law and regulations

7/27/2019 Law and Regulations

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Chapter 11LAWS ANDREGULATIONS


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Introduction to Chapter

Career of Insurance Agency is profoundlyrewarding career,

Not only in terms of money but in terms of

prestige and satisfaction of having done goodto others.

Agents can earn gratitude of their customers,

provided he keeps learning and has thorough

knowledge of all that he needs to know.

As a good professional, he must have brief

background of the Laws governing insurance

business in India.


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Introduction to Chapter (Continued..)

The Chapter gives a brief overview ofvarious Laws and Regulations relating toInsurance Business in India.

Agent is expected to have Background ofthese laws and also keep himself updatedwith any changes in the provisions of thesame, in light of Competition.

For Example, he must be aware ofprovisions of Income-Tax laws, asprospects investment decision has impact

of the same.


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For Example, the agent must be aware ofTax-Saving aspects, or Special concessionsto the Guardian of Physically handicappedchild and such benefits, that the Policy

offers to him, based on his needs. He must also have knowledge of laws

related to insurance policy, such as MarriedWomens Property Act, Wealth Tax Act etc.

He must have skills of convincing theprospect the important features of insuranceover other investment avenues.


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The Chapter covers brief overview of

Insurance Act, 1938

LIC Act, 1956 IRDA Act, 1999

Consumer Protection Act, 1986

Ombudsman

Income Tax Act

Wealth Tax Act

Married Womens Property Act, 1874, etc.


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Main Acts

Insurance Act, 1938. LIC Act, 1956. IRDA Act, 1999. Consumer Protection Act, 1986. Ombudsman.


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Other Acts:-

Income Tax Act Wealth Tax Act Married Womens Property Act,

1874.


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Insurance Act, 1938. Came into effect from 1st July 1939.

Principal enactment relating to

Insurance Business in India.

Sec. 2 (5A) defines Chief Agent.

Sec. 2 (17) defines Special Agent.

Sec. 42A provides for the registration ofChief Agents and Special Agents.

Act vests IRDA with various powers.

I A t 1938


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Insurance Act, 1938

(Continued.)

Act contains provisions regarding licensingof agents and their remunerations,

prohibition of rebates and protection of

policyholders interests. It also places limits on expenses of insurers,

use of funds and pattern of investments,

maintaining solvency levels and constitutionof Insurance Associations and Insurance

Councils and the Tariff Advisory Committee

for General Insurance.


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Chief Agent:- Defined

Sec 2 (5A) defines Chief Agent as under. A person who, not being a salaried

employee of an insurer, in consideration of

commission (i) performs any administrativeand organizing functions for the insurer and

(ii) procures life insurance business for the

insurer by employing or causing to beemployed, insurance agents on behalf of the

insurer.


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Special Agent:- Defined

Section 2(17) defines Special Agent as under.

He is a person who procures life insurance

business, in consideration of commission,

employing or causing to be employed insurance

agents on behalf of the insurer. Only procures business through agent, but does

not perform administrative functions like a Chief

Agent.

Special Agent can work in life insurance business,

not in general insurance business.


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Section 42A:-

Provides for registration of Chief andSpecial Agents.

Certificates to be issued after registration.

Certificate valid for 12 months and can be

renewed.

Provisions stipulate number of insuranceagents that a chief agent / Special agent

may employ directly or through specialagents, and also the minimum business theyhave to do.


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Section 42AContinued .

The Act vests IRDA with powers to inspectdocuments, to appoint additional directors,

to issue directions, to take over the

management of an insurer and to appointadministrators.

IRDA has powers to adjudicate on disputes

Maximum amountRs.2,000/- , hence notmany disputes are likely to be referred to the

Authority under this section.


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Life Insurance Corporation Act, 1956.

Basis for establishment of L.I.C. as abody corporate.

Maximum 16 members, appointed byCentral Govt.

Duty:-Carry on life insurance business tothe best advantage of community,

Sec. 30 gave LIC exclusive privilege to

transact Life Insurance in India This exclusive privilege ceased after

amendments in 1999.

I R l t A d


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Insurance Regulatory And

Development Authority Act, 1999

Enacted in Dec 1999, to protect

interests of holders of insurance

policies, to regulate promote and ensure

orderly growth of insurance industry.

Sought to amend Insurance Act, 1938,

L.I.C Act, 1956 and General Insurance

Business (Nationalization) Act, 1972.


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IRDA ActContinued..

Corporate Body

Advised by Insurance Advisory Committeeconsisting of not more than 25 members

It replaces Controller of Insurance to

administer provisions of Insurance Act,which includes registration, licensing and

laying down regulations for proper conduct

of business and protection of policyholdersinterests.


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Regulations framed by IRDA:-

Regulations called as Insurance Regulatoryand Development Authority (Licencing ofInsurance Agents) Regulations, 2000.

Provisions of above are given at the end of

the Book (Page number 198 to 207) andagents are expected to go through thesame.

Issue or renewal of licence, Qualifications ofapplicant, practical training, Examination,Fees, Code of Conduct, Cancellation oflicence, Issue of Duplicate Licence etc. may

be referred.


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Regulations framed by IRDA:-

(Continued .) IRDA (Licensing of Corporate Agents)

Regulations 2002.

Corporate Agent can be a firm, a companyunder Companies Act, a banking company,

a co-operative society, a panchayat, a local

authority, a non-government organisation,

a micro leading finance organisation, anon-banking finance company or any

organisation approved by IRDA.


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IRDA (Licensing of Corporate Agents)


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IRDA (Licensing of Corporate Agents)

Regulations 2002(Continued .)

The Corporate agent has to nominate somebodyas Specified Persons, who will be responsiblefor soliciting insurance business on behalf ofCorporate Agent.

Specified Person also must have minimumqualifications on same lines as individualagents, and must also not suffer from anydisqualifications.

After undergoing training and passing exam, hehas to obtain certificate, which is valid for 3years and can be renewed.


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IRDA (Insurance Brokers)


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Regulations 2002

3 Kinds of Brokers viz. Direct Broker,Reinsurance Broker and Composite

Broker

Broker has to obtain licence from IRDA,which is valid for 3 years. IRDA issues

licence subject to applicant having fulfilling

certain requirements such asinfrastructure, atleast 2 employees with

necessary qualifications, satisfying

requirements like capital and deposit.


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Regulations 2002(Continued .)

Application for renewal has to be made more than 30 daysbefore expiry of the licence. Applications made thereafter are

liable for extra fees.

Fees for

Licence

Fee for renewal Ceiling for

Renewal feeDirect Broker Rs.25,000 0.50% of

remuneration

(Minimum = fee

for first licence)

Rs.1 lac

Reinsurance

Broker

Rs.75,000 ---- do ---- Rs.3 lac

Composite

Broker

Rs.1,25,000 ---- do ---- Rs.5 lac


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Regulations 2002:- (Continued .)

Capital Required:-

Direct Broker:- Rs.50 lacs

Reinsurance Broker:- Rs.200 Lacs

Composite Broker:- Rs.250 lacs.

There should not be interest of Non-Indian

in the capital

20% of Capital to be kept as Fixed Deposit

with Scheduled Bank, but IRDA may ask

for higher amount (Maximum Rs.100 lacs)


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Every Broker has to appoint PrincipalOfficer who would be responsible for

business of insurance broking.

There should also be a Chief ExecutiveOfficer, who would be appointed

exclusively for insurance business.

He must satisfy certain qualificationssuch as educational qualifications,

training, passing of exam etc.


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The Brokers functions:-

Getting information about client and risk

management philosophy

Advice to client on cover and terms

Maintaining detailed information about available

insurance markets Submission of quotations received from insurers

Providing underwriting information

Acting promptly on instructions from clients and

providing progress report Assisting in settlement of claims

Maintaining records of insurance business andclaims


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Reinsurance Broker is expected also to

Advice on technical data on reinsurance coversavailable internationally

Maintain database of reinsurance markets

To Select / Recommend reinsurer

Assist in commutation of reinsurance contractsand settlement of claims

Collect and remit premiums and claims

Exercise due diligence at the time of selection of

reinsurers and international insurance brokers,having regard to their security rating

Render consultancy and risk managementservices


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IRDA (Insurance Brokers) Regulations

2002:- (Continued .)

Remuneration can be paid by insurers to

Brokers. (e.g. for direct brokers in life

business, commission is 30% of first years

premium and 5% of renewal premium, 2%of Single premium for annuity cases, etc.)

Restrictions on business from Single client

(Not to exceed 50% in first year, 40% in 2ndyear and 30% in subsequent years.)


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Code of Conduct for Brokers:- Utmost good faith, care and diligence in dealing

with clients Convey quotations, explain degree of choice

available, explain reasons for recommendation,explain claim procedure, etc.

Keeping information about client as confidentialavoiding conflict of interest

Becoming a member of the Insurance BrokersAssociation of India or such other body as may beapproved by IRDA

Not to employ agents or canvassers to bringbusiness

Not to criticise other insurers or members of theAssociation.


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Brokers should obtain insurance policiescovering professional indemnity, against anyomission or commission or negligence, lossbecause of fraudulent or dishonest acts, loss

of documents, on part of broker or hisemployees.

Cover should be for the period pf licence

Limit should be 3 times annualremuneration. (Minimum:- Direct Brokers:-50 lacs, Reinsurance Brokers Rs.250 lacsand Composite Broker Rs.500 Lacs)


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Reinsurance Broker allowed to receive

premium from clients or claim amount from

reinsurers. Should be managed as trust funds.

All brokers should prepare Balance Sheet,

Profit & Loss Account and Cash Flowstatements every year.

Submission to IRDA half yearly.

Should have Internal Audit.


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Licence to Broker can be cancelled at any time

for violation of the code of conduct

When he acquires any of the disqualifications

Violation of provisions of the Act or Regulations.

Once, licence is cancelled, he is not permitted

to transact any fresh business, but may

continue to service existing business. IRDA has right to look into complaints from

clients of the Brokers.


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Consumer Protection Act, 1986.(COPA) To safeguard the interests of

Customers. Four Basic Consumer rights

The Right to Safety

The Right to be informed

The Right to Choose

The Right to be heard (Redress)


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COPA :- Continued

Consumer can approach various forumsfor redress, in case he is not satisfied

with goods / services provided.

Has to allege a defect in the goods orservice

Fault, imperfection, shortcoming or

inadequacy in quality, nature or mannerof performance, which is required to be

maintained


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COPA :- Continued.

Consumer dispute redressal forums are to be

established in each district and each state.

District Level :- complaints up to value of Rs.20lac

State Level :- Complaints up to value of Rs1 cr.

Also, provision for constitution of NationalCommission, for attending matters beyond

jurisdiction of State Forum or appeals against

State Forums decisions.


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COPA :- To Insurance Business

COPA applies to Insurance business

also.

Majority disputes on repudiation and

delays in claims

Various reasons for delaysmay be

minimised by intervention of Agents

If agent takes proper care at the time of

submitting the proposal, there can not

be repudiation, if all material information

is supplied.


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OMBUDSMAN

Section 114 (1) of Insurance Act

empowers Central Govt. to frame rules

known as Redressal of Public

Grievances Rules, 1998, whereby

Ombudsmen are appointed.

Appointed by Governing body of the

Insurance Council.

Resolves complaints regarding disputes

between Policyholders and Insurers


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OmbudsmanContinued .

Complaints may relate to

Partial or total repudiation of claims

Dispute relating to payment of premium

Dispute on legal construction of the policy

relating to claims Delay in settlement of claims

Non-issue of insurance document to

customers


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Not a judicial authority

Acts as counsel and mediator

No right to summon witnesses

Lawyers not permitted to argue case

Parties are allowed to make personal

submissions.

Entertained only if a) Complaint rejected

by insurer or b) reply not received within


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Complaint to be made within 1 year

after rejection of representation byinsurer

The matter should not be before any

court or consumer forum or arbitration. Ombudsman makes recommendations

within 1 month, and insurer has to

comply within 15 days and inform


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The complainant has to intimate his

acceptance of the award within onemonth, and insurer has to comply within

15 days and inform Ombudsman.

If complainant does not intimateacceptance, award can not be

implemented.


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Income Tax Act


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Income Tax Act

Income Tax Act provisions keep on changing

every year, hence one has to update himselfwith the prevailing Tax laws and

amendments made therein from time to time.

So far, Tax laws encourage people to savein various instruments, including Life

Insurance, by providing relief from tax

liabilities. Knowledge of tax provisions is essential to

Agents, as it affects benefits under the

policy.

I T i h R d Lif


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Income Taxwith Regard to Life

Insurance

Any sum received under life insurance policy

is exempt from income tax. Sec 10(10D)

(Exception:- Amount to be refunded under

Jeevan Adhar, a LICs plan forhandicapped dependent and claim under a

Key-man insurance Policy)

Sec. 80 CCC(i)Deduction from taxableincome, (Maximum Rs.10,000/-) amounts

paid for Jeevan Suraksha-an annuity plan of

LIC.

I T With d t Lif


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Income TaxWith regard to Life

Insurance. Continued .

An amount not exceeding Rs.40,000deposited with LIC under Jeevan Adhar Plan

for maintenance of handicapped dependents

is eligible for deduction from total income.(Section 80DD)

This provision changed in 2003-04, whereby

maturity claims payments will be taxable ifthe premium paid in any one year exceeds

20% of the SA.

Tax Rebates A brief overview


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Tax RebatesA brief overview

Section 88Investments in Life Insurance

Premiums, contribution to Provident Fund, PublicProvident Fund, approved Superannuation Fund,

National Saving Certificates, Approved

Infrastructure Bonds etc. are eligible for rebate

under Section 88.

If Taxable Income upto 1,50,000, rebate is 20%

If Taxable income if Between 1.50 lacs to Rs.5

lacs, the rebate is 15% No rebate if Taxable income exceeds Rs.5 lacs.

Maximum eligible sum for Sec. 88Rs.1,00,000/-


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Wealth Tax Act:-

The Wealth Tax Act exempts life

insurance policies totally providedpremiums are payable for a period of 10

years or more. If the policy term is less

than 10 years, proportionate value willbe exempted.


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Married Womens Property Act,

1874. Sec. 6 of the MWP Act provides that a

policy of insurance effected by any

married man on his own life and

expressed on the face of it for thebenefit of his wife and children shall be

deemed to be a trust for the benefit of

his wife and children and shall not besubject to control of Life Assured or his

creditors or form part of his estate.


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Saving Plan is good when .

It is safe

It is flexible

It has incentive to help save

continuously without default.

It helps in saving Tax

It fulfils the financial objectives, even if

one dies.


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An Ideal Saving scheme

provides ..

Safety

Liquidity (Capable of converting intocash easily)

High rate of interest yield

Capital Growth

Beneficial to save Tax.


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But

No investment is Most Perfect having

all these attributes. A sacrifice has to be made for sake of

one or the other attribute

Hence look for those investments whichoffer the best solutions to his personal

needs, under his own set of

circumstances.


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High Returns High Risk!!!!

Highest Returns and Best Returns are

not the same. High Returns may be offset by risk to

capital.

Best Return is determined byadvantages an investment offers to

achieve ones financial objectives under

his given circumstances.

Basics about Banking


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Basics about Banking.

Type of Account Interest Liquidity

Current Account No Interest No restriction onwithdrawals

Saving Accounts Relativelylow interest

Some restriction

on number ofwithdrawals, exist

Term Deposit Offersvarying

interestrates,

depending

on Term

Wait till maturity to

get money, else

be prepared tosuffer some loss

of interest


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Unit Trust and Mutual Funds


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Unit Trust and Mutual Funds(Continued.)

Different Tax Benefits for different schemes Sometimes, income distributed is tax free.

Contributions to specified mutual funds

aggregated with insurance premia areentitled for tax rebates.

Value of unit is not protected

Net Asset Value can vary and may also gobelow face value.

Shares


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Shares Most Popular But person should lave

adequate savings before investing inShares.

Motive is Capital Appreciation

Earnings not Guaranteed Dividends may not be declared,

although Company has made profits.

As Dividends are declared on FaceValue, the Yield may be insignificant, if

purchased from market at higher price.

Shares Continued


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SharesContinued .

No tax advantages

Chances of losses are as GREAT aschances of making profitsUncertaintyis the key to bear in mind.

Share prices fluctuate and sensitive tomany factors ranging from Changes inUS economy to State level politics.

Liquidity exists, but has to be sold atprevailing market conditions, hencecapital appreciation can not beguaranteed

Comparison of various Investments on


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Comparison of various Investments onSafety, Liquidity and Returns

Type of

Investment

Safety Liquidity ReturnsSaving BankAccount High High LowFixed Depositswith Banks High Moderate /High ModerateLife Insurance High Low ModerateShares Low High Moderate /

Low

Provident Fund /PPF High Low Moderate

Comparison Between Insurance Plans


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Comparison Between Insurance Plans

Comparisons are often unfair

While comparing 2 different plans of sameinsurer , it would be wrong to compare only

premiums.

Choice of plan must depend on requirementof Prospect. e.g. Whole-life plan should not

be offered against Endowment, just because

it is cheap.

If plan identified for needs of prospects isunaffordable to him, it is better to consider

reduction in Sum Assured, rather than going

for a cheaper plan.

Plan Comparison Continued


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Plan ComparisonContinued.

While comparing the plans, one must

consider The manner in which benefits are payable

Ease with which Death claims can be settled

Ease of alteration Availability of Loans (Liquidity) e.g. Money

back plansliquidity is there, but money ispaid only on scheduled dates, but in case of

Endowment plans, Loan can be raised as perneeds of individual, after completion ofstipulated period.


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