Regulatory Framework of Insurance Business in India – Insurance Law and Practice Important Questions

Question 1.
Distinguish between the following:
(i) ‘Insurance agent’ and ‘broker’.
Answer:
(i) The key difference between the insurance agent and broker is that while an agent represents a single insurance company, the broker will represent the client and has to get the best deal among the various insurers. The brokers are also bound by a code of conduct to inform clients of major restrictions or changes in the cover and assist them in negotiating claims.

Question 2.
Distinguish between ‘nomination’ and ‘assignment’ with an example.
Answer:
Following are the points of Difference between ‘Nomination’ and ‘Assignment’

Nomination	Assignment
1. Nomwiation is appointing some person(s) to receive policy benefits only when the policy has a death claim.	Assignment is transfer of rights, title and interest of the policy to some person(s).
2. In other words, by merely nominating someone, the right, title and interest of the insured over the policy is not transferred straightforwardly to that nominated person and remains with the insured person only.	In other words, the insurer is bound to pass over the benefits, claims and/or interests to the assigned person(s). Even during the time the insured is alive (or even prior to the death of the insured person).
3. Nomination is done at the instance of the insured.	Along with the instance of the insured, consent of insurer is also required.
4. It can be changed or revoked several times.	Normally assgrment is done once or twice during the policy penod. Assignment can be normally revoked after obtaining the ‘no objection certificate” from the concerned Assignees.
5. No attestation ¡s prescribed In the case of nomination.	Attestation is required in case of assignment.
6. In case of nomination, the money will be paid to the nominee if he survives the assured.	In case of assignment, money under the policy shall be paid to the assignee.
7. Nomination is made without consideration.	Assignment of a lite policy may be with or without consideration.

Question 3.
Distinguish between agenr and ‘broker’.
Answer:
Following are the points of difference between ‘Insurance agents’ and ‘insurance brokers’.

Insurance Agent	Insurance Broker
Section 2(10) of the Insurance Act, 1938, defines an Insurance Agent as an insurance agent who receives or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including. business relating to the continuance, renewal or revival of policies of insurance.	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.
2. In simple words Insurance agents are insurance professionals that serve as an intermediary between the insurance company and the insured. As a board statement of law, an agent’s liability to their customers is administrative.	Insurance brokers can be best described as a kind of super-independent agent. Brokers can offer a whole host of insurance products for you to consider.
3. An Insurance Broker represents the client.	An Insurance Agent represents the insurance company.
4. An Insurance Broker is licensed to recommend the products of any insurance company.	Insurance Agent at any point time can sell the insurance products of only one insurance company with which he is attached.
5. The main duties of agents are timely and accurate processing of forms, premiums, and paperwork.	Brokers have the duty to analyze business and secure correct and adequate coverage for the business.

Question 4.
Attempt the following:
(i) Describe the role of insurance ombudsman in redressal of complaints relating to claims.
(ii) What do you understand by ‘insurable interest’ and ‘reasonable premium’? How is the insurable interest created?
(iii) State the procedure for appointment and licensing of surveyors.
Answer:
(i) Insurance Ombudsman:
The Governing body shall appoint one or more persons as Ombudsman for the purpose of resolving insurance disputes.

Persons eligible to be appointed as Insurance Ombudsmen:
Only the following persons shall be eligible to be appointed as Insurance Ombudsmen:

Persons who served in the capacity of Chairman or Managing Director in Public Sector Insurance Companies.
Persons who have served the Indian Administrative Service or the Indian Revenue Service.
Persons who are retired Judges of the Supreme Court or the High Courts.

An Ombudsman shall be appointed by the Governing body from a panel prepared by a Committee comprising of:

Chairman, IRDA
Two representatives of Insurance council including one each from Life Insurance business and from General Insurance respectively.
One representative of Central Government.

Term of office and Remuneration of Ombudsmen:
An Ombudsman shall serve for a term of three years and shall be eligible for reappointment. However, an Ombudsman shall not hold office after he or she attains the age of 65.
The Ombudsman shall be paid salary of ₹ 80,000 per month and any pension to which he is entitled from Central Government or Statement Government or any other organization or institution shall be deducted from his salary.

Powers of Ombudsmen:
An Ombudsmen is empower to entertain the following disputes:

A complaint as specified under Rule 13.
Partial or total repudiation of claims by an insurer.
Dispute with regard to the premium paid or payable in terms of the policy.
Dispute on the legal construction of policies with regard to claims.
Delay in settlement of claims.
Dispute on the legal construction of policies with regard to claims.
Delay in settlement of claims.
Non-issuance of any insurance document to customers after receipt of premium.

Procedure for making a Complaint:
Any person who has a grievance against the insurer may himself or through the legal heirs make a complaint in writing to the Ombudsman within whose jurisdiction the branch or office of the insurer complained against is located.

The Complaint shall be in writing duly the complainant or through his legal heirs and shall state clearly the name and address of the complainant, the name of the branch or office of the insurer against which the complaint is made, the fact giving rise to the complaint, supported by the documents, if any, relied on by the complainant, the nature and extent of the loss caused to the complainant and the relief sought from the Ombudsman.

In order that a complaint is entertained before the Ombudsman, the following conditions must be satisfied:

The complaint must have first exhausted the remedies available within the insurance company for settling the grievance and approach Ombudsman only if either the insurance company rejects the grievance or complainant not satisfied with the reply or the insurer fails to respond within one month of submission of the grievance.
No complaint can be preferred before the Ombudsman after one year from the date of rejection of final letter from the insurance company on the representation made by the complainant.
If the complainant has not preferred alternative legal remedies and the proceedings are not pending before any Court or Consumer forum.

(ii) ‘Insurance interest’ and ‘reasonable premium’:
The premium to be charged should be reasonable so as to leave a small margin of profit for the insurer after meeting the expenses and at the same time it should be sufficient to sustain the contingencies which have to be met under the policy. Insurable interest can be referred to the right to insure arising out of a financial relationship recognized under law.

Insurable interest is said to exist when the person insuring stands to lose if the event insured against occurs. The courts in India have consistently held that an insurance of the life of a person in which the person affecting the insurance has no interest is void as a wagering contract under Section 30 of the Indian Contract Act. Insurable interest is thus a legal prerequisite for insurance. Insurance is a contingent contract to do or not to do something if some event collateral to such contract does or does not happen.

(iii) Licensing Procedure:
Regulation 3 of the Insurance Surveyors and Loss Assessors
(Licensing, Professional and Code of conduct)

Regulations, 2000 specifies the requirements for issue of a licence:

He holds a degree in any branch of engineering (or) Postgraduate diploma in general insurance issued by Institute of Insurance and Risk Management (or) a Degree in Agriculture (or)

He is a member of the Institute of Chartered Accountants of India or the Institute of Cost and Works Accountants of India (or)

He possesses actuarial qualifications or holds a degree or diploma of any recognised university or an institute in relation to insurance (or)

He holds a diploma in insurance granted or recognised by the Government (or)

He holds such other technical qualifications as prescribed by IRDA (and)

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)

Payment of fees based on the categorisation of the applicant (and)

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)

Has passed the Surveyor examination conducted by the Insurance Institute of India or such other institute recognised by IRDA (and)

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)

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.

Question 5.
What is the grievance redressal mechanism available to the insured?
Answer:
IRDA (Protection of Policyholders’ Interests) Regulations, 2002 provide that every insurer shall have in place proper procedures and effective mechanism to address complaints and grievances of policyholders efficiently.

The Grievance redressal mechanism available to the insured are:

Grievance cell of Insurance companies
Ombudsman
Consumer Protection Act, 1986
Grievance Redressal Authorities (GRA) which has been suggested by the Law Commission.

The IRDA regulations provide that every insurer shall communicate to the policyholder information in respect of insurance ombudsman along with the policy document and as may be found necessary. The ombudsman shall act as councillor and mediator in matters within its terms of reference. His decision as to whether the complaint is fit and proper for being considered by it or not shall be final.

The insurance ombudsman may receive and consider complaints relating to partial or total repudiation of claims relating to the following:

Any dispute regarding premium paid or payable in terms of the policy;
any dispute on the legal construction of the policy relating to claims;
Delay in settlement of claims; and
Non-issue of any insurance document to customers after receipt of premium.

Question 6.
Attempt the following :
Describe the role of the ‘Insurance Ombudsman’ in resolving the complaints relating to settlement of insurance claims.
Answer:
Insurance Ombudsman:
The Governing body shall appoint one or more persons as Ombudsman for the purpose of resolving insurance disputes.

Persons eligible to be appointed as Insurance Ombudsmen:
Only the following persons shall be eligible to be appointed as Insurance Ombudsmen:

Persons who served in the capacity of Chairman or Managing Director in Public Sector Insurance Companies.
Persons who have served the Indian Administrative Service or the Indian Revenue Service.
Persons who are retired Judges of the Supreme Court or the High Courts.

An Ombudsman shall be appointed by the Governing body from a panel prepared by a Committee comprising of:

Chairman, IRDA
Two representatives of Insurance council including one each from Life Insurance business and from General Insurance respectively.
One representative of Central Government.

The Ombudsman shall be paid salary of ₹ 80,000 per month and any pension to which he is entitled from Central Government or Statement Government or any other organization or institution shall be deducted from his salary.

Powers of Ombudsmen:
An Ombudsmen is empower to entertain the following disputes:

A complaint as specified under Rule 13.
Partial or total repudiation of claims by an insurer.
Dispute with regard to the premium paid or payable in terms of the policy.
Dispute on the legal construction of policies with regard to claims.
Delay in settlement of claims.
Dispute on the legal construction of policies with regard to claims.
Delay in settlement of claims.
Non-issuance of any insurance document to customers after receipt of premium.

Procedure for Making a Complaint:
Any person who has a grievance against the insurer may himself or through the legal heirs make a complaint in writing to the Ombudsman within whose jurisdiction the branch or office of the insurer complained against is located.

In order that a complaint is entertained before the Ombudsman, the following conditions must be satisfied:

The complaint must have first exhausted the remedies available within the insurance company for settling the grievance and approach Ombudsman only if either the insurance company rejects the grievance or complainant not satisfied with the reply or the insurer fails to respond within one month of submission of the grievance.
No complaint can be preferred before the Ombudsman after one year from the date of rejection of final letter from the insurance company on the representation made by the complainant.
If the complainant has not preferred alternative legal remedies and the proceedings are not pending before any Court or Consumer forum.

Question 7.
You are running a business subject to market risks. You want to procure from an insurance company a comprehensive cover. You are informed that agents and brokers are insurance intermediaries who will help you to negotiate a proper cover with an insurer. As a business person seeking a cover, who will you approach for discussions and guidance in this regard – an agent or a broker? Give reasons for your answer.
Answer:
Insurance intermediaries facilitate the placement and purchase of insurance and provide services to insurance companies and consumers that complement the insurance placement process.
The insurance market has different categories of intermediaries- agents, brokers etc. Even among the agents, we have a category of corporate agents. All these intermediaries as a professional job role and help in the growth of the insurance market.

The types of intermediation that are required depends wholly on the nature of cover required the risks inherent in the business carried on the protection that is offered by an insurer. The professional attachments of the intermediary and the reputation of the insurer among the various things. The insurance companies even in respect of fire loss of projects cover etc. have standard cover which lay down the application and these are available off the shelf as one can say.

A commercial policy is normally to be obtained from a General Insurance Company; a product of this type is a short term cover subject to renewal periodically and also governed by commercial principles and practices.
The type of intermediation assistance in such a case will primarily be governed by the risk factors of the business. An agent is normally an employer/representative of an insurance company and frequently market products that have been developed his principal.

Though an agent has, as per IRDAI regulations to possess qualifications and be licensed, his jurisdiction is confirmed to the policies/products that have been developed by this principal unless the insurance company on being approached by a prospect for a special cover to meet its need shown as inclination, the prospect is not served to his full requirements. Hence, in most cases business requiring special provisions or are faced with specific underlying risks will not be effectively serviced by an agent. One thing that has to be noticed in this case is that an agent is a paid his commission from this insurer.

On the other hand, a broker is a free professional attached to any insurance company and is enabled to carry as his profession on the strength of a license granted by IRDAI. A broker has to satisfy financial obligations to set up a profession and has to be qualified. He will be subject to the discipline of the IRDAI. As part of his works as broker will study the risk perceptions of business various alternatives that are available to control risk and design a suitable policy for the business which he will then take to an insurer and obtain a cover.

Normally, a broker will also help a business to negotiate with the insurer the obtainment of a cover and in case of claim pursue the matter with the insurer and collect the claim. A broker gets paid by the inured for his efforts and the scale of remuneration is fixed by IRDAI.

As in this situation for running the business the business person seeking a cover of market risk wants to procure a insurance comprehensive cover for that he should approach for discussion and guidance he should approach to a broker.

As a technical matter, a broker’s role may change during an insurance transaction and over the course of an ongoing relationship with a client. Many brokers sometimes act as an “agent” of the insurer and other times as a “broker” of the client when assisting a client with insuring its risk exposures through an insurance contract with a traditional carrier.

As a practical matter, regardless of the legal role in which a broker is acting, the manner in which the broker approaches all such placements for his clients is as an intermediary – working on behalf of his clients to facilitate the consummation of insurance contracts with carriers who have the ability and capacity to properly insure his risks. On a balance in case of business where a straitjacketed policy will not be useful, the engagement of a broker will be the most ideal.

Question 8.
Describe the steps taken by the Indian insurance regulator to protect the interests of the policyholders. (5 marks)
Answer:
Indian insurance regulator namely, Insurance Regulatory and Development Authority of India (IRDAI) has put forth many measures to protect the policyholders’ interests. Insurers have been told to strengthen their grievance redress procedures, consumer complaint resolving procedures where they are found weak.

An important step taken by IRDA is that it has made it compulsory that each company forms a Policyholder Protection Committee in the Board of Directors. This is part of the corporate governance guidelines issued by IRDA and will have the effect of ensuring that insurers’ internal systems are monitored effectively at the highest level of the company, that is, the Board. IRDAI has made a regulation for Protection of Policyholders’ Interests Regulations, 2017.

These regulations are aimed to protect the policyholders from undue inconvenience, fraud and similar matters.
These Regulation cover:

Board approved policy for protection of interests of policyholders
Point of sale
Products on offer/products withdrawn
Proposal for insurance
Matters to be stated in life insurance policy

Question 9.
Under international supervisory guidelines prescribed by the International Association of Insurance supervisors, one of the requisite parameters for a home regulator is to be operationally independent, transparent and accountable. Does the Indian insurance regulator comply with this requirement? Discuss.
Answer:
One of the core principles internationally adopted by International Association of Insurance Supervisors (IAIS) is to ensure the Regulators’ Independence and make its role transparent and accountable. All the home supervisors in the area that are members of IAIS to ensure that the supervisor adheres to the accepted and recognized cannons of supervisory procedure. The independence of the regulator is one of these.

Independence of the regulator can be ensured broadly in two main areas-the technical and the financial administrative areas. As per as IRDAI is concerned both these areas have been recognized and ensured to be adopted either by law or by procedure.

As regards the technical area, the authority is to consist of members, directors from various areas of technical attainments and proficiency. The members including the Chairman who enjoys supervising powers of the Authority itself are appointed by the Central Government on the basis of fit and proper criterion. Professional qualifications and experience are necessary.

The IRDAI enjoys complete freedom in the matter of regulating the business of insurance in India. It also has the powers to grant registration to the new players. The powers to make regulations to govern the market are wholesome except that the regulations have to be placed before the advisory committee which is appointed by the chairman of the Authority.

The Act clearly states that in all technical matters the decision of the Authority is final. There can be no interference from the government. In all administrative matters, the Government after hearing the Authority can express its views. The Authority will produce art Annual Report that has to be presented to the Parliament.

As regards financial freedom, the Authority does not receive any grant from the Government. The Authority has been permitted by the Act to raise and levy fees as percentage of the premium income of the insurers which is used for its administration and maintenance. Here again the maximum of such fees has been laid down that enables the Authority to be free from the influence of any large or significant insurer.

It is thus seen that the enactment of the Insurance and the IRDA Act has ensured the independence of the Authority from the influence of the Government and also of the insurers.

Question 10.
Explain the role of insurance intermediaries in Insurance business. Explain the relevant provision of the Insurance Act, 1938, which gives protection to Agents who have served the insurance company for at least 5 years.
Answer:
Role of Intermediaries in Insurance Industry Innovative Marketing:
Insurance intermediaries bring innovative marketing practices in 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 knowledgeable client base that has multiple choices, insurers will offer policies that fit their customers’ needs and at competitive prices.

Dissemination of information to the marketplace :
Intermediaries gather and evaluate information regarding placements, premiums and claims experience.

Sound Competition :
Increased consumer knowledge ultimately helps increasing the demand for insurance and improve 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, thereby, boosting economic growth.

An insurance agent is paid commission for every premium received till death or maturity or the premium paying period on the policies sourced by him on behalf of an insurance company.
However, where the Agent is terminated, the commission on the premiums paid subsequent to the date of termination stands normally forfeited.
However, Section 44 of the Insurance Act gives protection to Agents who have served the insurance company for at least 5 years.

Therefore, where the services of an insurance agent is terminated after the Agent has served the insurer continually for a period of 5 years, the insurer is required to pay renewal commission on premiums received subsequent to termination on policies sourced prior to termination, if the following conditions are satisfied:

If the agent has not been terminated on the grounds of fraud.
That policy amounting to not less than ₹ 50,000 of sum insured by the agent were in force on a date one year before his agency to act as an agent of the company.
That the renewal commission due to him shall not exceeds 4%.

The section also empowers that the commission shall be payable to the legal heirs of the agent after his death says for 5 years, as levy on such commission is payable had such agent been alive.

Question 11.
As a Compliance Officer, how would you ensure that your Company is not penalised for “penalty payments” highlighting the powers of IRDAI under section 44, 102, 105B or 105C in particular.
Answer:
As a compliance officer every Company Secretary of an insurance company first and foremost ensure due diligence and compliance with the various provisions under the IRDAI guidelines and regulations.
The IRDAI is empowered under various section to impose penalties on insurance companies for default in company with the provisions under the Act.

The power of IRDAI under sections 44, 102, 105B and 105C are discussed below:
Under section 44A of the Insurance Act, 1938, for the purposes of ensuring compliance with the provisions of sections 40A, 40B, 40C, 42B and 42C the Authority may by notice.
(a) require from an insurer, principal-agent, chief agent, or special agent such information certified, if so required by an auditor or actuary, as he may consider necessary

(b) require an insurer, principal-agent, chief agent, or special agent to submit for his examination as the principal place of business of the insurer in India, any book of account, register or other documents, or to supply any statement which may be specified in the notice

(c) examine any officer of an insurer or a principal-agent, chief agent or special agent on oath, in relation to any such information, book, register, document or statement and administer the oath accordingly; and an insurer, principal-agent, chief agent or special agent shall comply with any such requirement within such time as may be specified in the notice.

Under Section 102: It empowers IRDAI to impose a penalty not exceeding five lakh rupees for each such failure and punishable with fine for an insurance company:

Failure to furnish any document, statement, account, return or report to IRDAI.
Failure to comply with the directions (Section 34 empowers India. 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).
Failure to maintain the required solvency margin.
Failure to comply with the directions on the insurance treaties.

Under Section 105B: It empowers IRDAI, if an insurer fails to comply with the provisions of section 32B, he shall be liable to a penalty not exceeding five lakh rupees for each such failure and shall be punishable with imprisonment which may extend to three years or with fine for each such failure.

Under Section 105C: ft empowers IRDAi, if an insurer fails to comply with the provisions of section 32C, he shall be liable to a penalty not exceeding twenty-five lakh rupees for each such failure and in the case of subsequent and continuing failure, the registration granted to such insurer under section 3 shall be cancelled by the Authority.

Question 12.
An employee of a government organization purchased a life insurance policy on 28-04-2011. It was a non-medical scheme policy as he was an employee of government organization and no medical examination was conducted. The above policy lapsed due to non-payment of premium which was due from April 2012 to October 2012.

The life assured got the policy revived on 03-01 -2013 by depositing the premium which was due. Unfortunately, the life assured died on 13-01 -2013. The legal heirs of the assured submitted a claim with the insurance company with respect to the above-said policy. As the life assured died within 2 years from the date of obtaining the policy and within ten days of the revival of the policy, the insurance company carried out an investigation for the policy and the life assured.

The investigation revealed that the life assured was not keeping good health at the time of obtaining the policy and as well as at the time of revival of the policy because his employer organization had supplied the details of earned leave and medical leave availed by the life assured during his service period w.e.f. 04-06-2007 to 18-09- 2012. The details given for the leave were as under:

Medical leave
12- 05-2008
30-05-2008 to 27-06-2008 27-07-2008 to10-09-2008 06-08-2010 to 13-08-2010
13- 06-2011 to 06-08-2011 05-09-2012 to 18-09-2012

The fact of the medical leave was made known to the insurance company only on investigation and the fact that the life assured was suffering also came to their knowledge. The fact was not disclosed by the life assured in the original proposal form at the time taking the policy as well as at the time of revival. The life assured was suffering from epigastria C bleeding per rectum due to which he died in the hospital on 13-01-2013 where he was admitted on 04-01 -2013. Thus, it was a clear case of concealment on the part of the life assured which was against the terms of the insurance policy. Accordingly, the insurance company repudiated the claim.

The legal heirs of the life assured challenged the repudiation of the claim in District Consumer Forum where the claim was awarded in their favour and against the insurance company.
The insurance company aggrieved by the decision of the District Consumer Forum filed an appeal with the State Commission where the appeal was accepted and the decision of the District Consumer Forum was set aside.

Based on the above case, answer the following questions:

(i) Was there a violation of ‘non-disclosure of material fact’ in the case?
If so, state the insurance principal that governs such instances. What is the validity of the contract of insurance?

(ii) Discuss the implications of section 45 of the Insurance Act, 1938 with regards to facts of the present case given.

(iii) Having issued a Life Insurance Policy on a ‘non-medical scheme’, do you think the Insurance Company is justified in repudiating the claim? Was there lapse in ‘Underwriting”? Discuss.

(iv) Do you think the claim of the legal heirs is justified in the absence of any medical issues of the employee?
(v) Given the facts of the case, what precautions and advises do you suggest to people taking insurance policies to cover their risks?
Answer:
(i) Insurance contract is an agreement between two parties based on certain principles which are essentials of an insurance contract. If any of the principles are not complied,then the contract is voidable at the option of the aggrieved party.

A material fact is one which would have influenced the judgment of a prudent insurer in deciding whether he would accept the risk in whole or in part and, if so, at what amount of premium. The materiality of a fact depends upon the application of this test to the particular circumstance of the case as at the date of taking the policy and at the time of revival that the fact should have been communicated.

Material facts may have a bearing on the physical hazard or on the moral hazard, or they may show that if a loss occurs the insurer’s liability is likely to be greater than would normally be expected.
Here, in this case, the person assured was required to state the facts about his health in the proposal form while taking the insurance policy. This is required under the very first and most basic principle of uber rimae fidei or the principle of utmost good faith.

According to this principle, the insurance contract must be signed by both the parties (i.e. insurer and insured) in an absolute good faith or belief or trust, both the insured and the insurer should have good faith towards each other. – in the present case, the policyholder was suffering from epigastria C bleeding per rectum due to which the person died. The insured must provide the insurer complete and clear information of subject matter. In the case cited, the insured while signing the proposal form was required to give all the facts about his health which was an information material to the contract.

The principle of utmost good faith very clearly state that the person getting insured must willingly disclose and surrender to the insurer the complete and true information regarding the subject matter of insurance. The insurer’s liability Bets void (i.e. legally revoked or cancelled) if any facts about the subject matter of insurance are either omitted, hidden, falsified or presented in a wrong manner by the insured.

Thus there was a clear case of non-disclosure of material facts regarding health conditions by the life assured. In a Contract of Insurance, any fact which would influence, the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a “material fact”. If the proposer has knowledge of such fact, he is obliged to disclose it, particularly while answering questions in the proposal form. Needless to emphasize that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a Contract of Insurance.

On the basis of above discussion the Contract of insurance is void.
The claim under the insurance policy was made by the legal heirs of the person assured after his death. As stated in the case the policy was taken by the person assured on 28.04.2011. Further, the policy lapsed due to non-payment for the period from April 2012 to October 2012.

The policy was revived by the assured on 03.01.2013 by paying the overdue premium. Unfortunately, the person assured died on 13.01.2013 which was just 10 days after the revival of the policy. The insurance company carried out the investigation into the cause of death of the assured as per section 45 of the Insurance Act 1938.

Section 45 of the Insurance Act 1938 states that Policy not to be called in question on ground of misstatement after two years. No policy of life insurance effected before the commencement of this Act shall after the expiry of two years from the date of commencement of this Act and no policy of life insurance effected after the coming into force of this Act shall after the expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal for insurance or in any report of a medical officer, or referee, or friend of the insured, or in any other document leading to the issue of the policy, was inaccurate or false, unless the insurer shows that such statement.

The implication of section 45 of the Insurance Act, 1938 :
1. was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policy-holder and that the policy-holder knew at the time of making it that the statement was false.

2. or that it suppressed facts which it was material to disclose. Provided that nothing in section 45 of the Insurance Act, 1938 shall prevent the insurer from calling for proof of age at any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the terms of the policy are adjusted on subsequent proof that the age of the life insured was incorrectly stated in the proposal.

In the given case, the death of the life assured occurred less than 2 years of taking the policy and within 10 days of the revival of the policy. Due to this short period of taking up of the policy and death of the life assured there could be doubt about the intentions and doubts about the cause of death. Thus the investigation into the cause of death was carried out before processing of the claim under section 45 of the Insurance Act, 1938. This period of 2 years has now been amended to 3 years. Hence the Insurance Company has the legal right to call for and claim that there was suppression or non-disclosure of material fact and leave the clause.

The facts stated in the case indicate that the life assured was suffering from epigastria C bleeding per rectum. He had been taking medical leave very frequently which is evident from the records provided by the employer of the life assured. In a short period of less than two years he had taken medical leave more than six times.

Had the life assured mentioned the fact about the health condition in the proposal form, the insurance company based on condition of the existing critical illness would have rejected the proposal or might have carried out further medical examination as required for acceptance of the proposal for the applicants other than employees of government organisation. Looking at the health records the proposal would have been rejected by the insurance company.

However, the policy is issued on non-medical basis, the company would have not got any information about the health condition of Life assured then the company would have taken precautions and increased the premium as it was a non-medical policy. Though the policy is issued on non-medical basis but the life assured is duty-bound to disclose all material facts that would have influenced the judgment of a prudent insurer in deciding whether he would accept the risk in whole or in part and, if so, at what amount of premium.

Hence, the insurance company is justified in repudiating the claim. There is no lapse in the underwriting process of the company due to being a non-medical scheme. The policy issued on the basis of non-medical is just a feature provided by the insurance company. The policy issued under non-medical is based on the risk appetite of the insurer, sum assured, age of the insured and employment details.

The investigations were carried out as required under section 45 of the Insurance Act, 1938. However, if the investigation would not have shown any health problems found with the life assured then it would have satisfied all the requirements of the claim made under the policy.

Thus if the investigation does not result in any problem with the health conditions of the life assured then there was no non-disclosure of any material fact related to subject matter of insurance. So there is no reason for the insurance company to treat the contract as void and the claim as filed under the Insurance policy would be payable to the legal heirs of the assured as per the conditions of the policy. Thus in such a situation, the claim of the legal heirs would be fully justified, in the absence of any medical issue of the life assured.

Insurance is a contract between two parties the insurer and the insured. This contract needs to comply with all the requirements of a contract for it to be valid. It is required that parties to the contract make all the disclosure about the terms and conditions of the contract as well as all the facts about the subject matter of the insurance contract.

In the given case, the life assured did not disclose the fact about the health conditions while submitting the proposal form due to which the insurance company was required to carry out the investigation and had the right to consider the contract as void due to non-disclosure of a fact which was material to the contract.
Thus, we would advise the person(s) taking insurance policy to make sure that before taking a policy they are aware of all the terms and conditions of the policy and also they disclose all the facts about the subject matter of the insurance policy.

The facts which must be disclosed are:

Facts, which show that a risk represents a greater exposure than would be expected from its nature e.g., the fact that a part of the building is being used for storage of inflammable materials.
External factors that make the risk greater than normal e.g. the building is located next to a warehouse storing explosive material.
Facts, which would make the amount of loss greater than that normally expected e.g. there is no segregation of hazardous goods from non-hazardous goods in the storage facility.
History of Insurance (a) Details of previous losses and claims (b) if any other Insurance Company has earlier declined to insure the property and the special condition imposed by the other insurers; if any.
The existence of other insurances.
Full facts relating to the description of the subject matter of Insurance.

Question 13.
Write short notes on:
(a) Constitution of IRDA
(c) IRDA Guidelines For Grievance Redressal
(d) IRDA Guidelines To Financial Inclusion
Answer:
(a) 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 of 1938 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 and member of IRDA appointed 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.
Answer:
(c) 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 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:

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.
The Grievance redressal procedure including the time taken for resolution of disputes shall be mentioned in the acknowledgement.
Normally a Grievance shall be resolved within 3 days. However, where it is possible to resolve within 3 days, the insurer shall resolve the complaint within 2 weeks and shall send a final letter of resolution.
Where a complaint is rejected, the reasons shall be clearly stated along with the recourse available if the customer is still dissatisfied.
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 as closed.
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 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 8 weeks.

4. In all the above instances, the Grievance Redressal Officer shall certify that the Insurance company has discharged its contractual, statutory or regulatory obligations.
Answer:
(d) Irda Guidelines To Financial Inclusion:
Insurance Regulatory & Development Authority (IRDA) has been making immense efforts to educate and empower 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.

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.ploicyholder.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 education insurance agents to weed out mis-spelling: India’s Insurance Regulatory and Development Authority (IDA.) has been chalking out an ambitious plan to combat misselling, a menace that has been haunting the industry for about a decade now, especially after the emergence of equity-oriented insurance products.

Question 14.
Write a short note on role and functions of Insurance companies.
Answer:
Role And Function Of Life Insurance Companies:
Life Insurance Companies in India have a big role to play. It is the life insurance Companies which collects the savings of a person and converts into the wealth.

The functions and role of Life Insurance Company may be understood as:
1. Saving Institution:
Life insurance companies both promote and mobilises saving in the country. The income tax concession provides further incentive to higher income persons to save through LIC’s policies. The total volume of insurance business has also been growing with the spread of insurance- consciousness in the country.

2. Term Financing Institution:
Life Insurance Companies also functions as a large-term financing institution (or a capital market) in the country. The annual net accrual of investible funds from life insurance business (after making all kinds of payments liabilities to the policyholders) and net income from its vast investment are quite large. During 1994-95, LIC’s total income was ₹ 18,102.92 crore, consisting of premium income of ₹ 1152,80 crore investment income of ₹ 6,336.19 crore, and miscellaneous income of ₹ 238.33 crore.

3. Investment Institutions:
LIC is a big investor of funds in government securities. Under the law, LIC is required to invest at least 50% of its accruals in the form of premium income in government and other approved securities.
LIC funds are also made available directly to the private sector through investment in shares, debentures, and loans. LIC also plays a significant role in developing the business of underwriting of new issues.

4. Stabiliser in Share Market:
LIC acts as a downward stabiliser in the share market. The continuous inflow of new funds enables LIC to buy shares when the market is weak. However, the LIC does not usually sell shares when the market is overshot. This is partly due to the continuous pressure for investing new funds and partly due to the disincentive of the capital gains tax.

5. Biggest Employers in Economy: Life Insurance Companies in India are one of the biggest employers. In addition to direct employment, Lakhs of People are getting the employment as Agents.

Question 15.
What are the regulations affecting General Insurance Business in India? Explain?
Answer:
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, 1933
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
Workmen’s Compensation Act, 1923 ESI Act, 1948
Public Liability Insurance Act, 1991.

Question 16.
Discuss the dual role of IRDA in the present insurance market in India.
Answer:
Insurance Regulatory And Development Authority (IRDA):
The Committee on reforms of the insurance sector under the chairmanship of Shri R. N. Malhotra ex-governor of Reserve Bank of India recommended for the creation of a more efficient and competitive financial system in tune with global trends. It recommended amendments to regulate the insurance sector to adjust with the economic policies of privatization.

The government in pursuance of the recommendation of the committee decided to establish a Provisional Insurance Regulatory and Development Authority in 1996, to replace the erstwhile authority called the Controller of Insurance constituted under the Insurance Act, 1938, which initially worked under the Ministry of Commerce and later transferred to the Ministry of Finance.

Finally, the decision to establish the Insurance Regulatory and Development Authority was implemented by the passing of the Insurance Regulatory and Development Authority Act, 1999. In India, presently after the opening up of the insurance sector, the regulator for the monitoring of the operations of the insurance companies is the IRDA, having its head office in Hyderabad, the regulatory framework mainly aims to focus three areas, viz.,

The protection of the interest of the consumers.
To ensure the financial soundness of the insurance industry.
To pave the way to help a healthy growth of the insurance market where both the government and the private players play simultaneously.

Regulatory Framework of Insurance Business in India – Insurance Law and Practice Important Questions

Regulatory Framework of Insurance Business in India – Insurance Law and Practice Important Questions

CS Professional Insurance Law and Practice Notes