Risk Analysis and Insurance Planning

h) possessing any professional qualification in marketing from any Institution/ University recognised by any State Government or the Central Government; i) (from 1.4.2009, it is compulsory that a Broker should have the Designated Person with qualification of AIII / FIII). Besides individuals, some of the companies are making use of banks, building societies and others as agents to increase the new business volumes. Further, tied agency has also become a popular channel of distribution where in the tied agents are representatives of the company drawing commissions as remuneration. Banks, under the contract of ―bancasurrance‖ which is the strategic alliance between an insurance company and the bank, where in the banks use their resources and client base to augment sales of insurance policies. This arrangement provides mutual benefit to the bank as well as the insurance company and more importantly value addition to the customer, who can derive insurance services also from his bank counter. (C) 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 training of 25 hours 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 fulfillment 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. 389

2. Brokers Regulation 2(i) of the IRDA (Insurance Brokers) Regulations, 2002, defines Insurance Broker as a person form the 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. The insurance regulator IRDAI has doubled the capital requirements for setting up different categories insurance broking companies in the country. The new regulations, which have been unveiled on Wednesday, have specified Rs 75 lakh(earlier Rs 50lakh), Rs 4 crore(Rs 2 cr) and Rs 5 crore(Rs2.5 cr) of capital for direct 390

broker, reinsurance broker and composite 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 391

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 rounder 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. 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 conditions specified in the act. 3. Surveyors & Loss Assessors 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 foray general insurer. A license 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, Associate ship 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. 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 392

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. 393

4. Health Third Party Administrators 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 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. 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. 5.2.3 Difference between Insurance Agents and Brokers 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. 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. Thus, an agent represents only one insurance company (one general, one life or both if a composite agent, apart from a health insurance company). A broker may deal with more than one life insurance company or general insurance company or both in return gets commission. 5.2.4 Agency Law and Functions of an Agent As per the Insurance Act 1938(section 42), one must have a license to work as an insurance agent. IRDA deals with issuance of licenses and other matters relating to agents recruitment. There are regulations which must be complied with at all stages in the process. Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000 and Insurance Regulatory and Development Authority (Licensing of Insurance Agents) (Amendment) Regulations, 2002 give detailed provisions relating to licensing of agents. Principal-Agent Relationship- Legal Implications and Status Sections 182 to 238 of the Indian Contract Act, 1872 govern the relationship between a Principal and an Agent. An insurance agency contract is also governed by the principles 394

enshrined therein. An Agent(―Insurance Agent‖) is a person employed to do any act for another or to represent another in dealings with third persons. The function of an agent is to bring his principal into contractual relations with third persons. A Principal (―Insurer‖) is a person for whom the above act is done or who is so represented. There are two important rules of agency: 1. Whatever a person can do personally, he can do through an agent 2. He who does an act through another does it by himself In this regard, it is pertinent to note the provisions of Section 237 of the Indian Contract Act, 1872 on the extent to which the acts of the Agent bind the Principal. Where an Agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent‘s authority. Further Section 238 of the Indian Contract Act, 1872 states that misrepresentation or frauds committed by the agent acting in the course of business for their principals, have the same effect on agreements made by such agents as if such misrepresentation or frauds had been made or committed by the principals. But misrepresentation or frauds committed by agents in matters which do not fall within their authority do not affect the principals. For example, if an insurance agent misrepresents to the customer while selling an insurance product, the policy contract (agreement between insurer and policyholder) may become voidable at the option of the Policyholder. An agent, who acts within the scope of authority conferred by his or her principal, binds the principal in theobligations he or she creates against third parties. There are essentially three kinds of authority recognized in law, viz., actual authority (express or implied), apparent authority and ratified authority. Actual authority denotes the authority conferred on an agent by the Principal. It may be express or implied. Implied authority, as opposed to an express authority which is clearly given to the agent, is the authority which the agent has by virtue or being reasonably necessary to carry out his express authority, which might be incidental or ancillary to the express authority. Apparent authority or the ostensible authority exists where the Principal‘s word or conduct would lead a reasonable person in the third party‘s position to believe that the agent was authorised to act, even if the principal and the purported agent had never discussed such a relationship. This is also called as ―agency bye stoppel‖ or the ―doctrine of holding out‖. Acts of the Agent constitute the acts of the Principal (Insurance company) if the said Agent acts within the scope of authority granted by the Principal. Further the principle of estoppel is also applicable. Here it is a mentionable fact that relationship between Brokers to an Insurance company is on a ―principal to principal‖ basis. Since Broker represents a customer, acts of a Broker does not bind an insurer. Agents’ Code of Conduct IRDA regulations stipulate that every person holding a licence as an insurance agent shall adhere to the code of conduct specified below:- a) Every Insurance Agent Shall 395

(i) Identify herself / himself and the insurance company of whom she / he is an insurance agent; (ii) Disclose her / his licence to the prospect on demand; (iii) Explain carefully the requisite information in respect of insurance products offered for sale by her / his insurer and take into account the needs of the prospect while recommending a specific insurance plan; (iv) Disclose the scales of commission in respect of the insurance product offered for sale, if asked by the prospect; (v) Indicate the premium to be charged by the insurer for the insurance product offered for sale; (vi) Explain to the prospect the nature of information required in the proposal form by the insurer, and also the importance of disclosure of material information in the purchase of an insurance contract; (vii) Bring to the notice of the insurer any adverse habits or income inconsistency of the prospect, in the form of a report (called ―Insurance Agent‟s Confidential Report‖) along with every proposal submitted to the insurer, and any material fact that may adversely affect the underwriting decision of the insurer as regards acceptance of the proposal, by making all reasonable enquiries about the prospect; (viii) Inform promptly the prospect about the acceptance or rejection of the proposal by the insurer; (ix) Obtain the requisite documents at the time of filing the proposal form with the insurer; and other documents subsequently asked for by the insurer for completion of the proposal; (x) Render necessary assistance to the policyholders or claimants or beneficiaries in complying with the requirements for settlement of claims by the insurer; (xi) Advise every individual policyholder to effect nomination or assignment or change of address or exercise of options, as the case may be, and offer necessary assistance in this behalf, wherever necessary; b) No Insurance Agent Shall (i) Solicit or procure insurance business without holding a valid license; (ii) Induce the prospect to omit any material information in the proposal form; (iii) Induce the prospect to submit wrong information in the proposal form or documents submitted to the insurer for acceptance of the proposal; (iv) Behave in a discourteous manner with the prospect; 396

(v) Interfere with any proposal introduced by any other insurance agent; (vi) Offer different rates, advantages, terms and conditions other than those offered by her / his insurer; (vii) Demand or receive a share of proceeds from the beneficiary under an insurance contract; (viii) Force a policyholder to terminate the existing policy and to effect a new proposal from him within three years from the date of such termination; (ix) Have, in case of a corporate agent, a portfolio of insurance business under which the premium is in excess of fifty percent of total premium procured, in any year, from one person (who is not an individual) or one organisation or one group of organisations; (x) Apply for fresh license to act as an insurance agent, if her / his license was earlier cancelled by the designated person, and a period of five years has not elapsed from the date of such cancellation; (xi) Become or remain a director of any insurance company; c) Every Insurance Agent Shall Every insurance agent shall with a view to conserve the insurance business already procured through him; make every attempt to ensure remittance of the premiums by the policyholders within the stipulated time, by giving notice to the policyholder orally and in writing. It means the agent should ensure that premium is paid well in advance on renewal or else the risk will not be assumed by the insurer. Prohibition of Rebates No intermediary is allowed to induce anyone to take a policy. Section 41 of the Insurance Act, 1938 is hence an important section for an insurance agent. It reads as follows: Section 41 of the Insurance Act, 1938 ―41. (1) No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer; Provided that acceptance by an insurance agent of commission in connection with a policy of life insurance taken out by herself / himself on her / his own life shall not be deemed to be acceptance of a rebate of premium within the meaning of this sub section if at the time of such acceptance the insurance agent satisfies the prescribed conditions establishing that she / he is a bona fide insurance agent employed by the insurer.‖ \"Section 41 (2) of the Insurance Act, any person making default in complying with the provisions of this section shall be liable for a penalty which may extend to ten lakh rupees.\" This states that an agent cannot offer any rebates on premium as an inducement to the 397

policyholder, except as allowed by the insurer. Functions of an 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 5.2.5 Doctrines of Waiver and Estoppels A waiver is the voluntary relinquishment or surrender of some known right or privilege. Estoppel prevents a person or organization from adopting a position, action or attitude inconsistent with an earlier position if it would result in an injury to another person. Estoppel is a set of doctrines in which a court prevents a litigant from taking an action the litigant normally would have the right to take, in order to prevent an inequitable result. Estoppel occurs when a party \"reasonably relies on the promise of another party, and because of the reliance is injured or damaged\". Estoppel is essentially a rule of evidence whereby a person is barred from denying a fact that has already been settled. A waiver is a voluntary relinquishment of a known right, whereas estoppels prevents a person from asserting rights because he or she has acted previously in such a way as to deny any interest in preserving the rights. A waiver usually involves a statement to an insured that he or she need not worry about compliance with some conditions in the contract or in disclosing certain information. Many courts appear to use the doctrine interchangeably e.g. it is common to read that the insurer waived his rights and is, therefore, estoppels from asserting this right at a later date. A waiver may be implied by the conduct 398

of the insurer or it may be expressly stated. We shall try to understand the concept with the help of simple illustration. A policy contained a condition that all losses shall be intimated to the insurer within 7 days of occurrence of loss. The insured intimated a loss after 15 days and explained the reasons for delay. The insurance company wrote back to the insured to complete other documentary formalities so that the claim could be processed without mentioning about the delay in claim reporting. It will be presumed that the insurance company has waived the breach of condition and the waiver is implied by the act of the insurer. On the other hand if the insurance company writes back to the insured that looking into the genuineness of his problem they are condoning the delay, this is an express waiver. Now once the insurers have waived the delay they cannot deny their liability on the grounds of delay in reporting the claim because of theDoctrine of Estoppel‘. The following examples will give you an idea of how these doctrines are applied to various insurance situations. Waivers There are several types of waiver. Each is often raised in the insurance context. (1) Express Waivers: may be oral or written. In either case, they are clear statements that a right is being given up. If your insurance company, for example, notifies you that it has not lapsed your policy for non-payment of premiums, even though it had the right to do so, it has expressly waived that right. (2) Implied Waivers: are not created by words, but rather through the conduct of the waiving party that clearly indicates that a right will not be enforced. For example, if your insurance company accepts a premium from you that is delivered after the expiration of the grace period, it has impliedly waived its right to assert that your policy has lapsed. (3) Waiver by Silence: is created when there is a duty to speak. If, for example, your insurance company learns of facts showing that you are no longer disabled but continues to pay you disability benefits, it is possible that a court might hold that the insurance company has created a waiver by silence when the insurance company later attempts to recoup the benefits it erroneously paid. Another example: if your insurance company receives an incomplete application from you but fails to inquire about the missing information, courts will ordinarily rule that your insurance company has waived its right to deny benefits on the basis of missing information. Similarly, if, when processing a claim from you, your insurance company fails to state all known grounds for denial of your claim, courts will usually rule that it has waived those grounds it has not asserted. So, if the grounds it has asserted fail, it is out of luck. It cannot then bring up new grounds for denial. Estoppels Estoppel, on the other hand, usually does not require examination of a party‘s intent. Instead, the equitable doctrine of estoppel looks to whether the party asserting estoppel would otherwise suffer an inequitable detriment based upon the conduct of the other party. One court, for example, found that an insurance company was estopped (prevented) from asserting a policy‘s cancellation provision against its policyholder when the insurance company had a history of accepting late payments from other policyholders. The court 399

stated that the insurance company had misled its policyholder into thinking that sending late premium payments was acceptable, and it ruled that the insurance benefits were owed. Similarly, if your insurance company has routinely mailed you a notice when each premium is due and it suddenly stops sending premium notices to you without warning or explanation, your insurance company would likely be estopped from asserting that your policy has lapsed because your premium payment was late. In this case, you were misled into thinking a premium notice would always be sent before the policy would lapse for non- payment of premium. The insurance company had created a reasonable basis for you to rely on the premium notice. There have been plethora of cases in India that have discussed the doctrine of Waiver. Some of the important ones are. Jaswant singh Mathura singh & Anr.v. Ahmedabad Municipal Corporation &Ors.[4]– In this case, the court said that everyone has a right to waive an advantage or protection which seeks to give him/her. For e.g. In case of a Tenant-Owner dispute, if a notice is issued and no representation is made by either the owner, tenant or a sub-tenant, it would amount to waiver of the opportunity and such person cannot be permitted to turn around at a later stage. Krishna Bahadur v. M/s. Purna Theatre & Ors.[5] – This case made a differentiation between the principle of Estoppel and the principle of Waiver. The court said that ―the difference between the two is that whereas estoppel is not a cause of action; it is a rule of evidence; waiver is contractual and may constitute a cause of action; it is an agreement between the parties and a party fully knowing of its rights has agreed not to assert a right for a consideration‖. The court also held that: “A right can be waived by the party for whose benefit certain requirements or conditions had been provided for by a statute subject to the condition that no public interest is involved therein. Whenever waiver is pleaded it is for the party pleading the same to show that an agreement waiving the right in consideration of some compromise came into being. Statutory right, however, may also be waived by his conduct.” 1. Municipal Corporation of Greater Bombay v. Dr. Hakimwadi Tenants' Association &Ors.[6] – This case said that even though Waiver and Estoppel are two different concepts, still the essence of a Waiver is an estoppel and without Estoppel, there cannot be any Waiver. The court also said ―Estoppel and waiver are questions of conduct and must necessarily be determined on the facts of each case‖. 400

SUMMARY  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.  Every insurer who proposes to do insurance business has to register with IRDA and obtain a license before they start doing insurance business.  Only Companies formed and registered under the Companies Act, 1956, where under the foreign equity is not more than 26% (since 2014, it has been increased to 49%),are allowed (IRDA allows only Public limited companies).  IRDA is vested with powers under the Act to cancel the registration of insurers on certain grounds such as default in complying with the provisions of the Act or Regulations passed there under, carrying on business other than insurance business etc.  The market players in insurance industries includes (A) Agents, (B) Brokers, (C) Surveyors & Loss Assessors, (D) Health Third Party Administrators,  Section 2(10) of the Insurance Act, 1938, defines an Insurance Agent as an insurance agent licensed under Section 42 of the said Act and who received or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance.  Regulation 2(i) of the IRDA (Insurance Brokers) Regulations, 2002, defines Insurance Broker as a person for the 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.  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.  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 401

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.  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.  As per the Insurance Act 1938 (section 42), one must have a license to work as an insurance agent. IRDA deals with issuance of licenses and other matters relating to agents recruitment.  A waiver is the voluntary relinquishment or surrender of some known right or privilege.  Estoppel is a set of doctrines in which a court prevents a litigant from taking an action the litigant normally would have the right to take, in order to prevent an inequitable result. 402

SELF ASSESSMENT QUESTIONS 1. What is the primary purpose of insurance regulations? (a) To generate fee income (b) Protect the interests of policyholders (c) To settle customer disputes (d) To control the market share of private insurers 2. Under _________ an insurance company notifies you that it has not lapsed your policy for non-payment of premiums, even though it had the right to do so. (a) Express Waiver (b) Implied Waiver (c) Waiver by Silence (d) Estoppels 3. Insurance business in India is transacted in India primarily as per the provisions of: (a) IRDA Act, 1999 (b) Insurance Act, 1938 (c) Life Insurance Act, 1956 (d) Employees State Insurance Act 1948 4. Which of the following is not barred to have played a role in case of a Free Consent? (a) Undue influence (b) Fraud or Misrepresentation (c) Mutual interest (d) Coercion 5. . __________ is a stipulation, which prevents the insurance company from enforcing or claiming a right due to its previous acts, which were in such a way as to forego any desire to preserve that right. (a) Estoppels (b) Waiver (c) Aleatory (d) Proximate 6. The ________ is one who holds a license to act as an insurance agent for a life insurer as well as a general insurer. 403

(a) Composite Insurance Agent (b) Banc assurance Agent (c) Designated Person (d) Corporate Agent 7. In which of the following conditions the contract is a voidable contract? (a) A contract is entered into with full disclosures and free consent but later it sis discovered that it is violating the law. (b) With a fraudulent intent certain details or information, which are material to the risk, are either not disclosed or misrepresented. (c) A party which later discovers a material defect in the contract and has the power to reject the contract but chooses not to do so. (d) Through an oversight certain details or information, which are not material to the risk, is not disclosed. 8. A clause aimed at bringing about cooperation between the assured and the insurer such that rights of neither party are affected with regard to the goods is (a) Excess clause (b) Waiver clause (c) Collision clause (d) Proximate cause clause 9. As per E.S.I. Scheme of India the eligible employees who earn equal to or less than ₹Per day are exempted from paying their contribution to the scheme but still will receive the benefits of the scheme (a) ₹25 (b) ₹50 (c) ₹125 (d) ₹100 10. The IRDA has made it obligatory for insurance companies to procure business from (a) Urban sector (b) Social or Rural sector (c) Organized sector (d) Both (a) & (b) above 11. The solatium scheme was initiated by the Central Government in 1989 for payment of compensation to the victims of ________. 404

(a) Hit and run accidents (b) No Fault Liability (c) Public Liability (d) Occupational diseases 12. Insurer Investment Regulations in India are now defined by (a) Ministry of Finance (b) Ministry of Corporate Affairs (c) IRDA (a) Central Government 13. Which among the following activities is prohibited as per the provisions of Insurance Act, 1938? (a) Keeping aside reserves to meet solvency requirements (b) Using rebates as a tool to sell insurance policies (c) Prospecting customers (d) Limiting management expenses 14. Which of the below intermediary is not involved in procurement of business? (a) Insurance brokers (b) Individual agents (c) Surveyors (d) Corporate agents 15. ________________ may deal with more than one Life Insurance Company orgeneral insurance company or both. (a) Agent (b) Broker (c) Corporate agent (d) Retail agent 16. Identify the statement which is not correct. Insurance agent should __________. (a) Indicate the scale of commission if asked by the customer (b) Share the commission by way of rebate (c) Disclose his license on demand (d) Indicate the premium to be charged 405

17. License to work as an insurance agent is issued by __________. (a) General Insurance Corporation (GIC) (b) Insurance Regulatory & Development Authority (IRDA) (c) By the respective life insurance company (d) Finance Ministry 18. As per consumer protection act, District Consumer Disputes Redressal Forum deals with cases valuing upto (a) ₹20 lakhs (b) ₹1 crore (c) ₹25 lakhs (d) ₹10 lakhs 19. _______________________ provides the ground rules for the operating insurance companies in India. (a) The Companies Act, 1956 (b) The Insurance Regulatory & Development Authority Act, 1999 (c) The Indian Contract Act, 1872 (d) The Insurance Act, 1938 20. Which among the following cannot be an element in a valid insurance contract? (a) Offer and acceptance (b) Consideration (c) Legality (d) Coercion 406

ANSWERS TO SELF ASSESSMENT QUESTIONS 1. (b) Protect the interests of policyholders 2. (a) Express Waiver 3. (b) Insurance Act, 1938 4. (c) Mutual Interest 5. (a) Estoppels 6. (a) Composite Insurance Agent 7. (d)Through an oversight certain details or information, which are not material to the risk, is not disclosed. 8. (b) Waiver Clause 9. (a) ₹25 10. (b) Social or Rural sector 11. (a) Hit and run accidents 12. (c) IRDA 13. (b) Using rebates as a tool to sell insurance policies is prohibited under Insurance Act 1938. 14. (c) Surveyors are not involved in procurement of insurance business. 15. (b) An insurance broker may deal with more than one life insurance company or general insurance company or both. 16. (b) Insurance agent cannot share commission through rebates. 17. (b) Licence to work as an insurance agent is issued by the IRDA. 18. (a) ₹20 lakhs 19. (d) The Insurance Act, 1938 20. (d) Coercion is not an element of a valid contract. 407