UNIT 5 - SBAA7001 INSURANCE INTERMEDIARIES AND REGULATIONS.pdf

UNIT – 5 – Banking and Insurance Management – SBAA7001
SCHOOL OF MANAGEMENT STUDIES

UNIT 5 INSURANCE INTERMEDIAREIS AND REGULATIONS
Insurance Intermediaries – Market Players and their Roles: Agents, Brokers, Surveyors
&Loss Assessors; Insurance Act – Insurance Regulatory and Development Act, Powers and
Functions of IRDA, Regulations and Guidelines issued by IRDA.
Concept of intermediaries
A basic definition defines an intermediary as ‘action between two parties - mediatory’ or
‘situated or occurring between two things - intermediate’. The latter form refers more to a
position within a process or level of achievement. The former, by contrast, refers to an
intermediary as an agent in some form, as ‘one who acts between others - a do-between or
mediator’, or as ‘something acting between things persons or things’. As actors then, what
intermediaries do is mediate, they work in-between, make connections, enable a relationship
between different persons or things.
Indeed, in common parlance the meaning implied by the concept intermediary tends to refer to a
neutral player trying to mediate between different sets of interests. The assumption of neutrality
is however, problematic. Rather than focus on everything as an intermediary, the interesting
question is to ask in what ways, where, when and how particular things, people, organisations
etc. are/ become defined as ‘intermediaries. Further still, there is the question of the active role
that intermediaries play in defining the relationship between other actors.
In Insurance industries, an insurance intermediary is a person or a company that helps you in
buying insurance. Insurance intermediaries facilitate the placement and purchase of insurance,
and provide services to insurance companies and consumers that complement the insurance
placement process. Traditionally, insurance intermediaries have been categorized as either
insurance agents or insurance brokers.
Role of Intermediaries in Insurance Industry
As players with both broad knowledge of the insurance marketplace, including products, prices
and providers, and an acute sense of the needs of insurance purchasers, intermediaries have a
unique role – indeed many roles – to play in the insurance markets in particular and, more
generally, in the functioning of national and international economies.

Intermediary activity benefits the overall economy at both the national and international levels:
The role of insurance in the overall health of the economy is well-understood. Without the
protection from risk that insurance provides, commercial activities would slow, perhaps grinding
to a halt, thus stunting or eliminating economic growth and the financial benefits to businesses
and individuals that such growth provides.
The role of insurance intermediaries in the overall economy is, essentially, one of making
insurance – and other risk management products – widely available, thereby increasing the
positive effects of insurance generally – risk-taking, investment, provision of basic societal needs
and economic growth.
There are several factors that intermediaries bring to the insurance marketplace that help to
increase the availability of insurance generally:
Innovative marketing - Insurance intermediaries bring innovative marketing practices to the
insurance marketplace. This deepens and broadens insurance markets by increasing consumers’
awareness of the protections offered by insurance, their awareness of the multitude of insurance
options, and their understanding as to how to purchase the insurance they need.
Dissemination of information to consumers - Intermediaries provide customers with the
necessary information required to make educated purchases/ informed decisions. Intermediaries
can explain what a consumer needs, and what the options are in terms of insurers, policies and
prices. Faced with a knowledgeable client base that has multiple choices, insurers will offer
policies that fit their customers’ needs at competitive prices.
Dissemination of information to the marketplace - Intermediaries gather and evaluate
information regarding placements, premiums and claims experience. When such knowledge is
combined with an intermediary’s understanding of the needs of its clients, the intermediary is
well-positioned to encourage and assist in the development of new and innovative insurance
products and to create markets where none have existed. In addition, dissemination of knowledge
and expansion of markets within a country and internationally can help to attract more direct
investment for the insurance sector and related industries.
Sound competition - Increased consumer knowledge ultimately helps increase the demand for
insurance and improve insurance take-up rates. Increased utilization of insurance allows

producers of goods and services to make the most of their risk management budgets and take
advantage of a more competitive financial climate, boosting economic growth.
Spread insurers’ risks - Quality of business is important to all insurers for a number of reasons
including profitability, regulatory compliance, and, ultimately, financial survival. Insurance
companies need to make sure the risks they cover are insurable – and spread these risks
appropriately – so they are not susceptible to catastrophic losses. Intermediaries help insurers in
the difficult task of spreading the risks in their portfolio. Intermediaries work with multiple
insurers, a variety of clients, and, in many cases, in a broad geographical spread. They help
carriers spread the risks in their portfolios according to industry, geography, volume, line of
insurance and other factors. This helps insurers from becoming over-exposed in a particular
region or a particular type of risk, thus freeing precious resources for use elsewhere.
Reducing costs - By helping to reduce costs for insurers, broker services also reduce the
insurance costs of all undertakings in a country or economy. Because insurance is an essential
expense for all businesses, a reduction in prices can have a large impact on the general economy,
improving the overall competitive position of the particular market. Of course, the insurance
cycle of “hard” and “soft” markets can have a significant impact on the benefits – both good and
bad – of increased availability. Generally, however, increased availability benefits the consumer
by leading to product competition, price competition, and improved services. By reducing
insurance costs across markets, intermediaries make an important contribution to improving the
economic conditions in a country.
Market Players and their Roles
There are many market players in insurance industries i.e.
a. Agents
b. Brokers
c. Surveyors & Loss Assessors
d. Health Third Party Administrators.
The role of various players of insurance market is being discussed hereby:

(a)Insurance Agent
Insurance agent is the salesperson of the insurer. An agent is one who is licensed under Section
42 of the Insurance Act, 1938, and who receives or agrees to receive payment by way of
commission or remuneration in consideration of his soliciting or procuring insurance business
including business relating to the continuance, renewal or revival of policies of insurance.
[Sec. 2 (10) of Insurance Act, 1938.] In simple words, we can say that an insurance agent is a
licensed representative of the insurer who agrees to work for the insurer in exchange of
commission or remuneration. He plays a promotional job.
Functions of Insurance Agent:
To solicit and procure new business: An agent is bound to obtain certain specified amount of
new business as required under the rules. He should always make effort in getting new insurance
proposals beyond his prescribed limit.
To conserve the present business: In addition to procuring new business, he should ensure the
continuation of the policies already issued and prevent them from lapsing on account of default
in the payment of premium.
Assist in selection of suitable policy: The agent should give proper guidance and help to the
prospects in selection of a suitable policy, keeping in view the needs of the proposed by guiding
him.
To enquire into full details of prospects : It is an important duty of the insurance agent to
enquire into all the requisite information from the prospective insured. This becomes necessary
to ascertain the extent of risk.
Inform the agency about the factors which can cause damage to insured : It is the duty of an
agent to inform the agency about all the related information which can influence the insurance
policy by any means.
Assuring the age of insured : It is the duty of an agent to assure date of birth of an insured at
the time of starting the policy. This helps in future settlements of policies.

To motivate the policy holders to pay premium in time: It is the duty of an agent to inform
the insured to pay premium in time and get benefits of payments by avoiding penalties applicable
in late payments.
To prevent the policy from lapsing: Agent should inform the disadvantages of policy lapse to
the insured.
Inform the insured for appointing nominee(s): It is the duty of an agent to make sure that the
nominees column is filled by the insured. This helps in future settlements of policies without any
ambiguity.
To prepare the necessary documents : This proposer has to submit other important documents
like birth certificate, medical certificate, etc. The agent can help the proposer by guiding him.
Other important duties of an agent:
1. Inform about the policies to the insurer.
2. By knowing the requirements of prospects, providing him the best suitable policy.
3. Working hard with honesty.
4. Introducing himself as an insurance agent, and if asked, to show his I.D.
5. If asked by the insured, telling him about the rate of commission.
6. Calculating the amount of premium which is payable by the insured.
7. Explaining the details of insurance application form to the prospect.
8. Informing the prospects about the refusal of insurance application by the insurance agency.
9. Following the rules and regulations of insuranceauthority.
10.Providing insurance bond to the insured within 45 days.
Role of an Insurance Agent
An insurance agent represents the insurer with whom he or she is attached. He solicits or
procures insurance business only for such insurer. The responsibilities of an insurance agent
broadly include the following:
(a) Perform Need analysis for the customer – The agent is expected to sell the products of the
insurance company, which suit the needs of the customer. For this purpose he has to analyse the
needs of the customer, such as Insurance protection for family, Asset protection needs,

Children’s marriage or education needs, Health insurance, Pension etc. Depending on the needs
and the stage of the life cycle of the customer, the appropriate product of the insurer which suits
the customer is recommended
(b) Explain the product benefits, premiums, exclusions and other terms and conditions so that the
customer can take an informed decision
(c) Assist the customer in getting the requisite documents for the purpose of seeking an
insurance cover and clarify the doubts of the customer in the proposal form filling process
(d) Bring to the notice of the insurer any adverse habits of the customer which will have a
bearing on the insurer’s decision to accept a risk
(e) Inform the customer about the decision of the insurer to issue a policy or otherwise
(f) Provide assistance to customer at various stages of policy servicing and when a claim is made
Qualification and training
Most insurance companies and independent firms prefer to hire young graduates who hold
degrees in business or economics. Generally, companies do not prefer non-graduates for this
post. However, there are certain exceptions to this condition. In case a non-graduate has previous
work experience or has proven expertise in any business areas can be employed as an insurance
agent.
Experience in sociology and public speaking can prove as a benefit for the candidate to improve
their sales skills. Proficiency in software and computer are significantly essential for
an insurance agent as an educational, advertising, and communicational tool.
While the criteria to become an insurance agent may differ from one company to another, all
companies demand a candidate to acquire a license from IRDAI. To receive a license, applicants
need to clear an examination and undergo pre-licensing training related to insurance practicing
and laws.
Skills
A candidate who is conducting a job search in the insurance field needs to possess a specific skill
set. Insurance is all about marketing and selling the right products to the clients.

This type of job requires a candidate to have excellent communication skills, need to be well-
organized and possess the ability to analyse the customer’s requirements. This will help an
insurance agent to suggest the insurance policy that will fulfill their insurance needs effectively.
Individuals interested in becoming insurance agents will need to undertake training with an
insurance company regarding its products and insurance regulations and laws.
An insurance agent needs to have the ability to demonstrate and listen carefully to the prospect.
He/she should have the ability to take complex information and convert it into simple language
that anyone can understand. This is another skill that most insurance companies look into a
candidate.
Insurance agent’s functions are mainly based on demonstrating, communicating, and convincing
powers. An insurance agent with proficiency in these features has enormous scope to make a
successful career in this field.
TYPES OF INSURANCE AGENTS:
The following are the different types of Insurance Agents recognized under the Regulations:
(a) Individual Agent
(b) Corporate Agent
(c) Micro Insurance Agent
Individual Agents
IRDA (Licensing of Insurance Agents) Regulations, 2000 as amended from time to time,
contains provisions relating to licensing of individual Insurance Agents. The following are the
different types of licences issued within the Regulations:
(a) Direct Life
(b) Direct Non Life
(c) Composite Licence (both Life and Non-Life)
The following are the pre-requisites for a candidate intending to get a licence issued (common
for all types of agents):

(a) Minimum qualifications: The minimum qualifications prescribed are a pass in 12th standard
or equivalent examination conducted by a recognised Board/Institution. This condition is relaxed
to a pass in 10th standard for applicants residing in a place where the population is not less than
5,000 (‘Rural agents’)
(b) The applicant must not suffer from the following disqualifications:
a. That the applicant is not minor
b. That he is not found to be of unsound mind by a Court of competent jurisdiction
c. That he has not been found guilty of criminal misappropriation or criminal breach of trust or
cheating or forgery or an abetment of or an attempt to commit any offence by a Court of
competent jurisdiction and five years have not elapsed from the date of conviction
d. That he has been found guilty of or has knowingly participated in or connived at any
fraud, dishonesty or misrepresentation against an insurer or an insured during the course of:
(i) Any judicial proceeding relating to any policy of insurance (or)
(ii) Winding up of an insurance company (or)
(iii) In the course of investigation of affairs of an insurer
(e) That he does not violate the code of conduct prescribed under the Regulations
(c) Practical Training: The applicant shall undergo a minimum of 50 hours practical training on
insurance related matters in life or general insurance business, as the case may be, spreading to 1
to 2 weeks. Where the application is for a composite licence, the training shall be 75 hours
spread over 3 to 4 weeks covering both life and general insurance subjects. Where the applicant
holds special qualifications such as membership of Institute of Chartered Accountants of India,
Institute of Cost and Works Accountants of India, Institute of Company Secretaries of India,
Insurance Institute of India or the Institute of Actuaries of India or a Masters degree in Business
Administration of any institution recognised by Central Government or State Government, it is
sufficient if the training is undergone for 25 hours (35 hours if the licence is composite). The
training can be undergone in any of the IRDA accredited training institutions

(d) Examination: Every applicant shall undergo a pre-recruitment examination in life or general
insurance business or both, as the case may be, conducted by the Insurance Institute of India or
any other body authorised by IRDA.
(e) AML & ULIP training: In addition to the above, the insurer with whom the agent is
attached provides a special training on Anti money laundering (under the IRDA’s Anti money
laundering Guidelines dated 31 March 2006) for all Insurance Agents. Training in Unit Linked
Insurance Products (ULIP) is compulsory for life insurance agents before they are allowed to sell
ULIPs on behalf of a life insurer (under the IRDA (Linked Insurance Products) Regulations,
2013)
(f) Payment of fees of Rs.250 along with the application for grant of licence enclosing proof of
age, qualifications, training and examination.
Renewal of licence
A licence is issued for a period of three years at a time. At the end of the third year, the licence is
required to be renewed. The following are the conditions for renewal of licence:
(a) Completion of practical training for 25 hours for Life or General insurance, as the case may
be or 50 hours for renewal of composite agency licence
(b) Payment of fees of Rs.250 towards renewal of licence. If the application for renewal does not
reach atleast 30 days before the due date for renewal, an additional fee of Rs.100 by way of
penalty is payable. If the application for renewal reaches after the expiry of licence, IRDA may
consider the application for renewal upon imposition of a penalty ofRs.750.
(c) Maintenance of a minimum persistency of 50% during the licence period (as per IRDA’s
persistency guidelines.
(d) The Agent does not suffer from any of the disqualifications mentioned in the previous section
(e) Renewal training on Anti-money laundering as may be prescribed by the insurer from time to
time
Authorization to sell for one insurer at a time
A licence issued under the provision of the above Regulations entitles an Insurance Agent to sell
on behalf of one life insurer or one General insurer at a time. An identity card is issued by the

concerned Insurer for this purpose. An Agent is entitled to change insurer but has to follow the
process laid down in IRDA’s circular on issue of a ‘No objection Certificate” by the insurers.
Corporate Insurance Agent
Corporate entities represent an insurance company and sell its policies. ... When a bank
becomes the corporate agent of an insurance company it is referred to as a bancassurance
arrangement or partnership. Banks offer insurance policies to their customers based on their
knowledge of their situation and needs.
Licensing of Corporate Agents
The IRDA (Licensing of Corporate Agents) Regulations, 2002 provides the licensing framework
for Corporate Agents similar to the Regulations applicable to Individual Agents. The Corporate
Agents regulations recognize agents who are one of the following entities (as against individual
agents who are licensed under the IRDA (Licensing of Insurance Agents) Regulations, 2002):
(a) Firm
(b) Company under the Companies Act, 1956
(c) Banking company
(d) Co-operative society
(e) Panchayat or local authority
(f) Non-Government organisation
The licence is issued to the entity as against the individual under licensing of individual agents.
However, thepersons who are authorised to sell on behalf of a Corporate Agent will have to
undergo the training and examination requirements similar to that of an Individual agent.
The Corporate agent shall have the following persons at the minimum as per the Regulations:
(a) Corporate Insurance Executive (‘CIE’) (b) Specified Persons (‘SP’) A Corporate
Insurance Executive is the Director or Partner or one or more of its officers or employees
so designated by it (where the applicant is a Company or a Firm). Where the applicant is
any other person, the Chief Executive or one or more of his employees designated by him
shall be the CIE. In either case, the CIE shall possess the minimum qualifications,
undergo the practical training and pass the required examination. A Specified Person is

responsible for soliciting or procuring insurance business on behalf of the Corporate
Agent entity. He may be a Director or a Partner or one or more of its officers or other
employees so designated by the Corporate Agent. The individual desirous of acting as a
Specified Person shall also possess the requisite qualifications, undergo the practical
training and pass the examination. A Certificate is issued to a Specified Person which
authorises him to solicit or procure insurance business on behalf of the Corporate Agent.
There may be as many number of Specified Persons as the Corporate Agent requires
depending upon the business requirements. The minimum qualifications, practical
training and examination requirements are similar to that of an individual agent. A
Corporate Agent is also allowed to act for only one life insurer (Direct-Life) or one
general insurer (Direct-Non-Life) or Composite Corporate Agent (one Life and one
General at a time)
As per the IRDA guidelines on Corporate Agents, dated 14 July 2005, two types of
Corporate Agents are recognized:
(A) Exclusive Corporate Agents – i.e. those entities whose primary activity is solicitation
or procuration of insurance business. Such entities shall be Public Limited companies
under the Companies Act, 1956, with a minimum paid up capital of Rs.15 lakhs
deposited in a Scheduled Commercial Bank. Further entities belonging to Banking or
Insurance Groups alone are allowed to form Exclusive Corporate Agencies
(B) Non-exclusive Corporate Agents – entities which are already engaged in some other
business and would like to take up insurance agency as a subsidiary activity. Further a
Group to which the applicant Corporate Agent belongs to, can be granted only one
corporate agency licence. In other words, any proposal from an applicant, some of whose
group entities are already engaged in insurance business, such as corporate agent, broker,
insurer etc., shall not be normally granted a corporate agency licence. IRDA does not
normally grant any exception unless the entities are licensed by Reserve Bank of India
with substantial client base or otherwise have assets, turnover or net worth of Rs.15
Crores.
Requirements for becoming a Corporate Agent:
(a) Formation or existence of an entity as required under the Regulations as above

(b) Identification of persons possessing the minimum qualifications to become a CIE or
SP (a minimum of 1 CIE and 2 SPs are normally insisted by IRDA at the time of
licensing). The actual number of persons will depend on the business plan of the
applicant corporate agent. CIEs or SPs can also be changed or added (in addition to
minimum) subsequently
(c) Document evidencing constitution of the Corporate agent entity (e.g. Memorandum
and Articles ofAssociation) shall contain “procuring or solicitation of insurancebusiness”
as one of the main objects
(d) Proof of CIE and SPs having undergone the practical training and passed the required
examination
(e) Either CIE or one of the SPs must possess one of the following additional
qualification:
(i) An Associate/Fellow of the Insurance Institute of India, Mumbai.
(ii) an Associate/Fellow of the Institute of Chartered Accountants of India, New Delhi;
with diploma in Insurance and Risk Management.
(iii) an Associate/Fellow of the Institute of Costs and Works Accountants of India,
Calcutta;
(iv) an Associate/Fellow of the Institute of Company Secretaries of India, NewDelhi;
(v) an Associate/Fellow of the Actuarial Society of India, Mumbai;
(vi) possessing Certified Associate ship of Indian Institute of Bankers (CAIIB)
(vii) MBA (Two year) Course / PG Diploma (One year) course in Insurance from Amity
School of Insurance & Actuarial Science, Noida
(viii) PG Diploma (One year) course in Insurance from Institute of Insurance and Risk
Management, Hyderabad
(ix) MBA (Two year) course in Insurance from National Insurance Academy, Pune
(x) PGMBA (Two Year) course in Insurance from National Law University, Jodhpur
(xi) PGMBA (Two year) course in Insurance from MET, Mumbai
(xii) MBA (Two year) course in Insurance from Birla Institute of Management
Technology, Noida the persons with above qualifications (except at (a) shall undergo a
“Workshop for Insurance executives” at National Insurance Academy, Pune or Insurance

Institute of India, Mumbai or Institute of Insurance and Risk Management, Hyderabad as
prescribed by the Authority.
(f) In the case of exclusive Corporate Agencies, proof of formation of a public company,
injection of a capital of Rs.15 lakhs and depositing the money into a Bank
(g) Fee of Rs.250 for issue of licence to the Corporate Agent and Rs.500 for issue of
Certificate for each Specified person Renewal of licence A license is issued for a period
of 3 years and shall expire at the end of the term, unless renewed. The annual fee to the
Authority in such manner as may be specified by the regulations for renewal of an
individual agency license. The conditions for renewal of licence for a corporate agent is
similar to that of an individual agent, including maintenance of a minimum persistency of
50%
Micro Insurance Agent
Micro insurance Agents are a special category of insurance agents who support financial
inclusion, i.e. the distribution of financial services at an affordable cost to the masses. Micro
insurance contracts are typically low sum assured contracts which provide for the sum assured to
be paid either on death – both natural and accidental, or an Endowment (which also provides a
sum assured on maturity in addition to death) or a health insurance.
Only a Non-Governmental organisation or a Self Help Group Micro Finance Institutions or
Associations not formed for Profit are entitled to become Micro Insurance Agents. Such Agents
can distribute the products of one life insurer or one general insurer or both. A Micro insurance
agent shall employ Specified persons with the prior approval of the Insurer to distribute the
micro insurance products on its behalf. All the Micro insurance agents and their Specified
persons shall be imparted 25 hour training by the insurer in local vernacular language in the areas
of insurance selling, policyholder servicing and claims administration.
A Micro insurance agent can sell only a Micro insurance product and not any other type of
insurance products. However an Agent who is licensed to sell all products of an insurer can sell
the Micro insurance products of such insurer, if any. An Insurance Broker who can sell any
product of any insurer, can sell Micro insurance products of any insurer as well.
All Micro insurance policies may be reckoned for the purpose of fulfilment of social obligations
of an insurer pursuant to the provisions of the Insurance Act and Regulations. Where a micro

insurance policy is issued in a rural area and falls under the definition of social sector, such
policy may be reckoned for both under rural and social sector obligations as well.
Insurance Broker
Regulation 2(i) of the IRDA (Insurance Brokers) Regulations, 2002, defines Insurance Broker as
a person forthe time being licensed by the Authority under Regulation 11, who for remuneration
arranges insurance contracts with insurance companies and/or reinsurance companies on behalf
of his clients. Licensing of Insurance Brokers Every Insurance Broker shall possess a valid and
subsisting licence to act as an Insurance Broker issued by IRDA. The framework for licensing of
an Insurance Broker is similar to that of a Corporate Agent. However, as we have seen earlier a
Broker differs from an Agent in the sense that a Broker represents customers interests and is
required to select the best product amongst all insurance companies, while an agent represents an
insurer at any point in time (one in life and one in general insurance) and will present the product
of only such insurer(s) with whom the agent is attached with.
Categories of Insurance Brokers
(a) Direct Broker (Life)
(b) Direct Broker (General)
(c) Direct Broker (Life & General)
(d) Reinsurance Broker (Reinsurance Life or General)
(e) Composite Broker (Life and/or General + Reinsurance)
A Direct Broker is authorised to recommend the products of any of the life insurance companies
or general insurance companies to their clients, as the case may be.
A Reinsurance broker arranges for reinsurance contracts between direct insurers and reinsurance
companies.
Reinsurance is a contract under which insurance companies can pass on the risk they assume
under the policies issued by them, to yet another insurance company (called reinsurer).
Therefore, the insurance company which issues the policy becomes the Policyholder under the
reinsurance contract entered into with a reinsurer.

A broker can be an intermediary who can arrange reinsurance contracts with reinsurance
companies.
Except for GIC, the National Reinsurer, all the other reinsurance companies doing business in
India are located abroad. Therefore the role of reinsurance brokers in getting a best deal for
insurance companies cannot be undermined.
A Composite Broker is one who arranges for both insurance contracts both for retail and
institutional clients as a Direct Broker as well as for insurance companies as a reinsurance
broker.
Role of an Insurance Broker Regulation 3 of the IRDA (Insurance Brokers) Regulations,
2002 summarises the functions of a Direct Broker:
(a) Since a Broker represents a client, he is expected to obtain detailed information on client’s
business and risk management philosophy and familiarise himself with the client’s business
(b) Render proper advice to the client in selecting the appropriate insurance as well as terms of
insurance
(c) Possessing a detailed knowledge of insurance markets to be in a position to advice his client
(d) Submitting quotation received from insurance companies for consideration of a client
(e) Providing the information required about the client or the subject matter to be insured, to
enable insurer to properly assess the risk and give a premium quotation
(f) Updating customer about the progress of the proposal submitted and providing written
acknowledgements
(g) Assisting clients in paying premiums under Section 64VB of the Insurance Act, 1938
(h) Assisting clients in negotiation of claims and maintenance of claim records
Regulation 4 lists down the functions of a Reinsurance Broker:
(a) Familiarising himself about the client’s business and risk retention philosophy
(b) Maintaining clear records of insurer to assist reinsurers

(c) Rendering advice based on technical data on the reinsurance covers available in the
international insurance and the reinsurance markets
(d) Maintaining a database of available reinsurance markets including solvency ratings of
individual reinsurers
(e) Rendering consultancy and risk management services for reinsurance
(f) Selecting and recommending a reinsurer or a group of reinsurers
(g) Negotiating with a reinsurer on client’s behalf
(h) Assisting in the case of commutation of reinsurance contracts placed with them
(i) Acting promptly on instructions from a client and providing it written acknowledgement and
progress reports
(j) Collecting and remitting premiums and claims within such time as agreed upon
(k) Assisting in the negotiation and settlement of claims
(l) Maintaining proper records of claims
(m) Exercising due care and diligence at the time of selection of reinsurers and international
reinsurance brokers having regard to their respective security rating and establishing respective
responsibilities at the time of engaging their services
The person entitled to become an Insurance Broker can be an individual, firm, a Company under
the Companies Act, 1956; a Co-operative Society registered under the Co-operative Societies
Act, 1912 or under any other law for the registration of Co-operative Societies or such other
persons as IRDA recognises to act as an insurance broker.
Normally, IRDA encourages only Companies to take up Insurance Broking.
Requirements for licensing of an Insurance Broker
(a) Application for broking licence, duly filled in and signed by the authorised signatory, along
with supporting documents
(b) Memorandum and Articles of Association shall contain “solicitation or procuring insurance
business as an Insurance Broker” as the main object

(c) Appointment of a Principal Officer who is the Director or the Chief Executive Officer
appointed exclusively to carry out the functions of an insurance broker. Such a Principal Officer
is subject to minimum qualifications as prescribed under the Regulations and shall undergo
theoretical and practical training from IRDA accredited training institutes and has passed the
examination conducted by National Insurance Academy, Pune or any other examining body.
Atleast two employees of the applicant entity who have the minimum qualifications as
prescribed by the Regulations and has undergone the practical training and passed the
examination as mentioned above. Only such employees are authorised to solicit or procure
insurance business on behalf of the insurance broker.
(d) An insurance broker may have as many numbers of authorized employees fulfilling the above
conditions, as required depending on the business plan.
(e) The entity formed shall be solely engaged in the business of insurance broking and no other
business
(f) The non-resident equity in insurance broking entity shall not exceed 26%
(g) Minimum capital requirements for the broking entity: Direct Broker `50 lakhs Reinsurance
Broker `200 lakhs Composite Broker `250 lakhs
(h) A minimum of 20% of the initial capital shall be kept in a Bank deposit which shall not be
released without the prior approval of IRDA
(i) A professional indemnity insurance policy shall be taken by the broker as prescribed in the
Regulations. IRDA may suitable cases allow a newly licensed broker to product the policy
within 15 months from the date of issue of original licence
(j) Payment of Registration fee as follows: Category of Insurance Broker Amount of Registration
fee payable Direct Broker `20,000 Reinsurance broker `25,000 Composite Broker `40,000
(k) Qualifications and Disqualifications The Principal Officer and each of the employees
authorised to sell on behalf of the Insurance Broker shall possess one of the following minimum
qualifications:
(a) Bachelor’s or Masters Degree in arts, science or social sciences, engineering or its equivalent,
law or its equivalent

(b) Master’s Degree in Business Administration or its equivalent from any institution or
university
(c) Associate or Fellow of the Insurance Institute of India or Institute of Risk Management or
Institute of Chartered Accountants of India or Institute of Cost and Works Accountants of India
or Institute of Company Secretaries of India or Institute of Actuaries of India or a Certified
Associate of the Indian Institute of Bankers
(d) Such other qualification as may be prescribed by IRDA the Insurance Broker shall not suffer
from any of the disqualifications which are similar to the disqualifications prescribed for an
individual agent
(e) The entity formed shall be solely engaged in the business of insurance broking and no other
business
(f) The non-resident equity in insurance broking entity shall not exceed 26%
(g) Minimum capital requirements for the broking entity: Direct Broker `50 lakhs Reinsurance
Broker `200 lakhs Composite Broker `250 lakhs
(h) A minimum of 20% of the initial capital shall be kept in a Bank deposit which shall not be
released without the prior approval of IRDA (i) A professional indemnity insurance policy shall
be taken by the broker as prescribed in the Regulations. IRDA may suitable cases allow a newly
licensed broker to product the policy within 15 months from the date of issue of original licence
(j) Payment of Registration fee as follows: Category of Insurance Broker Amount of
Registration fee payable Direct Broker `20,000 Reinsurance broker `25,000 Composite Broker
`40,000 42 PP-IL&P
(k) Qualifications and Disqualifications The Principal Officer and each of the employees
authorised to the Principal Officer and each of the employees authorised to sell on behalf of the
Insurance Broker shall possess one of the following minimum qualifications:
(a) Bachelor’s or Masters Degree in arts, science or social sciences, engineering or its
equivalent, law or its equivalent

(b) Master’s Degree in Business Administration or its equivalent from any institution or
university
(c) Associate or Fellow of the Insurance Institute of India or Institute of Risk
Management or Institute of Chartered Accountants of India or Institute of Cost and Works
Accountants of India or Institute of Company Secretaries of India or Institute of Actuaries of
India or a Certified Associate of the Indian Institute of Bankers
(d) Such other qualification as may be prescribed by IRDA The Insurance Broker shall
not suffer from any of the disqualifications which are similar to the disqualifications prescribed
for an individual agent
Annual Fee Every Broker shall pay an Annual Licence Fee as follows:
Category of Insurance Broker Amount of annual license fee payable per
annum
Direct Broker A sum calculated at the rate of 0.50 per cent of
the remuneration earned in the preceding
financial year subject to minimum of INR
25000 and maximum of INR 100000.
Reinsurance broker A sum calculated at the rate of 0.50 per cent of
75000 and maximum of INR 300000
Composite Broker A sum calculated at the rate of 0.50 per cent of
125000 and maximum of INR 500000

Renewal of licence
A licence issued to an Insurance Broker is valid for 3 years unless suspended or cancelled before
the expiry of the 3 year period. The licence shall be renewable for a further period of 3 years
subject to the following conditions:
(a) Application for renewal has to be submitted 30 days in advance of the date of expiry of
licence
(b) Additional fee of Rs.100 in case the application reaches after the 30 days but before the
expiry of licence
(c) Additional fee of Rs.750 in case the application reaches after the expiry of the licence for
valid reasons to the satisfaction of IRDA
(d) Principal Officer and every employee authorised to sell on behalf of the insurance broker to
undergo 25 hours of theoretical and practical training by IRDA accredited training institutes
Difference between Insurance Agent and Insurance Broker
The basic difference between an Insurance Broker and an Insurance Agent is that while an
Insurance Broker represents the client, while an Insurance Agent represents the insurance
company. As a corollary to the above, an Insurance Broker is licensed to recommend the
products of any insurance company, whereas Insurance Agent at any point in time can sell the
insurance products of only one insurance company with which he is attached.
Surveyors or a Loss Assessor
A Surveyor or a Loss Assessor is relevant for general insurance business, where assessment of
the loss of the subject matter insured is very important for deciding the claim amount. As general
insurance contracts are indemnity contracts in nature, the amount paid by the insurance company
cannot exceed the amount of actual loss incurred.
The job of the Surveyor or a Loss Assessor is therefore to arrive at the exact amount of loss
incurred and his role is critical to a general insurer. Every person who is a student-member of the
Institutes of Surveyors and Loss Assessors intending to act as a Surveyor or Loss Assessor is
required to be licensed by IRDA before he starts performing his functions for any general

insurer. A licence issued for a Surveyor or a Loss Assessor shall be valid for a period of 5 years
after which it is required to be renewed.
A Surveyor and Loss Assessor shall be categorized into 3 categories;
The three categories are Licentiate, Associateship and Fellowship which is awarded by the
Institute of Surveyors and Loss Assessors. The nature of surveyor or loss assessment work which
can be undertaken would depend upon the categorisation. Further IRDA shall also allot the
department or the area work for the Surveyor and Loss Assessor from time to time.
Requirements for issue of a licence for Surveyor or Loss Assessor Regulation 3 of the Insurance
Surveyors and Loss Assessors (Licensing, Professional and Code of conduct) Regulations,
2000 specify the requirements for issue of a licence:
(a) He holds a degree in any branch of engineering (or) Post graduate diploma in general
insurance issued by Institute of Insurance and Risk Management (or) a Degree in Agriculture
(or)
(b) He is a member of the Institute of Chartered Accountants of India or the Institute of Cost and
Works Accountants of India (or)
(c) He possesses actuarial qualifications or holds a degree or diploma of any recognised
university or an institute in relation to insurance (or)
(d) He holds a diploma in insurance granted or recognised by the Government (or)
(e) He holds such other technical qualifications as prescribed by IRDA (and)
(f) He does not suffer from any of the disqualifications mentioned in section 42(4) Where the
entity is a company or a firm, all the directors or partners shall possess one of the qualifications
as prescribed above and none of the directors or partners suffer from any of the disqualifications
mentioned as above (and)
(g) Payment of fees based on the categorisation of the applicant (and)
(h) Has undergone practical training as a Student-member under a licensed Surveyor and Loss
Assessor (who shall be a Fellow or Associate member of the Institute) for a period of 12 months
as contained in Chapter VII (persons who have more than 15 years experience in risk
management and general insurance are exempt from this training) (and)

(i) Has passed the Surveyor examination conducted by the Insurance Institute of India or such
other institute recognised by IRDA (and)
(j) Has undergone the special training provided by the Indian Institute of Surveyors and Loss
Assessors for 100 hours for Fellowship, 50 hours for Associate and 25 hours for Licentiate level
(and)
(k) He attends seminars and workshops organised by the Institute for a minimum number of
seminars, viz., 10 seminars for fellowship, 8 for Associateship and 5 for Fellowship level Where
the applicant is a company or firm, all the directors or partners, as the case may be, shall possess
one or more of the qualifications specified above and does not suffer form any of the
disqualifications mentioned in Section 42D(4) of the Insurance Act, 1938. Atleast 2 Directors or
partners shall be members of the institute and shall hold the licence to act as a surveyor and loss
assessor. The level of membership or the department to which the directors or partners belong to
shall become the level of membership or the department for the company or firm. Employees of
the company of the firm, who are licensed as surveyor and loss assessor shall undertake survey
only in those areas allotted to them based on the level of membership and the department to
which they are eligible as per their individual licence. However this eligibility is subject to the
level of membership or the department of the company or the firm (which is dependent on the
directors/partners eligibility as above).
The following are the further conditions prescribed:
(a) Foreign equity in the Surveyor and Loss assessor entity shall not exceed 26%
(b) Common directors or partners between two Surveyor and Loss assessor entities prohibited
(c) One Promoter or Subscriber can have only one Surveyor and Loss assessor licence
(d) Main objects clause of the deed of constitution shall contain the activity of “to carry our
insurance survey and loss assessment”
(e) Name of the Company or firm shall contain the words “Insurance Surveyors and Loss
Assessors”

The Fees payable for issue of licence are as follows:
IRDA, on being satisfied that the applicant is eligible for issue of a licence shall send intimation
to the applicant together with an identity card mentioning the particular class or category of
general insurance business, namely, fire, marine cargo, marine hull, engineering, motor,
miscellaneous and loss of profit, for which the Authority has granted licence.
Role of a Surveyor or Loss Assessor
The primary responsibility of a Surveyor or a Loss assessor is to estimate the liability of the loss
incurred by the Policyholder who has taken an insurance cover, to enable the insurance company
to arrive at the amount to be indemnified to the Policyholders under the terms of insurance
contract. The following are the specific duties and responsibilities as enshrined under the
Regulations:
(a) Declaration of conflicts of interest: In case the surveyor is interested in the subject matter
under loss assessment or in the policyholder whose subject matter is being assessed, he must
declare the conflict to the insurer and stay away from the assessment exercise. For example, if
the Surveyor is the son of the Policyholder whose car has been damaged in a fire accident, such a
Surveyor cannot assess the loss of the car of his Father, in view of the conflict of interest. He
must declare this relationship to the insurer concerned and not conduct the survey proceedings in
such cases
(b) Maintenance of confidentiality and neutrality in the loss assessment exercise. He has to keep
the interests of both the insurer and the policyholder in mind
(c) He must investigate the causes and circumstances of the loss in question
(d) He must personally conduct a spot survey and comment upon excess insurance or under
insurance

(e) Advise the insurer about loss minimisation or loss control efforts or security and safety
measures which can be adopted to ensure that the incidence of loss is reduced or avoided in
future
(f) Pointing out discrepancy in policy wordings, if any
(g) Satisfying the queries of the insured or the insurer in connection with the claim or loss
(h) Recommending applicability of depreciation and its percentage and quantum
(i) Commenting on salvage and its disposal either the insurance company or the insured can
appoint a licensed surveyor for any loss exceeding `20,000, within 72 hours of knowledge of loss
to the insured. Notice of such appointment shall be sent to the insurance company or the insured,
as the case may be. The Surveyor and Loss Assessor shall undertake survey only in the
department for which license was In case there is any dispute or difference by the insured,
another licensed surveyor shall be appointed to conduct the survey at the cost of the insured.
Dispute on the quantum of loss may be referred to arbitration. A surveyor shall submit his report
within 30 days of his appointment. In exceptional cases, the surveyor may seek extension of time
up to 6 months from the insurer, under intimation to the insured. Where the report is incomplete,
the insurer may seek additional report within 15 days of submission of the report by the
Surveyor. Under such circumstances, the Surveyor shall submit the additional report within 3
weeks of request from the insurer.
THIRD PARTY ADMINISTRATORS-HEALTH
A Third Party Administrator (‘TPA’) is a person appointed by an insurance company to render
services in connection with health insurance business or health cover, excluding the insurance
business of an insurer and soliciting or procuring insurance business directly or through an
intermediary or an insurance agent.
TPAs are normally engaged to provide services in connection with hospitalisation of an insured
under a health insurance policy taken through a general insurance company or a standalone
health insurance company or under health insurance rider covers offered by life insurance
companies. They also offer certain other services like arranging for medical examination of the
insured before a policy is issued by an insurance company etc. Requirements for becoming a

TPA A person can act as a TPA only with a valid licence issued by IRDA to perform the
functions of a TPA.
The requirements for obtaining a licence are as follows:
(a) Entity: The person applying for a licence shall be an entity which is a Company under the
Companies Act, 1956
(b) Primary object: The main object as per the Memorandum and Articles of Association shall be
to carry on business in India as TPA in the health services. Further engaging in any business
other than TPA is prohibited
(c) Minimum paid up capital: Rupees One crore and maintenance of working capital of Rs.1
crore at all times.
(d) One of the Directors to be registered with Medical Council: One of the directors of the TPA
shall be a qualified medical doctor registered with Medical Council of India
(e) Foreign equity restricted to 26%: TPA entity shall not have foreign holdings in excess of
26%
(f) Transfer of shares in excess of 5%: Prior approval of IRDA necessary before affecting any
transfer of shares in excess of 5% either through direct transfer or through issue of fresh equity
shares to new or existing shareholders
(g) Fee: A processing fee of Rs.20,000 shall be payable along with the application. A further sum
of `30,000 shall be payable as licence fee before the licence is issued
A licence granted under these Regulations shall be valid for 3 years, after which, upon payment
of a renewal of `30,000, may be renewed for a further period of 3 years.
Intimation of certain changes to IRDA
Every TPA shall inform the appointment of a new Chief Executive Officer (‘CEO’) or Chief
Administrative Officer (‘CAO’) or a Director on the Board of TPA to IRD within 30 days of
appointment .
Every TPA shall inform IRDA the details of head office or branch offices closed or relocated
within 15 days of such closure or relocation

Qualifications of CEO or CAO
Every person proposed to be appointed as a CEO or a CAO of the TPA shall possess the
following qualifications:
(a) He shall hold a degree in arts, science, commerce or management or health or hospital
administration or medicine
(b) A pass in the Associateship examination conducted by the Insurance Institute of India or such
equivalent examination as decided by IRDA
(c) Completion of 100 hours of practical training with institutions recognized by IRDA
(d) He shall not be of unsound mind or undischarged insolvent or a person who had been subject
to imprisonment for a period of 3 months by a Court on the grounds of misfeasance, misconduct
or forgery etc. Decision making on claims by TPAs prohibited A TPA is prohibited from taking
any decisions on any claims. A TPA can only assess and recommend admission of a claim or
otherwise based on the guidelines provided by the insurer in terms of the agreement entered with
them. Once the insurer takes a decision on the claim and communicates it to the TPA, the TPA
shall clearly state as follows in their communication to the Policyholder who has registered a
claim: “As per the instructions of the insurer the claim is being settled/denied for Rs. on account
of . For any further clarifications, you may directly contact the insurer.”
Bar on Non-insurance healthcare schemes
The TPA shall offer health services only in accordance with the IRDA (Third Party
Administrators) Regulations, 2001 and shall not provide any services:
(a) directly or indirectly to non-insurance healthcare schemes or
(b) directly to health insurance schemes promoted, sponsored or approved by entities not
(c) being insurance companies, such as Governments, PSU’s etc.
(d) directly or indirectly to the policyholder or insured, except the health services as per the
agreement with the insurer.

Agreement between a TPA and an Insurance company
a. The insurer and the TPA shall themselves define the scope of the Agreement, the health and
related services that may be provided by the TPA and the remuneration therefore. Provided that
there shall be a clause in the Agreement for its termination by either party on grounds of mutual
consent or any fraud, misrepresentation, inadequacy of service or other non-compliance or
default fraud. Provided further that, there shall be no element in the Agreement which dilutes,
restricts or otherwise modifies the stipulations of the IRDA in respect of Policy Holder welfare,
protection, service standards and turnaround-time parameters.
b. The remuneration to the TPA shall be based on the services rendered to the insurer and shall
not be related to the product/policy experience or the reduction of claim costs or loss ratios of the
insurer.
c. A copy of the Agreement entered into between the TPA and the Insurance Company or any
modification thereof, shall be filed, within 15 days of its execution or modification, as the case
may be, with the Authority.
d. More than one TPA may be engaged by an insurance company and, similarly, a TPA can serve
more than one insurance company
e. The Authority from time to time may prescribe minimum standard clauses to be included in
the agreement between insurer and TPA.
Change of TPAs for servicing of Health Insurance Policies
a. A change in the TPA by the insurer shall be communicated to the policyholders 30 days before
giving effect to the change.
b. The contact details like helpline numbers, addresses, etc. of the new TPA shall be made
immediately available to all the policyholders in case of change of TPA.
c. The insurers shall take over all the data in respect of the policies serviced by the earlier TPA
and make sure that the same is transferred seamlessly to the newly assigned TPA, if any. It shall
be ensured that no inconvenience or hardship is caused to the policyholders as a result of the
change.

In this regard, the following aspects shall receive special attention:
i. Status of cases where pre-authorization has already been issued by existing TPA.
ii. Status of cases where claim documents have been submitted to the existing TPA for
processing.
iii. Status of claims where processing has been completed by the TPA and payment is pending
with the insurer/ TPA.
Data and related issues
a. The TPA and the insurer shall establish a seamless flow of data transfer for all the claims.
b. The respective files shall be handed over to the insurer within 15 days of the claim settlement
or rejection.
REGULATION OF INSURANCE BUSINESS IN INDIA
This millennium has seen insurance come a full circle in a journey extending to nearly 200 years.
The process of re-opening of the sector had begun in the early 1990s and the last decade and
more has seen it been opened up substantially. In 1993, the Government set up a committee
under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations
for reforms in the insurance sector. The objective was to complement the reforms initiated in the
financial sector. The committee submitted its report in 1994 wherein, among other things, it
recommended that the private sector be permitted to enter the insurance industry. They stated
that foreign companies be allowed to enter by floating Indian companies, preferably a joint
venture with Indian partners. Following the recommendations of the Malhotra Committee report,
in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as
a statutory body in April, 2000. The key objectives of the IRDA include promotion of
competition so as to enhance customer satisfaction through increased consumer choice and lower
premiums, while ensuring the financial security of the insurance market. The IRDA opened up
the market in August 2000 with the invitation for application for registrations. Foreign
companies were allowed ownership of up to 26%. The Authority has the power to frame
regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed

various regulations ranging from registration of companies for carrying on insurance business to
protection of policyholders’ interests. In December, 2000, the subsidiaries of the General
Insurance Corporation of India were restructured as independent companies and at the same time
GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four
subsidiaries from GIC in July, 2002. Today there are 24 general insurance companies including
the ECGC and Agriculture Insurance Corporation of India and 23 life insurance companies
operating in the country.
Beside IRDA Act and Insurance Act, 1938, there are some common Act/Regulation to the
General and Life Insurance Business in India and some Acts have been made for specific
requirement of Life Insurance/General Insurance Acts/Regulations common to General and Life
Insurance Business in India The following Acts regulate the Insurance Business in India.
• Insurance Act, 1938
• IRDA Act, 1999
• Insurance Amendment Act, 2002
• Exchange Control Regulations (FEMA)
• Insurance Co-op Society
• Indian Stamp Act, 1899
•Consumer Protection Act, 1986
• Insurance Ombudsman
Regulations governing/ affecting Life Insurance Business in India
The following Acts govern /regulate the life insurance business in India.
• LIC Act, 1956
• Amendments to LIC Act

Regulations Affecting General Insurance Business in India
The following Acts affect, circumscribe or regulate in some way or the other, some aspect of the
General Insurance Business in India.
• General Insurance Nationalization Act, 1972
• Amendments to GIN Act, 1972
• Multi-Modal Transportation Act, 1993
• Motor Vehicles Act. 1988
• Inland Steam Vessels Amendment Act, 1977
• Marine Insurance Act, 1963
• Carriage of Goods by Sea Act, 1925
• Merchant Shipping Act, 1958
• Bill of Lading Act, 1855
• Indian Ports (Major Ports) Act, 1963
• Indian Railways Act, 1989
• Carriers Act, 1865
• Indian Post Office Act, 1898
• Carriage by Air Act, 1972
• Workmens' Compensation Act, 1923
• ESI Act, 1948
• Public Liability Insurance Act. 1991
Why Regulation of Insurance Businesses is required?
Any industry wherein the stakes of the public are high would come within the purview of a
Regulation – reason being that failure of such companies could result in serious implications on

the economy of the country at large. Insurance business involves collection of money from
various Policyholders, investing them properly, honouring the obligations of the Policyholders
and providing an efficient service. It is important to ensure that the entities providing these
services stick to their commitments. Failure to honour commitments by such entities could have
major repercussions on the financial services industry. After liberalisation and entrance of
Private players in Insurance business and Seeing the large numbers of customers and high risk
potential, Government of India constituted the Insurance Regulatory and Development Authority
in Year 1999.
CONSTITUTION OF INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY
The IRD Act has established the Insurance Regulatory and Development Authority (“IRDA” or
“Authority”) as a statutory regulator to regulate and promote the insurance industry in India and
to protect the interests of holders of insurance policies. The IRDA Act also carried out a series of
amendments to the Act of1938 and conferred the powers of the Controller of Insurance on the
IRDA. The members of the IRDA are appointed by the Central Government from amongst
persons of ability, integrity and standing who have knowledge or experience in life insurance,
general insurance, actuarial science, finance, economics, law, accountancy, administration etc.
The Authority consists of a chairperson, not more than five whole-time members and not more
than four part-time members. Every Chairperson and member of IRDA appointed shall hold
office for a term of five years. However, Chairperson shall not hold office once he or she attains
65 years while whole time members shall not hold office beyond 62 years. Central Government
may remove any member from office if he or she is adjudged insolvent or is physically or
mentally incapacitated or has been convicted of an offence involving moral turpitude or has
acquired financial or other interests or has abused his position. Chairperson and the whole time
members shall not for a period of two years from the date of cessation of office in IRDA, hold
office as an employee with Central Government or any State Government or with any company
in the insurance sector.
POWERS /FUNCTIONS OF IRDA Under Section 14 of the IRDA Act, IRDA has the
following powers:

(a) Issue of Certificate of Registration to insurance companies, renew, modify, withdraw,
suspend or cancel the certificate of registration
(b) Protection of interests of policyholders in matters concerning assignment of policies,
nomination, insurable interest, claim settlement, surrender value and other terms and conditions
of insurance contract
(c) Specification of requisite qualifications, practical training and code of conduct for insurance
agents and intermediaries
(d) Specification of code of conduct for surveyors and loss assessors
(e) Promoting efficiency in the conduct of insurance business
(f) Promoting and regulating professional organizations connected with insurance and
reinsurance business
(g) Levying fees and other charges for carrying out the purposes of the Act
(h) Calling for information from or undertaking inspection of insurance companies,
intermediaries and other oganisations connected with insurance business
(i) Control and regulation of rates, advantages, terms and conditions that may be offered by
general insurance companies
(j) Specifying the form and manner in which books of account shall be maintained by insurance
companies and intermediaries
(k) Regulation of investments of funds by insurance companies
(l) Regulation of maintenance of margin of solvency
(m) Adjudication of disputes between insurers and insurance intermediaries
(n) Supervising the functioning of Tariff Advisory Committee
(o) Specifying the percentage of premium income of the insurer to finance schemes for
promoting and regulating professional organizations

(p) Specifying the percentage of insurance business to be undertaken by insurers in rural or
social sectors
(q) Such other powers as may be prescribed.
Powers of IRDA with reference to control of management of insurance companies, takeover of
management, mergers, acquisitions and winding up Section 52A empowers IRDA to make a
report to Central Government if the affairs of a Life insurance Company are carried on in any
manner prejudicial to the interests of policyholders.
Based on the Report, the Central Government is empowered to appoint an Administrator to
manage the affairs of the life insurance company.
A report shall be filed by such Administrator to the Central Government giving his
recommendations on the way forward, including the options of transfer of business to an existing
insurer or winding up, as he deems fit.
Central Government is empowered to take such action as it deems fit based on the Report of the
Administrator.
Section 52H empowers Central Government to acquire the undertaking of any insurer based on
a report from IRDA on failure to comply with directions or if the insurance company is being
managed in a manner detrimental to the public interest or in the interests of public or
policyholders it is appropriate to do so.
Central Government may make a scheme for transfer of undertaking of the insurer to another
insurer in such cases and decide the appropriate compensation in such cases.
The Central Government may constitute a Tribunal comprising of a Chairman ( a person who is
or has been a Judge of the Supreme Court or a High Court) and two other members (one of
whom has experience in insurance and the other a Chartered Accountant) for this purpose.
Section 53 empowers the Tribunal to order for winding up in accordance with the Companies
Act, 1956, if based on a petition presented by shareholders holding not less than one-tenth of the
whole body of shareholders and holding not less than one-tenth of the whole share capital or by
not less than fifty policyholders holding life insurance policies in force for not less than three

years of total value of not less than `50,000, the Tribunal is satisfied to do so. In addition, IRDA
may also apply to the Tribunal for winding up on the following grounds:
(a) That the insurance company failed to deposit or keep deposited with Reserve Bank of India,
the amount required to be deposited under Section 7 or Section 98
(b) That the insurance company has failed to comply with any requirement of the Insurance Act
or has continued contravention for a period of three months after notice of such failure or
contravention has been conveyed to the Company by IRDA
(c) That it appears from returns or statements filed by the Company or from the results of the
Company that the company is deemed to be insolvent
(d) That the continuance of the company is prejudicial to the interests of the policyholders or to
the public interest generally
It may be noted that Section 54 of the Act prohibits voluntary winding up of insurance
companies, except for the purpose of effecting an amalgamation or reconstruction of the
company or on the ground that by reason of its liabilities it cannot continue its business. This
provision overrides the provisions of the Companies Act, 1956 on this point. An appeal against
the Tribunal formed under the Insurance Act shall lie with the National Company Law Appellate
Tribunal
Opening of places of business requires prior approval of IRDA Section 64VC requires every
insurance company to take a approval in advance in IRDA for opening any place of business or
for relocation of an existing place of business outside the same city, town or village. The
approval is required to be sought for opening of any offices, whether called as Branch office,
Head Office, Administrative office, Satellite office or any other similar names.
Powers of IRDA for imposition of penalties for default in complying with the Act (Section 102)
Section 102 empowers IRDA to impose a penalty not exceeding Rupees five lakhs for each of
the following failures by an insurance company:
(a) Failure to furnish any document, statement, account, return or report to IRDA

(b) Failure to comply with the directions (Section 34 empowers IRDA to issue directions if it is
satisfied to do so in the interests of public or for prevention of affairs being conducted
detrimental to policyholders or to secure proper management of any insurer)
(c) Failure to maintain the required solvency margin
(d) Failure to comply with the directions on the insurance treaties Further Section 105B
empowers IRDA to impose a penalty not exceeding Rupees Five lakhs for failure to comply with
Section 32B, while Section 105C empowers IRDA to impose a penalty not exceeding Rupees
Twenty five lakhs for failure to comply with Section 32C, with cancellation of certificate of
registration for continuing failure.
Regulation/Guidelines relating to Licensing Audit and Supervisions of Insurance
Companies Insurance Regulatory and Development Authority (Registration of Indian Insurance
Companies) Regulations, 2000, contains the provisions relating to licensing of Insurance
companies in India. These provisions have been amended from time to time and provide detailed
guidelines for registration as Insurance Company in
India. For supervising the operations of Insurance Companies in India, IRDA has issued various
guidelines from time to time and discussed under relevant chapters. As per the Insurance
Regulatory and Development Authority (Registration of Indian Insurance Companies)
Regulations, 2000 (as amended), every entity wishes to work as an Insurance Company needs to
apply with IRDA in the prescribed format.
IRDA (Licensing of Insurance Agents) Regulations, 2000 & IRDA (Licensing of Corporate
Agents), 2002
These Regulations provide for the conditions of licensing for individual insurance agents under
Section 42. The Regulations cover the following:
(a) Prescription of application for IRDA licensing along with the fees required
(b) Prescription of minimum qualifications for becoming an insurance agent – 12th standard or
equivalent examination if the Agent resides at places with population of 5,000 or more as per

census and a pass in the 10th standard or equivalent examination for candidates residing in any
other place
(c) Practical training requirements from an approved training institution for 50 hours covering
various insurance subjects. Further, the training hours for an agent who is going for a composite
licence – i.e. one life and one non-life licence, the training requirement is 75 hours Where the
applicant possesses professional qualifications such as membership of the Institute of Chartered
Accountants, Cost an Works Accountant or Company Secretaries, Actuaries or an MBA, the
number of training hours is reduced to 25.
(d) Pre-recruitment examinations to be conducted by the Insurance Institute of India
(e) Prescription of codes of conduct for Agents In the case of Corporate Agents, i.e. where the
entity licensed as an agent is a Company or firm, it must have at the minimum a Corporate
Insurance Executive and Specified Persons who are employees of the Corporate Agent entity and
who will have to possess minimum qualifications, undergo the practical training and pass the
examination conducted by the Insurance Institute of India. A licence issued under these
Regulations is valid for a period of 3 years after which it shall be renewed for continued
eligibility for Agents to solicit or procure insurance business. Insurance Surveyors and Loss
Assessors (Licensing, Professional Requirements and Code of Conduct) Regulations, 2000,
Insurance Surveyors and Loss Assessors (Licensing, Professional Requirements and Code of
Conduct) Regulations, 2000, as amended by, Insurance Surveyors and Loss Assessors
(Licensing, Professional Requirements and Code of Conduct) (Amendment) Regulations, 2013
contains provisions relating to registration, regulation and supervision of Insurance and loss
surveyors in India. Insurance Regulatory and Development Authority (Health Insurance)
Regulations, 2013 Insurance Regulatory and Development Authority (Health Insurance)
Regulations, 2013 contains the provisions relating to registration and other requirement relating
to third party administrator in India.
IRDA (SCHEME OF AMALGAMATION AND TRANSFER OF LIFE INSURANCE
BUSINESS) REGULATIONS, 2013 AND IRDA (SCHEME OF AMALGAMATION AND
TRANSFER OF GENERAL INSURANCE BUSINESS REGULATIONS, 2011)

Under the provisions of the Act, a Scheme of amalgamation or transfer is possible only between
two life insurance companies or two general insurance companies, It is not possible for a life
insurance company to be acquired by a general insurance company or vice versa, since separate
insurance companies are required to be formed for transacting life and general insurance
businesses.
The Regulations require submission of every proposal for implementation of proposed
amalgamation to be submitted to IRDA for a prior approval along with the draft Scheme of
amalgamation. However, before submission of the application, notice of intention to submit the
application shall be submitted one month before filing the application for approval for every
proposal for implementation as above along with a statement on the nature of amalgamation or
transfer along with the following documents:
(a) Draft of the agreement for the proposed amalgamation or transfer
(b) Balance Sheets of both the target insurance company and the acquiring insurance company
(c) Financial Condition Report. Solvency Statements and Incurred but not Reported (IBNR)
Report of both the insurance companies
(d) Report by an Independent Actuary (who has not been connected with any of the two
insurance companies during the past 3 years) on the proposed amalgamation or transfer
(e) Executive summary of the proposed amalgamation or transfer along with the terms on which
the transaction has been contemplated
(f) Report on the manner in which the interests of Policyholders will be protected and the
compliance with the applicable laws including the Competition Act, 2002 The financial
statements shall be prepared as on the appointed date, i.e. date fixed for the purpose of giving
effect to the scheme of amalgamation or transfer and IRDA may cause an independent actuarial
valuation of the insurance businesses of the transacting parties. IRDA would then consider issue
of an in-principle approval for the proposed amalgamation or transfer.
Upon receipt of the in-principle approval, the transacting parties shall inform their respective
Policyholders about the proposed Scheme of amalgamation or transfer as follows:
(a) Keeping the Scheme open for inspection for Policyholders at the Head office;

(b) Uploading the Scheme in the website of the transacting parties;
(c) Statement on nature and terms of amalgamation to be published in one leading National and
one vernacular Newspaper and filing copies with IRDA;
(d) Informing all the Policyholders individually giving notice about the application for the
proposed amalgamation or transfer. Upon receipt of the in-principle approval from IRDA, the
transacting parties would seek other legal clearances or regulatory approvals, including the
following: (a) Filing of the Scheme of arrangement, along with the in-principle approval of
IRDA, before the relevant Court or Tribunal for confirmation of the Scheme of arrangement
under Sections 391 to 394 of the Companies Act, 1956; (b) Filing applications before the Foreign
Investments Promotion Board or Reserve Bank of India for seeking necessary approvals; (c) If
the insurance companies have a foreign insurance company as a promoter who is regulated in
their country of origin, necessary regulatory approvals for the proposed Scheme from the
concerned regulator. (d) Such other approvals, including the approval of Securities and Exchange
Board of India or the Competition Commission of India.
Upon receipt of all the legal clearances or other regulatory approvals, the transacting parties shall
submit all the other approvals to IRDA for seeking their final approval. A final approval is then
considered by IRDA keeping in mind the stipulations laid down by the Court/Tribunal and other
regulatory authorities and the following considerations:
(a) compliance with the solvency margin requirements after the proposed transfer
(b) compliance with other applicable laws
(c) protection of interests of Policyholders
(d) orderly growth of the insurance industry and shall accordingly grant the final approval.
Upon receipt of final approval from IRDA, the following are the consequences:
(a) The scheme of amalgamation and transfer shall take effect from such date as may be
specified by IRDA while granting the final approval;
b) The final approval shall be binding on all Policyholders, Creditors or employees of both the
transacting parties;

(c) The assets and liabilities of the transferor insurer shall vest with the transferee insurer from
the effective date of transfer;
(d) Publication in one national and one vernacular newspaper confirming completion of the
process of amalgamation or transfer. In respect of amalgamation or transfer completed between
two life insurance companies, the transferee insurer shall file a certified true copy of the scheme,
deed or agreement under which the amalgamation or transfer has been effected along with a
declaration from the Chairman and the Principal Officer listing down the various payments made
or to be made to any person on account of the amalgamation or transfer effected
IRDA GUIDELINES FOR GRIEVANCE REDRESSAL In order to enforce timely redressal
of Customer grievance, the Insurance Regulatory and Development Authority (IRDA) has issued
guidelines for grievance redressal by insurance companies. A Grievance is defined as an
expression of dissatisfaction by a customer on the action or inaction on the standard of service or
deficiency of service of an insurance company or any intermediary and asks for remedial action.
It is distinguished from inquiry or a request which is seeking information or requesting for a
service and are not considered as Grievances. Every insurance company shall have a designated
senior officer at the level of CEO or Compliance Officer of the Company as the Grievance
Officer. Further every office of the insurer shall also have a designated Grievance officer for
such office.
The process for handing a Grievance is as follows:
(a) Every grievance shall be acknowledged within 3 working days of receipt of grievance,
containing the name and designation of the person who will deal with the grievance
(b) The Grievance redressal procedure including the time taken for resolution of disputes shall
be mentioned in the acknowledgement
(c) Normally a Grievance shall be resolved within 3 days. However, where it is not possible to
resolve within 3 days, the insurer shall resolve the complaint within 2 weeks and shall send a
final letter of resolution
(d) Where a complaint is rejected, the reasons shall be clearly stated alongwith the recourse
available if the customer is still dissatisfied

(e) Further if the insurer shall inform the customer that if the customer does not come back
within 8 weeks from the date of providing resolution, the grievance shall be treated asclosed
(f) A grievance can be closed only if the following conditions are satisfied:
1. Where the insurance company has acceded to customer’s grievance, upon acceding to the
request of the customer
2. Where the insurance company rejects the customer’s grievance, upon receipt of a
communication from customer accepting the company’s resolution
3. Where the insurance company rejects the customer’s grievance and the customer does not
respond within 8 weeks of receipt of resolution, upon completion of the 8weeks
4. In all the above instances, the Grievance Redressal Officer shall certify that the Insurance
company has discharged its contractual, statutory or regulatory obligations Every insurance
company shall publish the Grievance Redressal Procedure in the website of the insurance
company. The Policyholders Protection Committee of the Insurance Company shall receive
reports concerning Grievances and shall monitor the process of handling grievances.
IRDA (Obligations of Insurers to Rural and Social Sectors) Regulations, 2000 (as amended
from time to time) IRDA (Obligations of Insurers to Rural and Social Sectors) Regulations, 2000
provides that every insurance company is required to undertake a minimum percentage of
business providing insurance coverage to persons residing in rural areas and providing coverage
to persons who are engaged in social sector. Rural areas have been defined as those places which
have been classified as rural areas as per the latest census. The obligations of insurers under
Rural Sector is calculated as a percentage of the total number of policies sold by an insurance
company and is dependent on the age of the insurance company as follows: For a life insurance
company, the percentage with 7% (2%) in the first financial year of operations, increases to 12%
(5%) in third financial year and 16%(5%) in the fifth financial year and 20% (7%) in the tenth
financial year. Note: figures in brackets indicate obligations of general insurance companies. In
respect of Social sector, the obligation is in terms of number of Lives assured covered under an
Insurance policy belonging to social sector occupations as defined in the Regulations. The
number of lives required to be covered under this sector is also dependent on the age of the
insurance company as follows: For both Life and General insurance companies, the number of

lives to be covered increases from 5,000 lives in the first financial year to 20,000 lives in the fifth
financial year and 55,000 lives in the tenth financial year Social Sector is defined unorganised
sector, informal sector, economically vulnerable or backward classes and other categories of
persons, both in rural and urban areas.
IRDA (Micro Insurance) Regulations, 2005 A micro insurance products is designed to meet
the needs of persons, especially residing in rural areas, 82 PP-IL&P whose primary requirement
is basic insurance coverages in life, such as payment of insurance benefit upon death of the bread
winner, to the family or Health insurance etc. The intention is provide a low cost product to such
persons. A life micro insurance product is therefore a pure term insurance product, or an
endowment assurance product or a health insurance product with or without accident benefit. A
general micro insurance product includes health insurance, insurance coverage on huts, livestock,
tools or instruments or any personal accident contract. Minimum and maximum amount of sum
assured have been prescribed for each product category under Schedule I and Schedule II to the
Regulations. For any of the product categories the sum assured cannot be less than `5,000 or
more than `50,000. A Non Governmental Organisation or a Self Help Group or a Micro Finance
Institution or a Non-profit organisation (Companies registered under Section 25 of the
Companies Act, 1956) can be appointed by an insurer to act as a Micro Insurance Agent. The
Regulations provide for a tie up between a Life insurance company and a General insurance
company for offering both life and general micro insurance products together to a customer. A
micro insurance product may be distributed by a licensed agent or an insurance broker, but a
Micro insurance agent is prohibited from distributing any insurance product other than micro
insurance products. A micro insurance agent is allowed to act as an agent for micro insurance
products of one life insurance company and one general insurance company at a time by entering
into an agreement with them. The insurers concerned shall impart 25 hours training on micro
insurance products, customer service, claims etc. to the Micro insurance agents. A micro
insurance agent shall appoint Specified persons who are authorised to sell on behalf of the Micro
insurance agent (who can be a NGO or SHG or MFI as above) All insurance companies are
expected to issue polices in vernacular language to facilitate customer understanding of the
policy terms and conditions. Where it is not possible a write up in vernacular language must be
attached with the policy document. A micro insurance agent may be paid a remuneration not
exceeding 10% for single premiums received, 20% (15% for general insurance companies) for

the premiums received during all policy years. All micro insurance products sold shall be
reckoned for the purpose of social sector obligations of an insurance company. Where the micro
insurance product is also sold in a rural area, it shall be counted both for rural and social sector
obligations separately. Exposure draft to Micro Insurance (Modification) Regulations On
comprehensively examining the existing business model adopted under Micro Insurance vis-a-
vis the extant regulations on Micro Insurance,
IRDA proposed to review the IRDA (Micro Insurance) Regulations, 2005. Accordingly, an
exposure draft on Micro Insurance (Modification) Regulations was issued in July, 2012 for
further and wider deliberations on the subject. As on August, 2013, the modified rules are yet to
be published by IRDA. IRDA GUIDELINES TO FINANCIAL INCLUSION Insurance
Regulatory & Development Authority (IRDA) has been making immense efforts to educate and
Lesson 4 Regulatory Environment – Specific Legislations 83 empowers the common citizens
about insurance industry in India and their rights & responsibilities. IRDA has been at the
forefront of insurance sector deepening, protecting the rights of policyholders, regulating
insurance companies & advisors and bringing about insurance inclusion in India for all segments
esp. the poor.
Some of the steps taken by IRDA for financial inclusion include
1. National Strategy for Financial Education the Insurance Regulatory and Development
Authority (IRDA) has released the draft National Strategy for Financial Education for comments
and feedback in Year 2012. The final strategy is yet to be notified by the IRDA. The National
Strategy recognises that financial literacy and financial education play a vital role in financial
inclusion and inclusive growth and envisages ways towards creating awareness and educating
consumers on access to financial services, availability of various types of products and their
features; changing attitudes to translate knowledge into responsible financial behaviour; and
making consumers of financial services understand their rights and obligations. The National
Strategy seeks to create a financially aware and empowered India. It aims at undertaking a
massive Financial Education campaign to help people manage money more effectively to
achieve financial well being by accessing appropriate financial products and services through
regulated entities with fair and transparent machinery for consumer protection and grievance
redressal.

2. Website on Insurance Education In an attempt to increase insurance awareness levels across
the country, the authority has taken a number of consumer education initiatives and has recently
launched an exclusive insurance education website www.policyholder.gov.in This website has
self-explanatory menus and gives information in simple language on topics such as: • Buying
insurance
• Making a claim
• Policyholder Protection and Grievance Redressal
• Handbooks in 13 languages
• Do’s and Don’ts for a policyholder
• Comic series • Consumer Affairs Annual Booklets
3. Grant of Corporate Agency license to Department of Postal To promote financial inclusion,
insurance regulator Insurance Regulatory and Development Authority (IRDA) has granted
corporate agency license to the Department of Post for distributing insurance products.
4. Emphasis on educating insurance agents to weed out mis-selling India’s Insurance Regulatory
and Development Authority (IRDA) has been chalking out an ambitious plan to combat mis-
selling, a menace that has been haunting the industry for about a decade now, especially after the
emergence of equity-oriented insurance products. During fiscal year 2012, the regulator received
1 lakh complaints on mis-selling. IRDA has been emphasizing specialized training to the
country’s 2.5 million insurance agents after they clear the basic examination to qualify as a
licensed agent to sell insurance products. The training, aimed at instilling seriousness among
insurance agents about sales as a career and stop unfairly selling insurance schemes just to earn
commissions.
IRDA REGULATION RELATING TO PRODUCTS APPROVAL An insurance company
cannot launch any product unless the product specifications are filed with IRDA and are
approved by them. This procedure is popularly called “file and use” procedure under the IRDA
Regulations. This procedure is required to be followed whenever a new product is launched or
whenever an existing product is withdrawn or modified. IRDA have recently issued the

following two Regulations, subsuming all the existing notifications with reference to Product
design:
(a) IRDA (Non-Linked Insurance Products) Regulations, 2013
(b) IRDA (Linked Insurance Products) Regulations, 2013 A linked life insurance product is one
which combines the benefit of insurance coverage and investment in one product. Under this
type of product, the balance amount available after appropriation of charges, including the
mortality charges, in invested in market linked investments. For example, investment in listed
equities or bonds. The Policyholder, in addition to providing the fundamental risk coverage, a
linked insurance product also provides an investment management service and the value of
investment is reflected in the form of Net asset value from time to time. The risk on the
investment portion lies with the Policyholders. A non-linked life insurance product, on the other
hand, does not provide the investment management service on behalf of the policyholders.
Typically, the following are the benefits under a non-linked insurance product:
(a) Covers risk of mortality – i.e. risk of dying early – provides sum assured on death, e.g. Term
insurance policies or whole life insurance policies which provide sum assured only on death
(b) sum assured which can be provided on survival to the maturity of the policy, e.g. Endowment
Policies which provide for sum assured on death or on maturity whichever is earlier
(c) Annuity contracts, which covers the risk of living longer, by providing periodic payments as
long as the policyholder is alive
(d) Health insurance contracts, which cover the risk of hospitalization (General insurance
companies also offer health insurance contracts on indemnity basis)
(e) Rider benefits e.g. Accident Death Benefit rider (where an additional sum assured is paid on
death due to accident)

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