MODULE IV Legal Aspects of insurance-Insurance Act1938-Indian Contract Act-Consumer Protection Act 1986-Insurance ombudsman-Contract of agency-Special principles of insurance contracts including reinsurance and double insurance LEGAL FRAMEWORK OF INSURANCE BUSINESS Insurance is made available to the public through the medium of contracts that detail the rights and duties of the parties to the insurance agreement. These contracts may range from implied or oral agreements, to formal written contracts issued by companies. Most of the insurance contracts are expressed in writing even when an oral binder initiates the transaction. Insurance contracts are complicated because of the technical nature of the subject matter, the statutory requirement that certain language be employed, and the need to avoid terms that may be construed as ambiguous. However, the need for legal clarity may lead to a contract that is beyond the comprehension of the typical insurance consumer. Furthermore, the technical nature of many contracts often distracts from the mutual understanding of its terms by the parties to the contract. Insurance contract can broadly be classified into two categories (a) life and (b) non-life insurance. The subject matter of life insurance is life of the assured. In a life policy the life is covered for a certain amount which is payable on the maturity of the policy or on the death of policyholder which is earlier. The amount is payable on death to the nominee/legal heir of the deceased. Non-life insurance can again be categorised according to the uncertainties and events covered by the respective policies. Some examples of non-life insurance policies are householders insurance and fire insurance. Personal accident insurance is linked to human life hence would not strictly fall in the category1 of non-life insurance though the characteristic of uncertainty which attracts to non life insurance is manifested even in personal accident and medical insurance policies respectively. The primary law governing contracts of insurance is the Indian Contract Act, 1872. However, there many issues not covered by the said Act. This may relate to torts, consumer rights, transfer of property, agency issues etc. Torts and Crimes Torts A tort is a private wrong. It occurs whenever someone acts or fails to act in such a manner that an individual's peace of mind or right are jeopardized. It refers to any individual's action that effectively deprives another of his right to security of person, reputation, or property. Torts differ from crimes in that the latter are public wrongs. A crime is any act that the 1
Transcript
1. The primary law governing contracts of insurance is the
Indian Contract Act, 1872.However, there many issues not covered by
the said Act. This may relate to torts,consumer rights, transfer of
property, agency issues etc.MODULE IVTorts and CrimesLegal Aspects
of insurance-Insurance Act1938-Indian Contract
Act-ConsumerProtection Act 1986-Insurance ombudsman-Contract of
agency-Special principles ofTortsinsurance contracts including
reinsurance and double insuranceA tort is a private wrong. It
occurs whenever someone acts or fails to act in such amanner that
an individuals peace of mind or right are jeopardized. It refers to
anyLEGAL FRAMEWORK OF INSURANCE BUSINESS individuals action that
effectively deprives another of his right to security of
person,reputation, or property. Torts differ from crimes in that
the latter are public wrongs.Insurance is made available to the
public through the medium of contracts that detail A crime is any
act that the legislature determines to be punishable by law. The
samethe rights and duties of the parties to the insurance
agreement. These contracts mayact may include all of the elements
of a particular tort and a particular crime, inrange from implied
or oral agreements, to formal written contracts issued bywhich case
there exists a public remedy in the form of punishment prescribed
by lawcompanies.and a private remedy that is often in the form of
monetary damages.Most of the insurance contracts are expressed in
writing even when an oral binder Torts are important in insurance
because they are a major source of loss covered byinitiates the
transaction.liability insurance. The automobile insurance policy is
essential because it providesfor payment of judgments awarded by
the courts in negligence cases as well as theInsurance contracts
are complicated because of the technical nature of the subjectcosts
of litigation or claims settlement. The comprehensive- personal
liabilitymatter, the statutory requirement that certain language be
employed, and the need toinsurance policy covers losses arising
from negligent conduct unrelated to the care,avoid terms that may
be construed as ambiguous. However, the need for legal
claritycustody, or control of the automobile or to business
pursuits. The comprehensivemay lead to a contract that is beyond
the comprehension of the typical insurancegeneral liability
insurance policy covers losses occurring as a direct result
ofconsumer. Furthermore, the technical nature of many contracts
often distracts fromnegligence in many business-situations.the
mutual understanding of its terms by the parties to the
contract.CrimesInsurance contract can broadly be classified into
two categories (a) life and (b) non-life insurance. The subject
matter of life insurance is life of the assured. In a lifeSometimes
that are recognized by statute are specific to insurance, while
others arepolicy the life is covered for a certain amount which is
payable on the maturity of therelevant to insurance law because
they are crimes committed to obtain funds illegallypolicy or on the
death of policyholder which is earlier. The amount is payable
ondeath to the nominee/legal heir of the deceased.from insurance
companies. A few example of crimes are:Non-life insurance can again
be categorised according to the uncertainties and events a)
Rebating : passing of commission/incentives by agents to
prospectivecovered by the respective policies. Some examples of
non-life insurance policies are insureds to purchase on insurance
policy.householders insurance and fire insurance. Personal accident
insurance is linked tohuman life hence would not strictly fall in
the category1 of non-life insurance thoughb) Twisting : inducing an
individual to terminate are life insurance policy inthe
characteristic of uncertainty which attracts to non life insurance
is manifested order to buy another to the disadvantage of the
insured.even in personal accident and medical insurance policies
respectively.c) Filing of false claims : attempt to collect money
from an insurance company when there is no loss or the padding or
inflation of claims by procuring 1
2. excessive and fraudulent estimates of damages. Unlicensed
insurance e) Possibility of performance etc. activity :d)
Unlicensed person engaging in any insurance transaction that
requires licensing (guilty of a misdemeanor).Offer and Acceptancee)
Defamation : publication of material that might tend to lessen
public The offer for entering into insurance contract generally
come from the insured confidence in the institution of insurance.
(proposer). The insurance company may also propose to make the
contract. In order to constitute a valid acceptance, offer and its
acceptance must fulfil the requirementsf) Asson : felonious burning
of property of another to defraud an insuranceas prescribed by the
Indian Contract Act, 1872. Whether the offer is made by the
company.insurer or insured, the moot point is acceptance.g)
Homicide : when the beneficiary of a life insurance policy swindles
the Any act that precedes it is an offer or a counter-offer. All
that precede the offer or insured for the purpose of obtaining the
proceeds of the policy or otherwise. counter-offer is an invitation
to offer. In insurance, the publication of prospectus, the
canvassing of the agents are invitations to oiler. When the
proposer proposes to enterh) Breach of trust: agents using or
mingling the clients insurance premiums the contract it is an offer
and if there is any alteration in the offer that would be a with
their own funds. counter-offer. If this alteration or change
(counter-offer) is accepted by the proposer, it would be an
acceptance. In absence of counter-offer, the acceptance of offer
willi) Unfair discrimination: charging of different rates by a
single insurance be an acceptance by the insurer. At the moment,
the notice of acceptance is given to company to similar risk class.
other party, it would be a valid acceptance.j) Conspiracy :
dishonest agent conspires with his client to defraud the On
acceptance of the proposal by the insurer, a valid and binding
contract comes into insurance company by misrepresentation, by
filing false claims or falsifying existence. If the insurer
indicates a higher premium than the normal as per proposal
documents. or conditions of acceptance are different from the
standards ones, such indicationINDIAN CONTRACT ACT, 1872tantamount
to a counter-offer which the proposer may or may not accept. It is
necessary that in order to make a binding contract of insurance,
the parties mustInsurance contracts are agreements between
insurance companies and insured for the agree upon every material
term affecting the agreement.purpose of transferring from insured
to the insurer a part of the risk of loss arisingout of contingent
event. Therefore all the provisions of Indian Contract Act, 1872,
in In case of Life insurance a valid and binding contract comes
into existence upongeneral are applicable to insurance contracts.
Under Section 10 of the Indianpayment of first premium. When a
proposal form duly filled in by the proposer isContract Act,
following conditions are necessary to. form a valid
contract:accepted by the insurer, the acceptance communicated to
the proposer is in reality a counter-offer indicating that the
proposal will be accepted on payment of thea) Agreement between two
parties premium and communication of the assent of the proposer 10
special terms, if any. Unless the proposer assents to or complies
with the terms of insurer no contractb) Lawful object . would come
into existence.c) Capacity to contractEvery contract of insurance
must be in writing and must comply with the provisions of the
Indian Stamp Act. An oral or informal contract gives the insured a
right to calld) Consideration.2
3. for a stamped policy, even after the loss insured against
has occurred in view of theIndian Stamp Act, 1899.An issuance of a
policy may some time takes time after acceptance of risk in view
ofunderwriting and administrative procedures. The issuers may issue
a cover note for aConsiderationstipulated period which is also a
valid evidence of contract.For insurance contracts, consideration
is in the form of premium to be paid by theLegal Objectinsured and
a promise to pay, compensate or indemnify in accordance with the
termsand conditions incorporated in the policy, on the part of the
insurer! A premium isFor a valid contract, the object of the
agreement should be lawful and must not bethe price for the risk
undertaken by the insurers. It is the consideration receivable
byprohibiled by any law. Any subject matter of contract that is (fj
not forbidden by law, the insurers from the insured in exchange for
their undertaking lo pay the sumor (11) is not immoral, or (hi)
opposed lo public policy, or (in) which does not defeat insured in
ease the event insured against takes place.the provisions of any
law, is lawful. The subject matter of insurance in the proposalform
and also the consideration should be legal. If there is any
contract to defraudAmount of premium is not the criteria, but a
contract without payment of premium isthe insurer rather than based
on round principles of indemnity, the contract is void.
void.Mistake and Misrepresentation Free ConsentA contract of
insurance is a contract uberrimae fidei, i.e., is based on the
principle of Parties entering into the contract should enter into
the contract by their free andutmost good faith. If utmost good
faith is not observed by either party insurer orgenuine consent.
The consent shall be free with it is not caused by : (i) coercion,
(2)insured the contract may be avoided by the other. undue
influence, (3) fraud, or (4) misrepresentation, or (5) mistake.
When there is nofree consent except fraud the contract becomes
voidable at the option of the partyCapacity to Contractwhose
consent was so obtained. In ease of fraud, the contract would be
void. Theproposal for free consent, must sign a declaration to this
effect, the person explainingThe rules laid down under the Indian
Contract Act, 1872, defining the contractual the subject-matter of
the proposal to the proposer must also accordingly make acapacity
of the parties apply generally to insurance contracts in the same
manner aswritten declaration on the proposal.they apply to other
types of contracts.The proposer must full disclose all material
information and sign a declaration in theEvery person is competent
to contract (a) who is of the age of majority according toproposal.
Also, the insurer must full disclose the product details to the
proposer.the law, (6) who is of sound mind, and (e) who is not
disqualified from contractingby any law to which he is
subject.Examples of Material Circumstances in Marine InsuranceThe
capacity of an insurer to enter into contracts of insurance depends
upon its1. Concealing the nationality of the insured when such
nationality is ofconstitution.importance [Associated Oil Carriers
Ltd. v. Union Ins. Society of Canton (1917) 2 K.B. 184].A minor is,
therefore, incompetent to contract, and a contract with a minor is
anullity; but under certain circumstances, an insurer may issue a
policy on the life of a2. The fact that the ship had developed a
leak before the insurance wasminor. Under the system of deferred
assurance policies, the insurance contract iseffected [Russel v.
Thorton 1859 20 L.R. Ex. 9].with a parent or legal guardian, who is
competent to contract.3. The fact that the goods carried on the
ship arc grossly over-valued when the ship is insured. [Ionidies v.
fender (1874) L.R. 7. Q.B. 531].3
4. Discharge of Contract Insurance Act, 1938A contract
terminates in the following situations :Insurance Act, 1938 is the
primary law that governs the insurance business in India.It
provides for the registration and licensing of insurers, payment of
premiums,1. Performance : When all the terms of the contract in
terms of performance alteration and other policy matters, powers of
governments, accounts, audit and other have been carried out.
Payment of premium and payment of claim byreporting requirements,
mode of deposits and investments, constitution of claim respective
parties.settlement authorities.2. Release : When one party to the
contract agrees to excuse performance by Insurance Regulatory and
Development Authority Act, 1999 the other party after breach of the
contract by the latters. Denial of a claim by insured on account of
fraud.The Insurance Regulatory and Development Authority Act, 1999
provides for theestablishment of an Authority to protect the
interests of holders of insurance policies,3. Discharge : (a)
Discharge by implied consent or impossibility of to regulate,
promote and ensure orderly growth of the insurance industry and for
performance: The law does not compel a man to do the impossible
thing. matters connected therewith or incidental thereto and
further to amend the Insurance Contract is discharged when
performance becomes impossible:Act, 1938, the Life Insurance
Corporation Act, 1956 and the General InsuranceBusiness
(Nationalisation) Act, 1972. i.Due to destruction of the
subject-matter;ii.Due to death or incapacity of the promisor in a
contract for personalCONSUMER PROTECTION ACT 1986 (COPA)
services;1. Under this Act, a consumer, as an individual or along
with other individuals, iii.Due to subsequent change of
legislation;or through a consumer organisation, can approach the
various forumsiv.Due to non-existence or cessation of a state of
affairs, the existence or prescribed under the Act for redress, in
case he is not satisned with the goods continuance of which formed
the basis of the contract; andor service .provided. He has to
allege a defect m goods or service. A defect or deficiency is a
fault, imperfection shortcoming or inadequacy in the quality,v. Due
to such an alternation of circumstances as to bring about
completenature or manner of performance, which is required to be
maintained by or frustration of the commercial object. under any
law or in pursuance of a contract or undertaking in relation to
that(b) Discharge by tender :Where on party is ready and williny to
perform hisservice.promise and has offered lo do so at the right
time and place, hut the other party does2. In order to attend to
complaints under this Act, consumer dispute redressalnot accept
performance, Ihe contract is discharged by lender or attempted
forums are established in each district and for each State. The
forum at theperformance.district level will hear complaints up to
the value of Rs.20,00,000 and the forum at the State level will
hear complaints up to the value of Rs.4. Void Contracts : When an
agreement is discovered to be void. 1,00,00,000. The National
Commission will attend to matters beyond the5. Breach of Contract :
When a contract has been broken. Where the insured has jurisdiction
of the State forums and also appeals against the decisions of
acommitted such a breach the insurer can terminate the contract of
insurance. State forum.3. The COPA applies to the insurance
business as well. Policyholders . have the6. Novation : If the
parties to a contract for it or rescind or later it, the original
right to seek redress against unfair practices or unsatisfactory
service fromcontract need not be performed.insurers and from
agents. The majority of disputes relating to insurance arise out of
repudiation and delays in claims. On all these matters, agents can
help a4
5. great deal to mitigate the complaint or grievance. A written
presentation is aentered into and the acts done by the principal in
person". A contract of agency maysure method of ensuring that the
correct information is given. Delays in office be made in writing
or verbally. When it is in writing, it is in the form of power
ofprocedures can be avoided through the agents personal
intervention. Such attorney. Following provisions are worth
noting:delays occur often due to non-compliance with requirements
or ambiguity intitle. If due care is taken -at the time of proposal
and all material informationAn agent cannot lawfully employ another
to perform acts, which he hassupplied, there cannot be a
repudiation of a claim.expressly or implied undertaken to perform
personally, unless by ordinary custom of trade or from the nature
of the agency, a sub-agent must beThe Consumer Protection Act,
1986employed. This involves the general maxim of law that a
delegatee cannot further sub-delegate. A "sub-agent" is a person
employed by, and actingThe Act applies to all goods and services
unless specifically exempted by Cenlral under the control of, the
original agent in the business of the agency.Government. The
provisions of the Act are compensatory in nature. Where a sub agent
is properly appointed, the principal is, represented by theIt
enshrines the following rights of the consumers:sub-agent and is
bound by and responsible for his acts as if he were an agent
originally appointed by the principal. i. The right to be protected
against the marketing of goods which arehazardous of life and
properly;The agent is responsible to the principal for the acts of
the sub-agent.ii. The right to be informed about the quality,
quantity, potency, purity, The sub-agent is responsible for his
acts to the agent, but not to thestandard and price of goods so as
to protect the consumer against unfair principal, except in cases
of fraud of wilful wrong.trade practices; If an agent does
something on behalf of the principal but without his iii. The right
to be heard and to be assured that consumers interest will receive
knowledge or authority, the principal may elect to ratify the
action or todue consideration at appropriable forum: disown it. A
principal ratifying any unauthorized act done on his behalf iv.The
right to seek redressal against unfair trade practices or
unscrupulous ratifies the whole of the transaction of which such
act formed part.exploitation of consumers;In an agent deals on his
own account in the business of the agency, without firstv.The right
to consumer education.obtaining the consent of his principal and
acquainting him with all materialcircumstances which have come on
his own knowledge on the abject, the principalUnder Section 2(e) of
the Act, the insurance is recognised as services. Chapter 32 of may
repudiate the transaction, if the case shows either that any
material fact has beenthe Act elaborates various" consumer
rights.is honestly concealed from him by the agent or that the
dealings of the agent havebeen disadvantageous to him.AgencyIf an
agent does a criminal act, the principal is not liable to the
agent, either upon anThe law relating to agency is part of the
Indian Contract Act. An agent is defined asexpress or an implied
promise, to indemnify him against the consequence of that act."a
person employed lo do any act for another, or lo represent in
dealings with thirdpersons." Where an agent does more than he is
authorized to do, and what he does beyond thescope of his authority
cannot be separated from what is within it, the principal is notThe
person for whom such an act is done or who is so represented is
called thebound to recognise the transaction.Principal. Section 226
of the Contract Act states that "Contracts entered into throughan
agent, an obligation arising from acts done by an agent, may be
enforced in thesame manner, and will have the same legal
consequences as if the contracts has been 5
6. In the absence of any contract to that effect, an agent
cannot personally enforce (c) Unilateral : After the insured pays
Ihe premiums the performance is obligatorycontracts entered into by
him on behalf of his principal nor is he personally bound byon one
fiarty, i.e. the insurer.them.(d) Aleatory : performance is
conditioned upon an event that may or may notTermination of Agency
: An agency is terminated by the principal revoking his
happenauthority; or by the agent renouncing the business of the
agency; or by the businessof the agency being completed; or on the
death of either the principal or the agent.Elements of Insurance
ContractAgents Duty : An agent is bound to conduct the business of
his principal according The four basic elements to every insurance
contract are:to the directions given by the principal, or in the
absence of any such directions,A. Application : An application is
required for every contract of insurance. Inaccording to the custom
which prevails in doing business of the same kind at the the
application, which is an offer to enter into a contract, the
prospectiveplace where the agent conducts such business. When the
agent acts otherwise and insured sols forth the facts and figures
required by the insurance carrier1!,any loss is caused, he must
make it good to his principal, and if any profit accrues, he
underwriting department. The application may be brief and oral, or
of anymust account for it. length and in written form. In life
insurance, the application itself becomesMisrepresentations made or
frauds committed by agents acting in the course of theira part of
life contract.business for their principals have the same effect on
agreement made by such agentsB. Binders : A binder is a memorandum
specifying some of the details of theas if such misrepresentations
or frauds has been made or committed by the property or liability
policy to be issued by the company. It is memorandumprincipals; but
misrepresentations made or frauds committed by agents in matters of
insurance issued pending delivery of the formal policy. The binder
maywhich do not fall within their authority, do not affect their
principals. be oral or written and may be given either by an agent
or a company. AINSURANCE CONTRACTS - IMPORTANT FEATURES broker, not
being an agent of an insurance company, cannot issue binders. The
binder is usually a temporary document and ordinarily would remain
inThe principal functions of an insurance contract are : force no
more than ten days. For example, in automobile insurance a car
buyer wants immediate coverage. By binding the insurance company to
the(1) to define the risk that is to be transferred risk, the agent
need not wait for the insurance to become effective.(2) to state
the conditions under which the contract applies and Binders are not
used in life insurance. Given the long term nature of the(3) to
explain the procedure for settling losses.contract and the insurers
inability to cancel a life insurance policy, the life insurer
requires an opportunity to examine the application (and possible
theNature of Contract applicant) before being bound to a lifetime
contract. However, in place of binders the life insurance agent can
provide the applicant with a receiptAn insurance contract as four
attributes:(assuming the first premium installment is paid) that
will provide varying insurance benefits depending on the nature of
the receipt.(a) Entirety : all the terms and conditions are to be
found in the policy document. Ifthe terms and conditions are oral
or not stated explicitly they are difficult for parties C. Policy
Forms : are formal written contract of insurance that sets forth
all ofto prove.the terms of the agreement. The policy had two
parts:(b) Personal : the contact follows the person, the insured,
rather than property. 6
7. i.Heading : It is the declaration page and identifies the
risk by specifying thethat Act and is paid by way of commission or
otherwise, in consideration of name of the issued, the address
location of the risk, period covered by the his soliciting or
procuring insurance business, including business relating to
policy, description of the subject being insured, the amount of
insurance the continuance, renewal or revival of policies of
insurance. He is, for all the amount of the premium, and any
warranties of representations made bypurposes, an authorized
salesman for insurance and needs a licence.. the insured,2. As
stated above, an agent is one who acts on behalf of another. The
anotherii.Body : It is the contract itself containing the various
clauses pertaining to on whose behalf the agent acts, is called the
principal. The insurance agreements exclusion and condition.
company is the principal in this case. The lawyer is the agent of
the client, when he argues the case in court. An ambassador is an
agent of his country. iii.Back : It specifies the rights of the
insured and the duties of the insurer. The agent represents the
principal and acts on his behalf. Some insurers The condition, and
.stipulations define the rights and duties of the parties designate
their agents as advisors, consultants etc., as if they are aside
from injury agreement. independent persons. It is the nature of the
function, which determines the Standardization of policy forms is
an ongoing process, and most insurance relationship of agency, not
the designation. An independent advisor or contracts have uniform
language for the greater part of their terms. Such consultant would
not be appointed by an insurance company. He would be
standardisation makes possible economies of operation,
statisticalknowledgeable enough as a person to be approached for
advice or uniformity, and better communication between the insured,
his agent, andconsultation. Some insurance agents may ll insurance
agents should strive the insurance company. Where language has been
standardised,to attain that acquire status. determination of the
meaning of the words and phrases by the courtsAGENTS REGULATIONS
reduces the chance a misunderstanding.iv. Endorsement : An
endorsement is a form that is used to modify the policy3. The
Insurance Act requires that an insurance agent must have a licence.
The contract Endorsements may extend or restrict coverage, permit
transfers ofauthority to implement the provisions of the Insurance
Act, including interest in properly, transfer coverage, transfer
coverage from one place tomatters relating to the issue of licences
to agents, is the 1RDA, constituted another, increases or decreases
limits of coverage, provide tor assignmentby the IRDA Act of 1999.
The IRDA had issued the IRDA (Licensing of of policies or changes
in beneficiary designations, provide for changes inInsurance
Agents) Regulations, 2000, dealing with the issue of licences and
settlement options elected, or in any other legal manner permit
other matters relating to agents. The Regulations are reproduced in
full at amendments to the contract. the end of this course and form
part of the study material. The various forms, which are part of
the Regulations, have been omitted. The can beEndorsement are
usually done by party forms or by embossing through obtained from
the insurers offices as and when required. rubber stamps of the
desired alteration.INSURANCE AGENCY4. By another notification in
October 2002, the IRDA (Licensin Corporate Agents) Regulations,
2002 were issued. These Regulaf deal with the issueDEFINITION OF AN
AGENT of licences and other matters relating to corporate agents,
like companies, firms, banks, cooperative societies, etc., are not
individuals and can also 1. According to Section 182 of the Indian
Contracts Act, an agent is a person become agents. As per the
guidelin issued by the IRDA on 14.7.2005, aemployed to do any act
for another or to represent another in dealing with a corporate
agent should normal! be a company whose principal businessthird
person. In the insurance industry, the term agent is ordinarily
appliedshould be something other than distribution of insurance
products, the latterto a person engaged by the insurer to procure
new business. The Insurancebeing a subsidiary activity Exceptions
to the above requirement may beAct defines an insurance agent as
one who is licensed under Section 42 ofconsidered by insurers if
(i) the corporate agent is a public limited company 7
8. with a share capital of Rs. 15 lakhs, to be kept in the form
of a deposit withknowingly participating in or conniving at any
fraud, dishonesty or a bank, to be used with the approval of the
insurer (ii) it is set up misrepresentation against an insurer or
an insured (e) not possessing the exclusively for this purpose and
is owned by insurance professionals andrequisite qualifications and
specified training (f) yet to pass such (iii) agency business is
transacted only by full time employees.examinations as are
specified by the regulations (g) found violating the code of
conduct as specified in the regulations.5. Insurance products
should be canvassed with the help of insurance professionals and
not through other modes like introducers, finders or sub- 10. The
fee for a licence is Rs.250 for individual as well as corporate
agents. A agents. Ordinarily, only one licence will be granted to
one group, provided licence is granted for 3 years. It may be
renewed after 3 years. The fee for the group does not have any
other insurance activity, such as broker, the certification of the
specified person is Rs. 500. This is also valid for 3 insurer, etc
Exceptions may be considered by the IRDA. At least one of theyears.
persons designated to canvass, must have insurance qualifications.
11. A licence issued by the IRDA may be to act as an agent for a
life insurer,6. If a corporate agent terminates its arrangement
with one insurer, it must for a general insurer or as a composite
insurance agent working for a life have the written approval of the
IRDA, before it can represent anotherinsurer as well as a general
insurer. No agent is allowed to work for more insurer. Corporate
agents are required to submit periodical returns to thethan one
life insurer or more than one general insurer. insurer and also
file its audited accounts, along with other specified statements,
with the IRDA.12. The qualifications necessary before a licence can
be given are that the person (individual or corporate insurance
executive) must7. Every corporate agent is required to designate
one or more individuals who would be called corporate insurance
executive and would solicit insurance not be a minor business on
their behalf Such corporate insurance executives have to obtain
have passed at least the 12th standard or equivalent examination,
if he is to licences for themselves. Others who may also work for
the corporate agent, be appointed in a place with a population of
5000 or more, or 10th standard will be called specified persons"
and they will be required to obtain otherwise certificates. The
essential provisions of these regulations are reproduced at the end
of this course and form part or the study material. have undergone
practical training for at least 100 hours in life or general
insurance business, as the case may be, from an institution,
approved andPROCEDURE FOR BECOMING AN AGENT notified by the IRDA.
In the case of a person wanting to become a8. The Insurance Act,
1938 lays down that an insurance agent must possess acomposite
insurance agent, the applicant should have completed at least 150
licence under Section 42 of that Act The licence is to be issued by
the hours practical training in life and general insurance
business, which may IRDA. The IRDA has authorized designated
persons, in each insurance be spread over six to eight weeks.
company, to issue the licences on behalf of the IRDA. The fee for
the have passed the pre-recruitment examination conducted by the F
Insurance licence, the manner of making an application, etc., have
been specified in Institute of India or any other examination body
authorized by the IRDA. the regulations issued by the IRDA. In
2007, the IRDA has reduced the requirement of training hours from
1009. In terms of the Insurance Act, a licence will not be given if
the person is (a) to 50 and from 150 to 75 a minor, (b) found to be
of unsound mind (c) found guilty of criminal misappropriation or
criminal breach of trust or cheating or forgery or an abetment of
or attempt to commit any such offence (d) found guilty of or 8
9. 13. The licence once issued, can be cancelled whenever the
person acquires aEnsure that nominations are made or changed
according to changingdisqualification.circumstances14. Applications
for renewal have to made at least thirty days before the
expiryAssist in settlement of the claim, by helping the claimants
to completeof the licence, along with the renewal fee of Rs. 250.
If the application is the necessary formalities and
requirements.not made at least thirty days before the expiry, but i
made before the date of REINSURANCE AND DOUBLE INSURANCEexpiry of
licence, an additional fee of Rs.100 is payable. If the application
ismade after the date of expiry, it would be normally be
refused.Reinsurnce15. Prior to renewal of the licence, the agent
should have completed at least 25"The practice whereby one party
called the Reinsurer in consideration of a premiumhours practical
training in life or general insurance business or at least 50paid
to him agrees to indemnify another party, called the Reinsured, for
part or all ofhours practical training in life and general
insurance business in the case of the liability assumed by the
latter party under a policy or policies of insurance whicha
composite insurance agent. it has issued."16. Insurers who select
agents for appointment, make arrangements for training,Reinsurance
as the term itself suggests, is insuring again. It is the transfer
offor appearing in the prescribed examinations, and obtaining the
licence. The insurance business from one insurer to another. Under
reinsurance, the originalprocedures have been streamlined and there
is little loss of time for any step insurer who has insured a risk,
insures a part of that risk with another insurer. That isin the
process.to say, that he reinsures a part of the risk in order to
reduce/diminish his own liability. The insurer transferring the
business is called the "Principal or Direct orRESPONSIBILITIES OF
AN AGENT Ceding or Original Office" and the office to which the
business is transferred is called the "Reinsurer or Assuming or
Guaranteeing Office." The reinsurer gives this17. An agent,
individual or corporate, is the main component of the distribution
facility of risk coverage for a premium which is called reinsurance
premium.channel for the life insurance business. He would be
required to solicit and Reinsurance premium is an income to the
reinsurer and an expense to the insurer.procure new life insurance
business, in a manner that is consistent with theinterests of the
policyholders and of the insurance company. For thisReinsurance is
also a contract of indemnity. The original company must disclose
allpurpose, he would have to do the following.the material facts to
the reinsurer. In the event of loss, the reinsurer indemnifies the
loss subject to amount of reinsurance cover taken. The rest will be
borne by theContact prospects for life insurance, study their needs
and persuade , them principal. This is called risk retention by the
ceding company. to buy.Complete all related formalities, including
filling up proposal forms,An insurance company transfers all or a
portion of its risk exposure under a collecting premium, arranging
medical examination, collecting proofs (ofinsurance policy to
another company. Under reinsurance system, an insurer who has age
or income), reports and other information required by the
underwriter.accepted a risk, lays off (or reinsures) part of the
risk with another insurer.18. After having sold a new insurance
policy, the agent has to ensure that the Reinsurance is rightly
called an indirect business. It is in contrast to direct
insurancepolicy continues, without a lapse, till it becomes a
claim. The conservation business, which is received by an insurer
directly from the applicant.of the policy is in the interests of
all the three persons concerned, theinsurer, the policyholder and
the agent. For this purpose, he has to Recently, the Government of
India made the four non-life insurance companies which were
previously under General Insurance Corporation(GIC) Of India asKeep
in touch with the policyholder to make sure that renewal
independent and autonomous bodies and converted the GIG of India
into a premiums are paid in time.9
10. Reinsurance Company. The IRDA has also laid down the
procedure to be followed based on average result of the treaty
account. The provision for profit commissionin reinsurance
agreements.also promotes healthy underwriting on the part of the
direct insurer and works to theadvantage of both
parties.Reinsurance is an entirely new contract distinct from the
original insurance contractentered into by the ceding company and
the re-insurer. The original insured is not aWith a view to
compensating the loss of premium involved through reinsurance
andparty to the reinsurance contract and hence, has no rights
against the reinsurer. to maintain the premium income at a steady
level, the ceding companies demand anearly equivalent amount of
profit commission from the reinsurers. This is termedThe general
principles of the law of contracts and the special principles that
govern reciprocity.direct insurance contracts also apply to
reinsurance contracts. The principle ofutmost good faith demands
from the ceding company to make full disclosure ofUnder certain
circumstances the reinsurers also further reinsure their acceptance
inmaterial facts. Material alternations if made are also required
to be specifically stated order to protect their overall portfolio.
This transaction is called retrocession, andto the
reinsurers.follows the same process as reinsurance.The ceding
company acquires insurable interest in the risk underwritten in
direct Let us take an example to understand the reinsurance
mechanismbusiness accepted by it. An occurrence of a loss will
result in financial loss. Hence, itis legally entitled to reinsure
the risk. However, the insurable interest is limited to the Lets
say that an insurance company has accepted the risk on a proposal
for Rs. 50extent of liability arising under the original contract
of insurance. If the ceding lakh and its retention limit is Rs. 30
lakh. The company will issue the policy for fullcompany is not
liable for a certain thing under the original policy, the reinsurer
is Rs. 50 lakh to the applicant and then reinsure (or cede) Rs. 20
lakh which is thealso not liable under the reinsurance contract.
Just as direct policies are contracts ofamount in excess of its
(retention limit.indemnity against pecuniary losses, same is the
case with reinsurance contracts.Suppose the policy becomes a claim
in the second year, the ceding company will payA company which
accepts business from public may also accept reinsuranceRs.50 lakh
i.e. the full claim to the claimant (primary client), and the
reinsurancebusiness from other insurance companies if allowed by
the statutes of the country.company will give Rs. 20 lakh to the
insurance company.Professional reinsurers, however, do not accept
direct insurance from the public butNeed for reinsuranceonly
reinsurance business from the insurance companies. The Swiss
Reinsurance(Swiss re) and Munich Reinsurance(Munich re) are among
the leading reinsuranceEvery insurance company, whether life or
non-life requires reinsurance tocompanies in the world.diversify
and distribute risk. ,Under reinsurance arrangements, the ceding
company receives commissions fromEven large sized insurance
companies need reinsurance facility becausethe reinsurer at a rate
higher than the original commissions paid by the cedingthere are
many risks which are too huge for any one company to bear on
itscompany. This is so because the cost of acquiring direct
business is higher than the own.cost of obtaining business by way
of reinsurance. Also the underwriting andReinsurance of desired
proportions of large risks enables a better spread ofadministrative
expenses of the ceding company are far more than those of the
risks. It even enables geographical spread of risks i.e., placement
of riskreinsurers. over the retention level with reinsurers
operating in various countries.PROFIT COMMISSION Helps to
accommodate a valuable client by accepting a big business(risk)
which the insurer could not otherwise entertain.Besides commission,
the ceding company also receives a share in the profits earnedby
the re-insurers under the treaties. This is termed as profit
commission and is 10
11. Reinsurers even provide technical assistance and rating
assistance of the Double insurance means insuring a risk with two
or more insurers and the total sumoriginal risks. insured also
exceeds the actual value of the subject matter. Reinsurer provides
insurance knowledge to a new insurer and even shares If the actual
value of the subject matter is more than or equal to the total
sumits experiences to meet different needs of its clients. insured,
it is not treated as double insurance. In the case of life
insurance, double Reinsurance is of special importance in high risk
areas like Marine/Aviationinsurance is allowed since nobody can
place a value on human life. One can take lifeclasses under
cargo/hull risks. insurance covers from many insurance companies
and on maturity or death, theinsurer will have to pay the full sum
assured. Reinsurance under life insurance occurs very sparingly
except for very largesingle risk covers especially like the key man
insurance -life insurance of a But in case of non-life insurance, a
property can always be valued and it cannot becompanies vital
executives/employees.insured at a higher sum whether with one
insurer or more. If a property is insured The insured would like to
get the insurance needed with one insurer instead with insurers for
a sum more than its value it is termed double insurance. If the
totalof taking policies from different insurers to cover the total
risk. The insurer sum assured with all the insurers is less than
the value of property, it does notaccepts the total risk and in
turn reinsures part or whole of the risk with amount to double
insurance.other companies (which is called co-insurance), or
professional reinsuranceFor example, if a house worth Rs. 20,00,000
is insured with ABC INSURANCEcompanies (which is called
reinsurance).CO.LTD for Rs. 12,00,000 and with XYZ INSURANCE CO.LTD
for Rs.Thus, we can say that reinsurance plays an essential role in
the insurance world. 18,00,000, it is treated 3$ double insurance
because the total value of the subjectmatter i.e., total of all the
policies exceeds the actual value of the house.Reinsurers get into
agreements with different insurers on the basis of their status
Consequentially if there is a claim then the insurers will
contribute proportionally injudged on the following grounds:ratio
8:12 i.e. Rs. 8,00,000 and Rs. 12,00,000. Suppose if it was insured
with twoinsurers for Rs. 700,000 each, there is no double
insurance. i. Age and financial position of the ceding insurers.ii.
Management standards. Difference between Reinsurance and Double
Insurance iii. General underwriting policy. Reinsurance Double
Insurance iv.Total premium income. When the risk is high, theWhen
the same risk and subjectv.Areas of operation. .insurers get a part
reinsured withmatter is insured with more than 1)another insurance
company 1) one insurer, it is termed double vi.Claims experience.
insurance. called the reinsurer. vii. Anticipated premium income
from the reinsurance agreement. The insurer has an insurableHere,
the insured has insurableviii. Previous reinsurance arrangements,
if any. 2)interest in the risk which he may2) interest.Some people
confuse reinsurance with double insurance. Both are different
concepts reinsure.as the following facts depicts.Reinsurance does
not affect the Total sum amount assured of all position of the
original insured. the policies is more than the actual 3)The
reinsured has to pay 3) value of the subject matter.Double
Insurance reinsurance premium for the risk shifted.11
12. The original insurer is able to Here, insurers can adjust
their 2. Delay in covering the risk. 4)transfer a part of the risk
to the4)risks and contribution among re-insurer. themselves when
the claim arises. Once the insurer has decided upon his own
retention, it is necessary to submit the Reinsurance contract
terminates In the case of double insurance, it details of the risk,
for balance amount for reinsurance, to each proposed reinsurer.
once the original insurance does not happen. If one insurer has
There is an uncertainty of acceptance of risk. The amount of
acceptance is entirely 5 5) lapses for any reason.paid, he can ask
others for within the discretion reinsurer. contribution. In the
event of loss, the originalAssured cannot recover more thanFor
example, if the ceding company has issued a policy for Rs. 10 lakh
on a risk on insurer has to pay the assuredthe amount of actual
loss. If loss which retention is Rs. 2 lakh, Rs. 8 lakh is surplus
and has to be reinsured (ceded) sum to the insured. occurs, the
assured may claim payment from the insurers in such to a reinsurer.
This surplus may be ultimately reinsured with one or more
reinsurers. 6)6)an order as he chooses and the insurers will adjust
the amountsThe reinsurers cannot be forced to accept the risk. They
have the option or facility among themselves in proportion to to
reject or accept the reinsurance for any amount they decide. Hence,
this method of the insurance cover granted byreinsurance is called
facultative reinsurance. them. Original insurer will recover The
assured can recover the fullClaim settlement 7)from the reinsurer,
the amount7)value on the original policies till above retentiony.
his total loss is made up.Re-insurers pay claims in proportion to
the amounts reinsured by them. Take for example, on a policy of Rs.
10 lakh issued by the ceding company, twoMETHODS/KINDS OF
REINSURANCE reinsurers A and B have accepted Rs. 3 lakh each and
another two reinsurers C and D have accepted Rs. 1 lakh each then a
loss of Rs. 6 lakh will be paid as follows:There are three main
methods of reinsurance. The insurers can choose among theseas per
their need and desire. These three methods are (A) facultative (B)
treaties and Reinsurer ARs. 180000(C) pools. These methods have
been discussed in detail: Reinsurer BRs. 180000Facultative
Reinsurer CRs. 60000This is the oldest method of reinsurance. Under
this method, the insurer offers eachrisk for reinsurance and it may
be accepted or declined by the reinsurer. TheReinsurer DRs.
60000procedure is to submit brief details of the risk to each
reinsurer who will indicate theRs. 480000proportion that he would
accept. Ceding company bearsRs. 120000The direct insurer (the
ceding company) sends a copy of the original policy to thereinsurer
who will then issue the reinsurance policy.Total amount of lossRs.
600000Reinsurer considers each risk separately and then reinsures
the unretained risk. ThisDrawbacks of Facultative Reinsurance
Methodmethod has two drawbacks:This method involves considerable
amount of routine work.1.Involves a lot of
documentation.Reinsurance cover is not automatic.12
13. Reinsurers have the faculty (i.e., option) to decline any
risk offered to them. There is a decision to pay losses beyond a
certain limit.The method is time consuming, as each risk
necessitates individualThere are two main types of proportional
reinsurance treaties viz., Quota Share and submission to
reinsurers. Surplus. Non-proportional reinsurance treaties are of
excess of loss or stop loss types. All are discussed below one by
one.Auto-facultative or facultative-obligatory Quota Share
TreatyUnder this method, the professionally, highly reputed insurer
company has the optionto offer the risk reinsurance but the
re-insurer has the obligation to accept theThis is quiet simple to
understand and administer.reinsurance. Thus reinsurance becomes
semi-obligatory. A fixed proportion of a given class of insurance
as a whole is ceded. If, for example,Although many other methods
are available for reinsurance, the facultative method is
reinsurance is arranged on a 50 percent basis, the reinsurer
accepts half of each risk.the most widely used.He obtains half the
premium (less commission) and bears half the claim.Treaties This
treaty, involves unnecessary loss of substantial premium on small
risks as well as good s which could be retained in full by the
ceding company (original insurer).Treaty is a written agreement
between the insured and the reinsurers in terms ofwhich reinsurance
offer and acceptance are automatic on the part of both the
parties.This method of reinsurance is especially for an insurer who
isIt is applicable to all classes of insurance. a) Newly
established and has a small premium income, or,There is an
agreement between the direct insurer and the reinsurer (either
onecompany or several) that the reinsurer company will accept all
insurances which mayb) Entering a new class of business for which
it is inexperienced or,be offered within the limits of the
treaty.c) Is into covering hazardous class of insurance where
selective ceding isdifficult. For example, it may be used for
reinsurance in specialized classesTreaties fall into two broad
categories-proportional and non-proportional.of business such as
Live stock, Engineering, Bankers, Blanket, etc,Proportional
Treatiesd) Compelled as per statutory provisions. For example, each
of the four non-life insurers in India have to reinsure 20% of
every risk accepted by themA percentage of the sum insured is ceded
to the reinsurers for all risks. Forwith the General Insurance
Corporation of India. example, if the total sum insured on any one
risk is Rs. 1,00,000 and the retention is Rs. 10,000, the balance
Rs. 90,000 is reinsured. From the reinsurers point of view the
treaty has advantage as their acceptance is restricted to a fixed
share of the business, on all types and sizes of risk without
thePremiums are also paid to the re-insurers (out of what has been
received risk of adverse selection against them. from the original
client ) in the same proportion.In the event of loss, insurers also
pay the losses in the same proportion.Surplus
TreatyNon-proportional TreatiesUnder this method of reinsurance the
direct insurer merely places on thetreaty, part of the risk i.e.
the surplus, which it does not desire to retain.In case of loss
there is no proportionate sharing of the sum insured. If,
therefore, a certain risk is wholly retained there is no surplus to
place onNeither the payment of premium by the reinsured nor the
payment of lossestreaty. by the re-insurers is on a proportionate
basis. 13
14. The surplus is the difference between ceding insurers
retention and grossThe treaty may be terminated by either party on
giving due notice.acceptance(total sum assured).Provision is made
for settlement of disputes through negotiation and Surplus treaties
are arranged on the basis of lines or geographical area
orarbitration.class of business.Excess of Loss Treaties A line is
equivalent to the ceding insurers retention. For example, a
treatymay be arranged on a ten line basis. Under this arrangement,
the re-insurer a)This is a non-proportional method of
reinsurance.will accept automatically upto ten times the retention
of ceding insurer. The b)The reinsurance protection comes into
operation when the cedingfollowing illustration will make this
clear:companys loss to any one cause or event exceeds a pre-agreed
amount.Gross AcceptanceRetention Surplus Reinsurance c)The insurer
decides the maximum amount which he is prepared to retainon any one
loss and seeks reinsurance under a treaty in which theRs. 100000Rs.
100000Nilreinsurer will pay for any Ion j over and above the amount
retained by theRs. 200000Rs. 100000 Rs. 100000 direct insurer,d)The
excess of loss to be met by the re-insurer does have an overlying
limit.Rs. 1100000 Rs. 100000 Rs. 1000000Loss above j the overlying
limit of the reinsurer will again be met by theceding company or be
j transferred to another reinsurer under anotherexcess of loss
treaty.If the gross acceptance is more than Rs. 11 lakh, then the
surplus treaty will absorb e)This method is used mainly to protect
large catastrophic losses such asonly Rs. 10 lakh and the balance
will have to be reinsured facultatively or under asecond surplus
treaty to take care of such excess amount.i. Those caused by
special perils i.e., storm, flood, earthquake, etc.ii. Where there
is possibility of conflagration in large storage areas, Liability
of the insurer commences compulsorily and simultaneously withthat
of the ceding insurer as soon as the retention of the ceding
insurer is iii. Where large marine acceptances are involved in a
ship.exceeded. iv.Where in legal liability classes, i.e., motor
third party, public liability, The ceding insurer is required to
record particulars of all amounts ceded toproducts liability and
workmens compensation risks. For example, athe reinsurer since the
re-insurer is entitled to inspect such records. severe mining
accident may result in hundreds of fatalities toworkmen, resulting
in a catastrophic loss. Special Provision is made for payment of
commission. (f) In this arrangement, there is no proportionate
sharing of sum insured, All settlements, adjustment and compromise
of claims including ex-gratia premium and loss as under quota share
or surplus treaties.payments made by the ceding insurer are a
binding on the reinsurer, (g) The premium is paid to the reinsurers
by several methods depending uponprovided, the cause of loss is
within the scope of the cover. the circumstances. Most common among
these is the burning cost The ceding insurer has the right to
demand immediate payment from themethod.reinsurer of the latters
share of any loss exceeding the agreed figure.This method is
explained below through an example: The ceding insurer retains an
agreed percentage of the annual premium as apremium reserve which
is adjusted subsequently in the account. 14
15. Suppose the underlying limit (limit of the ceding company)
is Rs. 20 lakh and thee)Treaty reinsurance involves very less
clerical labour and general costs,ceding companys loss due to one
event is Rs. 30 lakh the excess of loss that the re-because the
acceptances are dealt with in bulk, with only periodicalinsurer has
to pay is Rs.10 lakh,submission of limited information.This treaty
also incorporates an upper limit called overlying limit which
restricts thef)Procedures in treaty reinsurance are less
cumbersome.liability of reinsurer. Thus, if the overlying limit is
Rs. 40 lacs and a single lossg)The rights and obligations of each
party are clearly defined in the treatyamount to Rs. 44 lakh, the
reinsurer will pay Rs. 20 lakh and the excess of Rs. 4 lakh
agreement, hence there is more clarity and less ambiguity and
disputes arewill have to be borne by the ceding company or it will
have to arrange a secondless.excess of loss treaty to protect
losses exceeding Rs. 40 lakh but again subject to an h)From the
reinsurers point of view also, treaty ensures a constant
andoverlying limit of may be Rs. 80 lakh. . ; regular flow of
business.Stop Loss or Excess of Loss Ratio TreatiesPoolsThis method
is a variation of the excess of loss reinsurance.Large number of
insurance companies join hands to handle huge risks which tend toIt
can operate in addition to the surplus and also excess of loss
treaties.give rise to huge loss to property and human lives.
Particular types of risks areunderwritten with premiums, losses,
and expenses shared in agreed ratios.This treaty protects the
overall results of a class of insurance business.Under the treaty,
the re-insurer agrees to pay, say, 90% of the amount by It is a
proportional method of reinsurance. which the losses in any one
year exceed, say 80% of the premium income. Is usually used to
handle large or extra hazardous risk.Suppose the premium income is
Rs. 30 lakh and the losses are Rs. 40 lakh the stop Total claims
upon an insurer will be considerable.loss reinsurer will pay 90% of
the excess amount viz. Rs.l4.4 lakh (i.e. 90% of the Covers the
risks which require the combined capacity of the entiredifference
between Rs. 24 lakh which is 80% of premium and Rs. 40 lakh which
isinsurance market.the actual loss). All claims (and all losses)
may be proved, for the surplus above a fixedAdvantages of a
Treatyretention or an agreed excess of loss method may be applied.
a) The reinsurer cannot decline to accept any cession coming within
the Pools are being used both in developed as well as in developing
countries.scope of the treaty. By combining the underwriting
capacity of the entire market, the retention b) This facilitates
direct underwriting and enables the ceding insurer to give levels
could be increased to retain substantial premium within the
insurancecover for large amounts immediately.companies. c) The risk
of the reinsurer commences, simultaneously with that of
theOperation of Market Poolceding insurer.The insurance companies
have to make obligatory cessions of 20% (quota share) of d) There
may be a time lag between the original acceptance of the risk by
theall India gross direct business in each class of business.ceding
insurer and the reinsurance acceptance in case of
facultativeinsurance and in the meanwhile there could be a loss.
Under treaty, thisrisk is not theirs. 15
16. The Market Pool is managed by the GIC. The business ceded
to the pool is retained The insurance ombudsman may consider or
receives the complaints regarding : ...entirely within the country.
And it is protected by excess of loss treaty. The poolbusiness is
retroceded to the companies in proportion to their cessions to the
pool. Partial or total repudiation of claimsOn larger risks where
there is further surplus in excess of obligatory cession, net Delay
in settlement of claims retention, and cession to the pool, it is
cede to surplus treaties and if, necessary, Legal construction of
policy(policy wordings)reinsured facultative. Premium paid or
payableOMBUDSMAN Non-issue of insurance documents to customers
after receipt of premium.Ombudsman traces its history to Sweden way
back in 19th century and it literallymeans an authority that is
empowered to investigate individual complaints against An insurance
ombudsman cannot act on :public authorities, departments etc. Later
it has been adopted in many countriesincluding UK, Australia etc.
Any complaint which falls outside the territorial limits of the
ombudsmanIn India the idea of insurance ombudsman was first mooted
in the year 1998. Central Any complaint where the claims amount is
more than 20 lakhs.government by the powers conferred on it by sub
section (i) section 114 of insuranceact 1938 has set up an
ombudsman specifically for Insurance sector. Main objective Any
dispute/issue/complaint which is under trial in any other judicial
or quasi-of insurance ombudsman is redressal and settlement of
disputes arising betweenjudicial body.insured and insurer.
Insurance ombudsman is a quasi-judicial body established for Where
the complaint is not regarding personal lines of business.speedy
settlement of disputes in fair, impartial and judicial manner.
Where the complaint is filed by any artificial judicial personAny
individual policyholder (including a sole proprietor but not
partnerships orcompanies) or his legal heir can approach the
Insurance Ombudsman for complaints Any complaint which is lodged
after one year from the date of issue of first replyin respect of
policies on personal lines of business.by the insurer.Personal
lines of business include coverage under Personal Accident
policies, Procedure for RedresselMediclaim, insurance of property
of the individual such as motor vehicles, householdarticles etc.
There is no fee or charge required to be paid and there is no
requirement 1) The insured has to apply in writing to the IO under
whose jurisdiction theto approach the Ombudsman through a lawyer.
However, before approachinginsurer falls. A complaint may be filed
cither by the insured or his legal heirsOmbudsman, a representation
should be made to the insurance Company. If no reply and should
clearly stale the name and address of the insurer against whom
theis received within one month or the reply is not satisfactory,
the Ombudsman can becomplaint is made, nature and circumstances
giving rise to dispute, nature ofapproached. The maximum limit for
the amount under dispute for which the loss sustained by the
complainant and relief sought from IO.Ombudsman can entertain is
Rs.2O lakhs and Complaints can be made to2) The complainant has to
substantiate his claim with all the documentaryOmbudsman within one
year of the rejection by insurer of the representation of the
evidences.complainant or the insurers final reply to the
Complainants representation.3) The IO would first act as a mediator
to settle the grievance on a mutuallyTypes of Complaintsagreeable
basis. This mediation process would be for a maximum of one month.
After hearing both the parties IO may pass an award, which
if16
17. acceptable to the complainant, is sent to insurer for final
execution. Insurer has to comply with the award within 15 days and
it has to be informed to the IO. 4) If the grievance is not settled
on a mutually agreeable basis, IO gives aspeaking award within a
period not exceeding three months. If the complainantis not
satisfied with the award, he can appeal in any other forum or
court,however such facility is not available to the insurer. MODULE
V 5) An award passed by the IO has to be complied with, by the
insurer within the INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
ACT,15 days. However, no action lies if the insurer opts for
non-compliance of the 1999award because he no judicial powers for
the execution of award compared toother judicial systems like
consumer forums, civil courts etc. The Insurance Regulatory and
Development Authority Act, 1999 provides for the establishment of
an Authority In protect the interests of holders of insurance
policies,No advocates are allowed to represent insurer/complainant
to argue their respective to regulate, promote and ensure orderly
growth of the insurance industry and forcases. Further IO being a
non-judicial authority, does not have the powers of matters
connected therewith or incidental thereto and further to amend the
Insurancesummoning particular persons/witness and examining them on
oath. Another specificfeature of IO is that it can pass award for
ex-gratia settlement of disputes, while such Act, 1938, the Life
Insurance Corporation Act, 1956 and the General Insurance Business
(Nationalisation) Act,1972.powers of exgratia settlement are not
vested with other redressa.1 mechanisms suchas consumer courts
etc.The Statement of Objects and Reasons of the Act provides that
the insurance industry requires a high degree of regulation. The
Insurance Act, 1938 provided for the institution of the Controller
of Insurance to act as a strong and powerful supervisory and
regulatory authority with powers to direct, advise, caution,
prohibit, investigate, inspect, prosecute, search, seize,
amalgamate, authorise, register and liquidate insurance companies.
However, after the nationalisation of Life Insurance in 1956 and
the General Insurance in 1972, the role of Controller of Insurance
diminished in significance over a period of time. Constitution of
the Authority Section 2(h) of the IRDA Act, 1999 defines the
Authority as the Insurance Regulatory and Development Authority
[established under Section 3 of the Act. The Section 3 lays down
the procedure for establishing the Authority, it is established by
a notification by the Central Government in the Official Gazettee.
The date of operation of the Authority is also notified by the
Central Government by a notification. The other important
characteristics of the Authority are as follows:It is a body
corporate with perpetual succession and common seal.It has the
powers to acquire, hold and dispose the property in its name.
Theproperty may be a movable or immovable.17