums are paid in foreign currency out of
eligible foreign currency assets held by Indian nationals/persons of Indian
origin who have returned to India from abroad after a minimum continuous stay
abroad for at least one year or out of funds held in their RFC accounts with
authorised dealers in India. Issue of foreign currency policies in other cases
will require prior approval of Reserve Bank.
Policies
in foreign currency approved by Reserve Bank- Settlement of claims
(i)
Request for issue of policies in
foreign currency which are not covered by the above guidelines are examined on
merits by RBI. For such requests where RBI grants specific approval for issue
of policy in foreign currency, acceptance of premium in foreign currency and
settlement of claim in foreign currency, insurers may approach A.D. for
remittance of claims under policies subject to the following conditions :—
(a) the policy has been issued in foreign
currency with specific approval of RBI;
(b) the claim has been admitted by the competent
authority of the insurance company.
(c) the claims has been settled as per the surveyors report and
other substantiating documents;
(d) claims on account of reinsurance are being lodged with the
reinsurers and will be received as per reinsurance agreement;
(e) the remittance is being made to the non-resident beneficiary
under the policy. For resident beneficiaries the claim may be settled in Rupee
equivalent of foreign currency due. Under no circumstances payment in foreign
currency be made to a resident beneficiary.
(ii)
Insurers may submit, to the
Regional Office of RBI under whose jurisdiction it operates, a report on
quarterly basis of the claims settled in foreign currency along with supporting
documents of each claim settled by them. These reports may be submitted within
15 days from the end of each quarter of the calendar year.
(i)
Insurance cover on baggage or
valuables in transit between India and other countries or between two countries
outside India may be issued in rupees or in foreign currency.
(ii)
Premiums on such policies may be
collected in rupees only if the owner of the baggage or other valuables is
either an Indian national or is normally resident in India. In other cases,
premiums should be received in foreign currency or in rupees derived by
surrender of foreign currency to an authorised dealer in foreign exchange or
authorised money-changer; such payments should be supported by a certificate
from the authorised dealer/money-changer in the prescribed form.
(iii)
Claims on such policies may be paid
only in rupees in India except where the policy holder is a person normally
resident outside India and premiums against the policy had been collected
either in foreign currency or in rupees derived by surrender of foreign
currency. Remittances of claims in foreign currencies in other cases will
require prior approval of Reserve Bank.
(iv)
Remittances towards claims on personal
baggage reshipped from India by foreign nationals on completion of their
assignments in India may be allowed by insurers, if they are eligible for or
have been accorded remittance facilities at the time of retirement from India.
Insurance on Indian
marine hulls covering All Risks against war and other allied risks arising out
of civil commotion, political or labour disturbances etc. are required to be
obtained from the Insurers in India only.
Personal accident
policies may be issued only in rupees and claims thereon settled only in
rupees, in case of Indian nationals and persons of Indian origin normally
resident in India. In other cases, personal accident policies may be issued in
foreign currency, provided premiums thereon are paid either in foreign currency
or in rupees derived by surrender of foreign currency to an authorised dealer
or authorised money-changer. Claims in these cases may be settled in currency
of the policy or in rupees as desired by the policy holder.
NOTE : Indian companies
executing construction and turnkey contracts in foreign countries may at times
desire to obtain personal accident cover from Indian Insurers for the workmen
and technical staff actually engaged in the overseas contracts providing for
settlement of claims in foreign currency. Insurers may permit such insurance
being taken provided premiums will be paid by remittances in foreign currency
from out of the foreign currency earnings generated by the contracts. Claims in
such cases may be settled in foreign currency or if so desired, in rupees
locally.
Policies may be issued
in India under the Overseas Medical Insurance Schemes as approved by Reserve
Bank to Indian residents travelling abroad for any approved visits viz. business,
study tour, specialised training, conferences, employment or higher studies.
Premiums on such policies, other than for visits for employment, may be
collected in rupees and for employment in foreign currency. Insurers may also
open a revolving letter of credit with an Indian bank in London for settlement
of its share in the claims that may eventually arise under the policies.
(i)
Insurers may issue product
liability policies for exports and Errors and Omissions Policy in respect of
computer software exports in foreign currency against receipt of premium in
rupees and settle claims if any in foreign currency in respect of such
policies.
(ii)
Claims arising outside India
against policies issued under Workmen’s Compensation Act and Merchant Shipping
Act may be paid in appropriate foreign currency. Remittances will be allowed
for meeting specific claims on application by the Insurers furnishing full details
of the claims.
PART C
REINSURANCE
As per the extant Govt.
of India’s instructions, reinsurance arrangements of the insurance companies
registered with IRDA are to be decided by the companies themselves on an annual
basis, which is to be approved by the respective insurance company’s Boards in
consultation with IRDA. Authorised dealer, designated by these insurance
companies may allow remittances falling due under such approved reinsurance
arrangements, by the insurers in accordance with the terms and conditions laid
down by their Boards.
Wherever local brokers
arrange the reinsurance on behalf of insurers, local brokers may remit the
premia through the branch of the authorised dealer designated by the insurance
company in terms of para c.1 above subject to the production of undernoted
documents:
(i) Relative debit notes from overseas
insurance company.
(ii) Detailed statement of premia settled by
the individual insurance company, along with a certificate to the effect that
the amount of reinsurance business is within the overall limit approved by the
insurance company’s Board and that the risks covered under the reinsurance
arrangements are within the scope of the Reinsurance Programme, approved by the
insurance company’s Board in consultation with IRDA.
(iii) A certificate from the Chartered
Accountant of the local broker, prepared on the basis of certificates and
statements obtained from the insurance companies, to the effect that the
proposed remittance of reinsurance premia sought, is in agreement with the
various statements/certificates obtained from the insurance company/companies.
PART D
FOREIGN
CURRENCY ACCOUNTS AND INVESTMENTS ABROAD
Insurers may open, hold
and maintain with a bank outside India foreign currency accounts for
facilitating transactions and expenses relating/incidental to general insurance
business undertaken in foreign countries in accordance with regulations laid
down in this Memorandum. Insurers should endeavour to keep in their foreign
currency accounts only the minimum balances required for normal business and
transfer to India regularly all surplus funds held at foreign centres.
Renewal of existing
investments, reinvestment of redemption proceeds of existing investments and
fresh investment out of funds abroad, in Government/semi-Government securities
and bank deposits may be made by Insurers freely without prior approval of
Reserve Bank, provided they are for meeting
statutory requirements in the foreign country concerned. All other investments will require
prior approval of Reserve Bank of India.