Chapter Introduction
This chapter aims to provide you with the understanding of importance of insurance regulations. This chapter also provides you with an understanding of the legal status of an insurance agent. You will also learn the various rules and regulations applicable to agents in general; and to insurance agents in particular.
Learning Outcomes
A. Importance of Insurance Regulations
B. Insurance Regulatory Framework - India
C. Regulations applicable to Insurance Agents
D. Insurance Intermediaries and their Roles
E. Indian Contract Act, 1972: Principal – Agent Relationship
After studying this chapter, you should be able to:
1. Illustrate the importance of insurance regulations
2. Explain the insurance regulatory framework of the country
3. Interpret regulations that apply to insurance agents
4. Appreciate code of conduct applicable to agents
5. Explain relevance of the Indian Contract Act, 1972 to insurance agents
A. Importance of Insurance Regulations
1. Importance of Insurance Regulations
An insurance agent should always bear in mind that she is selling a promise that the insurance company will pay a certain amount of money if a misfortune occurs. The insured person would undoubtedly have many worries about the insurance purchased.
Some common concerns of an insured would be:
a) Is insurance legal?
b) Are insurance agents recognised by law?
c) Are these insurance companies regulated or supervised?
d) Is the document given to me by the insurer legally valid?
e) Will the insurance company pay me the money if a loss happens?
f) Will they pay me the full money that I lose?
g) If I do not get a claim, can I go to court based on the documents they have given me?
h) Are there any hidden provisions in the insurance contract, whereby the insurance company can avoid paying me a claim?
i) Do I have to go through any complicated procedures to get my claim paid?
2. Need for insurance regulations
Why are insurance regulations required?
The prime purpose of insurance regulation is to protect the policyholder. The policyholder has paid the money and bought the insurance policy. She should be assured that the insurance policy she bought will be honoured by the insurance company.
a) First and foremost, an insured should understand that insurance is an absolutely legal contract, in compliance with the provisions of the Indian Contract Act and other laws of the country.
b) The Government is duty bound to protect all its citizens and all entities in the country through its legal and judicial systems.
Regulations made by IRDA are to ensure that insurance companies should exist as financially sound organisations to honour the contracts that they have entered into. IRDA regulates companies from their registration onwards and monitor all their major activities like investments, accounting etc.
Information
In specialised sectors of economy, the Government creates bodies to regulate the sector. Thus we have bodies like Reserve Bank of India (RBI) to regulate banks and the Securities and Exchange Board of India (SEBI) to regulate the capital market. Similarly, to regulate the insurance sector, the Government enacted the Insurance Act in 1938, which was amended from time to time to make it relevant to the changes in the industry.
Insurance Regulatory and Development Authority (IRDA) Act 1999, created the IRDA as an independent authority for the purpose of regulating the insurance industry.
All insurance policy wordings, rates and the documents issued by insurance companies are scrutinised and approved by IRDA. The advertisements issued by insurers are also regulated. There are guidelines regarding prompt settlement of claims, grievance handling systems in every company and at IRDA level to address complaints at the company and at IRDA level.
IRDA has issued directions to ensure that the insurance company targets rural areas of the country and weaker sections of the population equally. All people dealing with selling and servicing of insurance policies, viz. agents, corporate agents, brokers, surveyors, Third Party Administrators and insurance companies are licensed as well as regulated by IRDA as per various regulations.
Test Yourself 1
What is the primary purpose of insurance regulations?
I. To generate fee income
II. Protect the interests of policyholders
III. To settle customer disputes
IV. To control the market share of private insurers
B. Insurance Regulatory Framework - India
The Insurance Act, 1938 and the Insurance Regulatory and Development Authority, 1999 form the basis of insurance regulations in India. There are a few other legislations in the country that are directly or indirectly applicable to insurance business.
1. The Insurance Act, 1938
The Insurance Act, 1938 is the basic insurance legislation of the country, governing insurance business in India. It was created to protect the interest of insured population, with comprehensive provisions for effective control over the activities of insurers and came into effect on 1st July, 1939. This Act has been amended from time to time to strengthen the legal provisions of the Act.
The Insurance Act 1938 has provisions for monitoring and control of operations of insurance companies; some important sections of the Act are listed below:
a) Registration of insurance companies and renewal of registrations (Section 3 & 70)
b) Requirement to have sufficient capital for the company and to maintain solvency (Section 64 V)
c) Compulsion that assets of insurance companies should be invested only as per norms prescribed for the same (Section 27 & 85)
d) Requirement to maintain audit and submit returns to the regulator (Section 28)
e) Obligations of insurers towards the rural and social sectors (Section 32B & 32C)
f) Rules for assignment and transfer of policies and nominations (Section 38 & 39)
g) Limitations on the expenses of the management (Section 40)
h) Licensing of agents and their remunerations (Section 40 to 44)
i) Prohibition of using rebates as an inducement to any person to take, renew or continue an insurance policy in India (Section 41)
j) Solvency (Financial strength) of the insurance companies who meet all their commitments to policyholders (Section 64V)
k) Advance payment of premium (Section 64VB)
l) Need for survey of losses (Section 64UM)
2. The Insurance Regulatory & Development Authority Act, 1999
Insurance Regulatory and Development Authority (IRDA) was established in 2000 as an independent authority to regulate and develop the insurance industry by an act of Parliament, [namely Insurance Regulatory & Development Authority Act, 1999].
The preamble of the IRDA Act states:
“An Act to provide for the establishment of an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.”
IRDA has prescribed regulations for protecting the interests of policyholders stipulating obligations on both insurers as well as intermediaries. These regulations prescribe insurers‟ obligations at the point of sale, towards policy servicing, claims servicing, and control on their expenses, investment and financial strength to meet the commitments to policyholders.
3. Other Acts / Regulations linked to insurance
In addition, insurance business in India is linked to various other Acts /
legislations of the country, some of which are listed below:
a) The Workmen's Compensation Act, 1923 [amended and renamed as Employees Compensation Act in 2010] b) Employees‟ State Insurance Act, 1948 c) Life Insurance Corporation Act, 1956
d) Deposit Insurance and Credit Guarantee Corporation Act, 1961 e) Marine Insurance Act, 1963
f) Export Credit Guarantee Corporation Act, 1964
g) General Insurance Business (Nationalisation) Act, 1972
h) General Insurance Business (Nationalisation) Amendment Act, 2002 i) Motor Vehicles Act, 1988
j) Public Liability Insurance Act, 1991
Apart from these general laws, there are many regulations, orders and circulars issued by IRDA from time to time on specific matters relating to conduct of insurance business and policyholders protection.
Test Yourself 2
Which among the following activities is prohibited as per the provisions of Insurance Act, 1938?
I. Keeping aside reserves to meet solvency requirements
II. Using rebates as a tool to sell insurance policies
III. Prospecting customers
IV. Limiting management expenses
C. Regulations applicable to Insurance Agents
1. Regulations for insurance agents
As per the Insurance Act 1938(section 42), one must have a licence to work as an insurance agent. IRDA deals with issuance of licences and other matters relating to agents recruitment. There are regulations which must be complied with at all stages in the process. Some of the important provisions relating to agents stated in the Insurance Act 1938 and the Insurance Regulatory and Development Authority (IRDA) Act 1999 are discussed below:
a) The Insurance Act, 1938: An insurance agent has to be licensed under Section 42. Under the Section, an insurance agent receives or agrees to receive “payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance”.
b) An agent can be an individual agent or a corporate agent. An individual agent is an individual representing an insurance company while a corporate agent is other than an individual, representing an insurance company. IRDA has issued separate regulations for the different type of agents.
An agent can be issued licence for doing „Life‟ or „General‟ insurance or both. Insurance agents who hold licence to act as an agent for both a life insurer and a general insurer are called “Composite Insurance Agents”.
Agents for standalone health insurance companies
It has been decided by IRDA to waive mandated IC-34 certification for life insurance agents desiring to distribute products of a standalone health insurance company.
The standalone health insurers desirous of converting life insurance agents into composite agents to sell their products, based on IC-33 certification, can do so after making such agents undergo an internal training programme on health insurance, which shall cover the basics of health insurance, health insurance terminology, and products etc. for a minimum period of 25 hours.
However such composite agents shall not be allowed to transfer general part of their license to other non-life insurance company without completing IC-
34 certification. It has also been decided by IRDA to allow standalone health
insurance companies to avail the services of agents, corporate agents of other life and/or non-life insurance companies to distribute their products provided such agents and corporate agents undergo 25 hours training.
However, no agent or corporate agent of life and / or non-life insurance company shall offer his/her services to more than one standalone health insurance company. IRDA also recognises the fact that the Agriculture Insurance Corporation of India (AIC) is engaged in providing crop insurance with no conflict of interest or competition with the activities of any GIPSA company in the country.
Hence it has decided to permit Agriculture insurance company to distribute its own products by utilising the services of agents and corporate agents of other non-life insurance companies. The agents and corporate agents desiring to offer their services, shall submit "No Objection Certificate" obtained from their parent general insurer and enrol themselves with AIC for distributing its products.
A situation could arise wherein an agent or corporate agent works for three non-life insurers. Hence, in all such cases those agents shall achieve in full, the minimum business requirements laid down by their respective parent insurance companies.
In case they fail to achieve minimum business requirements laid by their parent insurers, they cannot seek transfer of their license to any one insurer to whom they are offering services in terms of the circulars and guidelines issued from time to time on transfer of licenses of agents from one insurer to other.
c) The Insurance Act, 1938 mandates that to work as an insurance agent, one must have a licence. Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000 and Insurance Regulatory and Development Authority (Licensing of Insurance Agents) (Amendment) Regulations, 2002 give detailed provisions relating to licensing of agents. These are available at the website of IRDA: www.irdaindia.gov.in.
Important
Adverse Selection (Anti-selection)
This denotes insurance firm's acceptance of applicants who are at a greater than normal risk (or uninsurable), but conceal/ falsify information about their actual condition or situation. Acceptance of their application has an 'adverse' effect on insurance companies, because normally insurance premiums are computed on the basis of policyholders being in average circumstances (E.g. Enjoying good health/ employed in non-hazardous environments.)
Agents represent insurance companies and they act as the main link between the insurance company and the insured. Their role is to recommend to clients the right products that address the clients‟ needs. At the same time, they must act in the interests of the insurance company by understanding the risk insured properly enough so as to avoid any adverse selection against the insurance company.
2. Rules governing licensing of insurance agents
Rules relating to issuance and renewal of licences to insurance agents and the procedures for obtaining the licence are stated in the Insurance Act and Regulations are summarised below:
a) Qualifications of the applicant
The applicant must possess the minimum qualification of a pass in 12th standard or equivalent examination conducted by any recognised Board/ Institution, where the applicant resides in a place with a population of five thousand or more as per the last census, and a pass in 10th standard or equivalent examination from a recognised Board / Institution if the applicant resides in any other place.
b) Disqualifications of the applicant
As per Section 42 subsection (4) of Insurance Act 1938, there are certain conditions that disqualify an applicant.
The applicant for agent licence is disqualified if he / she:
i. Is a minor,
ii. Is of unsound mind,
iii. Has been found guilty of criminal misappropriation or criminal breach of trust / cheating / forgery / abetment of / attempt to commit any such offence, by a court of competent jurisdiction,
iv. Has been found guilty of knowingly participating in or connived at any fraud, dishonesty or misrepresentation against an insurer or an insured,
v. [In the case of an individual] does not possess the requisite qualifications and practical training for a period not exceeding twelve months, as may be specified by the regulations made by the Authority,
vi. [In the case of a company or firm, if a director/ partner/ the chief executive officers/ other designated employees] does not possess the requisite qualifications and practical training and have not passed the prescribed examination
vii. Violates the code of conduct as specified by the regulations made by the IRDA
c) Practical training
i. The first time applicant for agency licence shall have completed from an IRDA approved institution, at least, fifty hours‟ practical training in life or general insurance business, which may be spread over two to three weeks.
ii. The first time applicant seeking licence to act as a composite insurance agent shall have completed from an IRDA approved institution, at least, seventy five hours practical training in life and general insurance business, which may be spread over two to three weeks.
iii. Where the applicant is
• An Associate / Fellow of the Insurance Institute of India,
• An Associate / Fellow of the Institute of Chartered Accountants of India,
• An Associate / Fellow of the Institute of Costs and Works Accountants of India,
• An Associate / Fellow of the Institute of Company Secretaries of India,
• An Associate / Fellow of the Actuarial Society of India,
• A Master of Business Administration of any Institution / University recognised by any State Government or the Central Government; or
• Possessing any professional qualification in marketing from any Institution / University recognised by any State Government or the Central Government and shall have completed, at least, twenty five hours‟ practical training from an approved institution.
d) Examination
The applicant shall have passed the pre-recruitment examination in life or general insurance business, or both, as the case may be, conducted by the Insurance Institute of India, Mumbai, or any other „examination body‟.
e) Fees payable
The fees payable to the Authority for issue / renewal of licence to act as insurance agent or composite insurance agent shall be Rs. Two Hundred and Fifty or as amended from time to time.
f) Procedure to apply for agent‟s licence
The licensing process usually starts with the insurer sponsoring a candidate for practical training. On completion of the mandated training, the applicant has to make an application in specified format for undergoing a written exam.
On clearing of her written exam, the applicant will make an application to the “designated person” of the sponsoring insurer. (“Designated person” means an officer normally in charge of marketing operations, as specified by an insurer, and authorised by the Authority to issue or renew licences under the regulations.).
Based on meeting all the above requirements and along with the evidence of payment of the application fees to the Authority, the designated persons will issue the licence, along with identity card. The licence is valid for a period of 3 years unless terminated or surrendered.
For any renewal of licence, the agent needs to undergo additional 25 hours of training in life or general as the case may be from an approved institution, if the designated person refuses to grant or renew a licence under this regulation, she shall give the reasons therefore to the applicant. The applications for licence to the „Designated person‟ should be in prescribed forms.
i. If the applicant is an individual, application should be in Form IRDA- Agents-VA
ii. If the applicant is a firm/company, application should be in Form IRDA- Agents-VC
To become a composite insurance agent, two separate applications have to be submitted. Licence issued entitles the applicant to act as insurance agent for one life insurer or one general insurer or both, as the case may be.
g) Cancellation of licence
The designated person may cancel a licence of an insurance agent, if the insurance agent suffers, at any time during the currency of the licence, from any of the disqualifications mentioned in the regulations and recover from her the licence and the identity card issued earlier.
h) Issue of duplicate licence
The Authority may issue a duplicate licence to replace a licence lost, destroyed, or mutilated on payment a fee of rupees fifty.
3. Agents‟ code of conduct
IRDA regulations stipulate that every person holding a licence as an insurance agent shall adhere to the code of conduct specified below:-
a) Every insurance agent shall
i. Identify herself / himself and the insurance company of whom she / he is an insurance agent;
ii. Disclose her / his licence to the prospect on demand;
iii. Explain carefully the requisite information in respect of insurance products offered for sale by her / his insurer and take into account the needs of the prospect while recommending a specific insurance plan;
iv. Disclose the scales of commission in respect of the insurance product offered for sale, if asked by the prospect;
v. Indicate the premium to be charged by the insurer for the insurance product offered for sale;
vi. Explain to the prospect the nature of information required in the proposal form by the insurer, and also the importance of disclosure of material information in the purchase of an insurance contract;
vii. Bring to the notice of the insurer any adverse habits or income inconsistency of the prospect, in the form of a report (called “Insurance Agent‟s Confidential Report”) along with every proposal submitted to the insurer, and any material fact that may adversely affect the underwriting decision of the insurer as regards acceptance of the proposal, by making all reasonable enquiries about the prospect;
viii. Inform promptly the prospect about the acceptance or rejection of the proposal by the insurer;
ix. Obtain the requisite documents at the time of filing the proposal form with the insurer; and other documents subsequently asked for by the insurer for completion of the proposal;
x. Render necessary assistance to the policyholders or claimants or beneficiaries in complying with the requirements for settlement of claims by the insurer;
xi. Advise every individual policyholder to effect nomination or assignment or change of address or exercise of options, as the case may be, and offer necessary assistance in this behalf, wherever necessary;
b) No insurance agent shall
i. Solicit or procure insurance business without holding a valid licence;
ii. Induce the prospect to omit any material information in the proposal form;
iii. Induce the prospect to submit wrong information in the proposal form or documents submitted to the insurer for acceptance of the proposal;
iv. Behave in a discourteous manner with the prospect;
v. Interfere with any proposal introduced by any other insurance agent;
vi. Offer different rates, advantages, terms and conditions other than those offered by her / his insurer;
vii. Demand or receive a share of proceeds from the beneficiary under an insurance contract;
viii. Force a policyholder to terminate the existing policy and to effect a new proposal from him within three years from the date of such termination;
ix. Have, in case of a corporate agent, a portfolio of insurance business under which the premium is in excess of fifty percent of total premium procured, in any year, from one person (who is not an individual) or one organisation or one group of organisations;
x. Apply for fresh licence to act as an insurance agent, if her / his licence was earlier cancelled by the designated person, and a period of five years has not elapsed from the date of such cancellation;
xi. Become or remain a director of any insurance company;
c) Every insurance agent shall
Every insurance agent shall with a view to conserve the insurance business already procured through him; make every attempt to ensure remittance of the premiums by the policyholders within the stipulated time, by giving notice to the policyholder orally and in writing. It means the agent should ensure that premium is paid well in advance on renewal or else the risk will not be assumed by the insurer.
4. Prohibition of rebates
No intermediary is allowed to induce anyone to take a policy. Section 41 of the Insurance Act, 1938 is hence an important section for an insurance agent. It reads as follows:
Section 41 of the Insurance Act, 1938
“41. (1) No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer;
Provided that acceptance by an insurance agent of commission in connection with a policy of life insurance taken out by herself / himself on her / his own life shall not be deemed to be acceptance of a rebate of premium within the meaning of this sub section if at the time of such acceptance the insurance agent satisfies the prescribed conditions establishing that she / he is a bona fide insurance agent employed by the insurer.”
“41. (2) Any person making default in complying with the provisions of this section shall be punishable with fine which may extend to five hundred rupees.”
This states that an agent cannot offer any rebates on premium as an inducement to the policyholder, except as allowed by the insurer.
Test Yourself 3
Insurance agents who hold licence to act as an agent for both a life insurer and a general insurer are called _______________.
I. Common insurance agents
II. Composite insurance agents
III. Multiple insurance agents
IV. General insurance agents
D. Insurance Intermediaries and their Roles
1. Other insurance intermediaries
Apart from the agents, there are other insurance intermediaries like corporate agents including banks and brokers who intermediate between the customer and the insurance company.
a) Corporate agents
Like individual insurance agents, corporate agents are also licensed by the IRDA and governed by the Insurance Regulatory and Development Authority (Licensing of Corporate Agents) Regulations, 2002. An agent represents only one insurance company (one general, one life or both if a composite agent, apart from a health insurance company).
b) Insurance brokers:
These are licensed by the IRDA and governed by the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002. These regulations lay down the code of conduct for the respective intermediaries. An insurance broker is licensed by IRDA to arrange insurance contracts with insurance companies on behalf of clients. A broker may deal with more than one life insurance company or general insurance company or both.
c) Surveyors and third party administrators:
These are intermediaries who are not involved in procurement of business. Surveyors assess losses on behalf of the insurance companies or insured. Third party administrators provide services related to health insurance for insurance companies.
Test Yourself 4
Which of the below intermediary is not involved in procurement of business?
I. Insurance brokers
II. Individual agents
III. Surveyors
IV. Corporate agents
E. Indian Contract Act, 1972: Principal – Agent Relationship
An insurance contract is an agreement between the insurer and the insured and falls under the provisions of the Indian Contracts Act, 1872.
The contract of insurance
Definition
A contract of insurance is an agreement whereby one party, called the insurer, undertakes, in return for an agreed consideration, called the premium, to pay the other party, namely, the insured, a sum of money or its equivalent in kind, upon the occurrence of a specified event resulting in loss to her / him.
Insurance contracts, like other contracts, are governed by the general principles of the law of contract as codified in the Indian Contract Act, 1872. (This has been discussed in Chapter 2).
In addition to the general principles of law, insurance contracts are also governed by certain special principles evolved under common law and later codified in the Marine Insurance Act, 1963. The legal principles applicable to insurance contract are dealt in Chapter 2.
Information
Relevance of Sale of Goods Act, 1930 to Insurance Agents
Though basic provisions of Contract Act apply to contract of sale of goods also, Sale of Goods is considered one of the special types of Contract. Hence, the Sale of Goods Act 1930 is complementary to the Contract Act 1872.
“Caveat Emptor”:
The principle termed as „caveat emptor‟ means „buyer be aware‟ or “Buyer Beware”. Generally, the buyer is expected to be careful while purchasing the goods and seller is not liable for any defects in goods sold by her / him.
References to the Sale of Goods Act as also the principle of „caveat emptor‟ are usually made in the context of Marine Cargo insurances.
Information
Annexure A The Indian Contract Act, 1872 – Excerpts from Chapter X – Agency
[The contents of this annexure are general in nature and applicable to agents, in general. Specific Rules applicable to insurance agents are detailed in IRDA Agents
a) "Agent" and "principal" defined – Section 182
An "agent" is a person employed to do any act for another, or to represent another in dealing with third persons. The person for whom such act is done, or who is so represented, is called the "principal".
b) Who may employ „agent‟ – Section 183
Any person who is of the age of majority according to the law to which she / he is subject, and who is of sound mind, may employ an agent.
c) Who may be an „agent‟ – Section 184
As between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and sound mind can become an agent, so as to be responsible to the principal according to the provisions in that behalf herein contained.
d) Extent of agent's authority – Section 188
An agent, having an authority to do an act, has authority do every lawful thing which is necessary in order to do so such act. An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.
e) When agent cannot delegate – Section 190
An agent cannot lawfully employ another to perform acts which she / he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature or agency, a sub-agent must, be employed.
f) Termination of agency – Section 201
An agency is terminated by the principal revoking her / his authority, or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.
g) Agent's duty in conducting principal's business – Section 211
An agent is bound to conduct the business of her / his principal according to the directions given by the principal, or in the absence of any such directions according to the customs which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, she / he must make it good to her / his principal and if any profit accrues, she / he must account for it.
h) Skill and diligence required from agent – Section 212
An agent is bound to conduct the business of the agency with as much skill as is generally possessed by person engaged in similar business unless the principal has notice of her / his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as she / he possesses; and to make compensation to her / his principal in respect of the direct consequences of her
/ his own neglect, want of skill, or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill,
or misconduct.
i) Agent's accounts – Section 213
An agent is bound to render proper accounts to her / his principal on demand.
j) Agent's duty to communicate with principal – Section 214
It is the duty of an agent in case of difficulty, to use all reasonable diligence in communicating with her / his principal, and in seeking to obtain her / his instructions.
k) Right of principal when agent deals, on her / his own account, in business of agency without principal's consent – Section 215
If an agent deals on her / his own account in the business of the agency, without first obtaining the consent of her / his principal and acquainting her / his with all material circumstances which have come to her / his own knowledge on the subject, the principal may repudiate the transaction, if the case shows, either that any material fact has been dishonestly concealed from her / his by the agent, or that the dealings of the agent have been disadvantageous to her / him.
l) Principal's right to benefit gained by agent dealing on her / his own account in business of agency – Section 216
If an agent, without the knowledge of her / his principal, deals in the business of the agency on her / his own account instead of on account to her / his principal, the principal is entitled to claim from the agent any benefit which may have resulted to her / his from the transaction.
m) Agent not entitled to remuneration for business misconduct – Section 220
An agent, who is guilty of misconduct in the business of the agency, is not entitled to any remuneration in respect of that part of the business which she / he has misconduct.
n) Agent to be indemnified against consequences of acts done in good faith - Section 223
Where one person employs another to do an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act, though it may cause an injury to the rights of third persons.
Test Yourself 5
What does the term “Caveat Emptor” mean?
I. Buyer beware
II. Seller beware
III. Insurance buyer beware of miselling
IV. Insurance agent beware of customer requirement
Summary
a) The prime purpose of insurance regulations is to protect the policyholder.
b) Insurance Regulatory and Development Authority (IRDA) Act 1999, created the IRDA as an independent authority for the purpose of regulating the insurance industry.
c) The Insurance Act, 1938 has provisions for monitoring and control of operations of insurance companies.
d) An individual agent is an individual representing an insurance company while a corporate agent is other than an individual, representing an insurance company.
e) Insurance agents who hold licence to act as agent for both a life insurer and a general insurer are called composite insurance agents.
f) The first time applicant for agency licence shall have completed from an IRDA approved institution, at least, fifty hours‟ practical training in life or general insurance business.
g) If the insurance agent suffers, at any time during the currency of the licence, from any of the disqualifications mentioned in the regulations, then her / his license can be cancelled.
h) An agent cannot offer any rebates on premium as an inducement to the policyholder, except as allowed by the insurer.
Key terms
a) Agent
b) Rebate
c) Intermediaries
d) Caveat Emptor
Answers to Test Yourself
Answer 1
The correct option is II.
The primary purpose of insurance regulations is to protect the interests of policyholders.
Answer 2
The correct option is II.
Using rebates as a tool to sell insurance policies is prohibited under Insurance
Act 1938.
Answer 3
The correct option is II.
Insurance agents who hold licence to act as an agent for both a life insurer and a general insurer are called composite insurance agents.
Answer 4
The correct option is III.
Surveyors are not involved in procurement of insurance business.
Answer 5
The correct option is I.
The principle of “Caveat Emptor” implies buyer beware.
Self-Examination Questions
Question 1
Moral hazard means:
I. Dishonesty or character defects in an individual
II. Honesty and values in an individual
III. Risk of religious beliefs
IV. Hazard of the property to be insured
Question 2
Insurance agent represents the _____________.
I. Insurance company
II. Sub-agent
III. Co-agent
IV. Broker
Question 3
Licence to work as an insurance agent is issued by ______________ .
I. General Insurance Corporation (GIC)
II. Insurance Regulatory & Development Authority (IRDA)
III. By the respective life insurance company
IV. Finance Ministry
Question 4
Agent‟s licence is to be renewed ______________ .
I. Every year
II. After 5 years
III. After 3 years
IV. After 15 years
Question 5
Identify the statement which is not correct. Insurance agent should ______________ .
I. Indicate the scale of commission if asked by the customer
II. Share the commission by way of rebate
III. Disclose his licence on demand
IV. Indicate the premium to be charged
Question 6
Rs._______________ is the fees payable to the Authority for issue / renewal of licence to Act as an Insurance Agent or Composite Insurance Agent.
I. 250
II. 150
III. 520
IV. 100
Question 7
The Authority may issue duplicate licence in case it is ________________.
I. Lost
II. Revoked
III. Suspended
IV. Withdrawn
Question 8
If an agent is found guilty of criminal misappropriation, the designated person will ______________.
I. Cancel the licence
II. Issue a duplicate licence
III. Renew the existing licence
IV. Take some fees from the agent
Question 9
Minimum qualification required for an insurance agent is ___________ pass.
I. Graduate
II. 10th
III. Post-Graduate
IV. 7th
Question 10
_______________
may deal with more than one Life Insurance Company or general insurance company or both.
I. Agent
II. Broker
III. Corporate agent
IV. Retail agent
Answers to Self-Examination Questions
Answer 1
The correct option is I.
Applicant shall complete 50 hours training to become an insurance agent.
Answer 2
The correct option is I.
Insurance agent represents the insurance company.
Answer 3
The correct option is II.
Licence to work as an insurance agent is issued by the IRDA.
Answer 4
The correct option is III.
Agent‟s licence is to be renewed every three years.
Answer 5
The correct option is II.
Insurance agent cannot share commission through rebates.
Answer 6
The correct option is I.
Rs. 250 is the fees payable to the Authority for issue/ renewal of licence to act as an insurance agent or composite insurance agent.
Answer 7
The correct option is I.
The Authority may issue duplicate licence in case it is lost.
Answer 8
The correct option is I.
If an agent is found guilty of criminal misappropriation the designated person will cancel the license.
Answer 9
The correct option is II.
Minimum qualification required for an insurance agent is 10th pass.
Answer 10
The correct option is II.
An insurance broker may deal with more than one life insurance company or general insurance company or both.