Functions in Insurance and Compliance related thereto (Part II): formula sheet

Key formulas

Section 64L(1)(a): standards and service

Aid and advise general insurers on standards of conduct, sound practice and efficient service to general insurance policyholders

Advisory role towards insurers. It does not bind them by itself.

Section 64L(1)(b): expenses

Advise the Authority on controlling insurers' commission and other expenses in India

The advice goes to the Authority, not to insurers.

Section 64L(1)(c): prejudicial conduct

Bring to the Authority's notice any insurer acting prejudicially to general insurance policyholders

A reporting duty. The Committee does not punish.

Section 64L(1)(d): incidental matters

Act in matters incidental to clauses (a) to (c), as notified by the General Insurance Council in the Gazette with the Authority's approval

Both the Gazette notification and the approval are needed.

Section 64L(2): fees

Collect fees laid down in the bye-laws from general insurers to discharge its functions

The Council may waive fees for a year by resolution; if the Authority approves it, no fees are collected for that year.

Section 64F(2): composition

Three categories: (a) 4 elected members + (b) 1 eminent person nominated by the Authority + (c) 4 persons nominated by the Authority to represent agents, TPAs, surveyors and loss assessors, and policyholders

Nine members in all. The Chairperson is one of the four elected representatives.

Section 64H: tenure

3 years from the first meeting, then dissolution and reconstitution

Outgoing members continue until the new Committee is constituted.

Section 64M(1): annual meeting

The Executive Committee must meet at least once before 31 March every year

Purpose: advise the Authority on limits under the proviso to Section 40C(1).

No premium, no risk (s 64VB(1))

Risk assumed only after: premium received OR guaranteed in prescribed manner and time OR prescribed deposit made in advance

Applies to business on which premium is not ordinarily payable outside India. The Central Government may relax it for particular categories of policies by rules (s 64VB(5)).

Premium ascertainable in advance (s 64VB(2))

Risk may be assumed not earlier than the date premium is paid in cash or by cheque

If tendered by postal money order or cheque sent by post, risk may be assumed on the date the money order is booked or the cheque is posted.

Refund of premium (s 64VB(3))

Refund paid directly to the insured by crossed or order cheque or postal money order, with a proper receipt; never credited to the agent's account

Applies to cancellation, alteration of terms or otherwise.

Agent's deposit of premium (s 64VB(4))

Deposit or post premium in full, without deducting commission, within 24 hours of collection, excluding bank and postal holidays

Commission is settled separately by the insurer.

Manner of receipt (s 64VB(6))

The Authority may specify by regulations the manner of receipt of premium

Added in 2002.

Minimum paid-up equity capital (s 6(1))

Life or general: ₹100 crore; exclusively health: ₹100 crore; exclusively reinsurer: ₹200 crore

Preliminary expenses are excluded in determining paid-up equity capital. Section 6(2) requires net owned funds of not less than ₹5,000 crore for a foreign reinsurer's branch (insurer under s 2(9)(d)).

Record of claims (Section 14)

Claim + date + claimant's name and address + date discharged (or date of rejection + grounds)

Every insurer must keep this for all business it transacts. Electronic form is allowed as specified by the regulations.

Approved surveyor requirement (Section 64UM(4))

Claim ≥ amount specified in regulations → loss report from approved surveyor or loss assessor needed before admission or settlement

Unless IRDAI directs otherwise. The insurer may still settle at a different amount from the surveyor's assessment.

Qualification of a surveyor (Section 64UM(1))

Academic qualifications specified by regulations + membership of the Indian Institute of Insurance Surveyors and Loss Assessors

For a firm or company, every partner or director who may survey or assess a loss must meet both conditions.

IRDAI independent report (Section 64UM(5)-(6))

IRDAI calls for report → cost borne by insurer → IRDAI may direct settlement higher or lower → insurer bound

If a lower figure is directed after payment, the insurer complies by taking all reasonable steps with due dispatch. No lesser sum is directed if recovery would cause undue hardship to the insured.

Small claims (Section 64UM(8)-(9))

Claim < specified amount → insurer may use another non-disqualified person if an approved surveyor is disproportionately costly

IRDAI may still direct that the claim be reported on by an approved surveyor.

Executive Committee functions (Section 64L(1))

(a) advise on conduct and service; (b) advise IRDAI on expenses; (c) report prejudicial insurers; (d) incidental matters

Clause (d) matters need IRDAI approval and a Gazette notification by the General Insurance Council.

Eligibility to act (Section 64UM(1))

Surveyor or loss assessor = specified academic qualifications + membership of the Indian Institute of Insurance Surveyors and Loss Assessors

Both conditions are needed. For a firm or company, every partner, director or other person who may make a survey or assess a loss must satisfy both.

Mandatory report (Section 64UM(4))

Claim ≥ amount specified in regulations → insurer must obtain a report from an approved surveyor or loss assessor before admitting or settling it

Applies to a loss occurring in India and payable or settled in India. The Authority may direct otherwise.

Insurer's freedom (proviso to Section 64UM(4))

Insurer may pay or settle at an amount different from the surveyor's assessment

The report is mandatory, but it does not bind the insurer's final figure.

Authority's independent report (Section 64UM(5) and (6))

Authority calls independent report → cost borne by insurer → Authority may direct settlement higher or lower

The insurer must comply. A lower figure after payment is not enforced if recovery would cause undue hardship to the insured.

Fees (Section 64UM(7))

Fee for surveying, verifying or reporting on a claim → only to an approved surveyor or loss assessor

Section 64UM(8) allows another person for claims below the specified amount if employing an approved surveyor would be disproportionately expensive.

Exemption (Section 64UM(10))

Authority may exempt a class of claims by order

Grounds: it is customary to use someone other than a licensed surveyor, or a survey is not practicable.

Compulsory reinsurance (Section 101A)

Cession to Indian re-insurers = notified % × sum assured on each policy; notified % ≤ 30%

Applies to general insurance policies, not to re-insurance policies. Set by the Authority with Central Government approval, after consulting the Advisory Committee.

Life insurer investment pattern (Section 27(1))

25% of the sum in Government securities + a further not less than 25% in Government or other approved securities + balance in approved investments

The 'sum' is matured claims liability plus liability on policies maturing in India, less unpaid premiums within grace and loans within surrender value.

General insurer investment pattern (Section 27(2))

20% of assets in Government securities + a further not less than 10% in Government or other approved securities + balance in other investments per regulations

'Assets' means carrying value of all assets, subject to the Explanation's exclusions.

Encumbrance rule (Section 27(6))

Government and other approved securities must be free of encumbrance, charge, hypothecation or lien

They cannot be pledged or charged.

Investment outside India (Section 27E)

No direct or indirect investment of policyholders' funds outside India

Absolute prohibition in the text.

Returns (Section 28)

Investment returns to the Authority in the form, time and manner specified by regulations

Details such as dates come from regulations, not the Act.

Foreign insurer filings (Sections 63 and 64)

Particulars within 3 months of setting up a place of business or appointing a representative; auditor's certificate on books by 31 January each year

Alterations must be furnished forthwith.

Quick revision

• Section 64UM governs surveyors and loss assessors in general insurance business.
• To act, a person needs the qualifications specified by regulations and membership of the Indian Institute of Insurance Surveyors and Loss Assessors.
• For a firm or company, every partner or director who may survey or assess a loss must meet both conditions.
• Surveyors and loss assessors must follow the code of conduct set by regulations.
• A claim at or above the regulatory threshold cannot be admitted or settled without a report from an approved surveyor or loss assessor, unless the Authority directs otherwise.
• The insurer may pay or settle a claim at an amount different from the surveyor's assessment.
• The Authority can call for an independent report from another approved surveyor, and the insurer bears the cost.
• After such a report, the Authority may direct the insurer to settle at a higher or lower figure, and the insurer must comply.
• No lower-figure direction is made where the amount is already paid and recovery would cause undue hardship to the insured.
• For claims below the threshold, the insurer may use another person if an approved surveyor would be disproportionately costly.
• The Authority can exempt a class of claims where custom or impracticality justifies it.
• In every answer, state the provision, apply it to the facts, then conclude with the compliance step.

Common mistakes

• Applying Section 64L to the Life Insurance Council. Fix: Section 64L names only the General Insurance Council's Executive Committee. Say this at the start of your answer.
• Saying the Executive Committee can penalise an insurer that acts prejudicially. Fix: Clause (c) only lets it bring the case to the Authority's notice. Action lies with the Authority.
• Treating section 6 as the rule on insurable interest. Fix: Remember s 6 deals with capital requirements for registration. Discuss insurable interest as a general principle of insurance, without citing s 6.
• Saying risk can start on credit as long as the policy is issued. Fix: Under s 64VB risk starts only after premium is received, guaranteed in the prescribed way, or a prescribed deposit is made.
• Saying the Executive Committee can direct an insurer to pay a claim. Fix: Section 64L gives it advisory and reporting functions. Only IRDAI issues binding directions under Section 64UM(6).
• Saying an insurer must pay exactly the surveyor's assessed amount. Fix: The proviso to Section 64UM(4) lets the insurer pay or settle at a different amount. IRDAI's direction is what binds.
• Saying the insurer must pay exactly the amount the surveyor assesses. Fix: State the proviso to 64UM(4): the insurer may pay or settle at a different amount.
• Stating a fixed rupee limit above which a surveyor is needed. Fix: Write that the Act refers to an amount specified in the regulations. Quote a figure only if the question supplies it.
• Saying the Act itself fixes the reinsurance percentage. Fix: Thirty per cent is only the ceiling. The Authority specifies the actual percentage by notification.
• Applying the general insurer pattern (20% and 10%) to a life insurer. Fix: Life is 25% plus a further not less than 25%; general is 20% plus a further not less than 10%.

Exam tips

• Begin every answer by naming the Council and the section: Section 64L covers the General Insurance Council only.
• Write the functions with clause letters and the audience (insurers or Authority). It shows precision.
• Learn Sections 64C, 64E, 64F and 64H together. Questions often combine composition, tenure and functions.
• In case questions, end with a clear conclusion and one practical compliance point.
• Use 'Authority', not 'Controller', when quoting the provision.
• Quote s 64VB(1) in your own words first, then add the sub-section that fits the facts.
• In case questions, write the dates explicitly and compare them with the rule on posting of cheques.
• Keep section 6 for capital questions and give both ₹100 crore and ₹200 crore figures correctly.