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

Key formulas

Prohibition of rebates (Section 41)

No rebate of commission or premium as inducement to take out, renew or continue insurance, except as per the insurer's published prospectus or tables

Applies to the person offering and the person accepting. Penalty may extend to ₹10 lakh (Section 41(2)).

Premium in advance (Section 64VB(1))

No risk assumed until premium is received, or guaranteed in the prescribed manner and time, or a prescribed deposit is made in advance

Central Government may relax this for particular categories of policies by rules (Section 64VB(5)).

Premium by post (Section 64VB Explanation)

Risk may be assumed on the date the money order is booked or the cheque is posted

Applies where premium is sent by postal money order or by cheque through post.

Agent's duty on premium (Section 64VB(4))

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

Refunds go directly to the insured by crossed or order cheque or postal money order, never to the agent's account (Section 64VB(3)).

Compulsory reinsurance (Section 101A)

Percentage of sum assured on each general insurance policy to be reinsured with Indian re-insurers, as specified by the Authority; never more than 30% of the sum assured

Fixed by notification, with previous approval of the Central Government and after consulting the Advisory Committee. Insurer may reinsure more voluntarily (Section 101A(7)).

Sufficiency of assets (Section 64VA(1))

Excess of assets over liabilities ≥ 50% of the minimum capital under Section 6

Computed as specified by regulations. Failure makes the insurer deemed insolvent and open to winding up on the Authority's application.

Who may act as surveyor or loss assessor (Section 64UM(1))

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

Both conditions must be met. For a firm or company, all partners, directors or persons who may survey or assess must meet them.

Compulsory survey report (Section 64UM(4))

Loss in India, payable in India, ≥ amount specified in regulations → no admission or settlement without an approved surveyor's report

The Authority may direct otherwise. The threshold figure comes from the regulations, so do not quote a number from memory unless your study material gives it.

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

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

The report is mandatory to obtain, but not binding on the insurer.

Fee to surveyors (Section 64UM(7))

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

Applies after one year from the commencement of the Insurance Laws (Amendment) Act, 2015.

Small claims (Section 64UM(8))

Claim < specified amount and an approved surveyor is impracticable without disproportionate expense → insurer may employ another person not disqualified

The insurer may pay such reasonable fee as it thinks fit.

Authority's powers (Section 64UM(5), (6), (9))

Authority may call for an independent report from another approved surveyor and direct settlement at a lower or higher figure

The insurer bears the cost of the independent report and must comply with the directions. Subsection (9) lets the Authority order a report even on a smaller claim.

Exemption (Section 64UM(10))

Authority may by order exempt a class of claims

Where it is customary to use a person other than a licensed surveyor, or a survey is not practicable.

Quota share

Reinsurer's share of loss = Quota % × Loss

Premium is also shared in the same percentage, usually with a ceding commission.

Surplus treaty cession

Ceded % = (Sum insured − Retention) ÷ Sum insured

Applies when sum insured exceeds the retention, up to the treaty limit. Reinsurer pays that % of every loss on the risk.

Excess of loss recovery

Recovery = Loss − Retention, limited to the layer limit

If loss is at or below retention, recovery is nil.

Section 34F(1)

Authority may order modification or non-renewal at next renewal

Applies if terms are not favourable to the insurer or are detrimental to public interest. Non-compliance is deemed failure to comply with the Act.

Section 34F(2)

Authority may require advance copy and approval before a treaty is entered

Used when the Authority has reason to believe such treaties are or are likely to be entered into.

Eligibility to act as surveyor or loss assessor

Prescribed academic qualifications (clause a) + membership of the Indian Institute of Insurance Surveyors and Loss Assessors (clause b)

Section 64UM(1). Both conditions must be met. For a firm or company, every partner, director or person who may survey or assess must meet them.

Code of conduct

Every surveyor and loss assessor must comply with the code of conduct specified by regulations

Section 64UM(2). Covers duties, responsibilities and professional requirements.

Mandatory report on large claims

Loss in India, payable in India, at or above the amount specified in regulations → insurer must first obtain a report from an approved surveyor or loss assessor

Section 64UM(4). The threshold is set by the Authority's regulations, so do not quote a figure unless given.

Insurer's freedom on amount

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

Proviso to Section 64UM(4). The report is mandatory, but the assessed figure is not binding on the insurer.

Fee restriction

Insurer cannot pay a fee for surveying, verifying or reporting on a claim unless the person is an approved surveyor or loss assessor

Section 64UM(7). Small claims have a relaxation under sub-section (8).

Small claims

Claim below the specified amount and employing an approved surveyor would be disproportionately costly → insurer may employ another person, not disqualified, at a reasonable fee

Section 64UM(8). The Authority may still direct that an approved surveyor report on such a claim (sub-section 9).

Agent vs broker

Agent / corporate agent = acts for the insurer; Broker = acts for the client

Core distinction for any comparison question.

Function (a): standards and service

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

Section 64L(1)(a). The advice is to insurers carrying on general insurance business.

Function (b): expenses

Advise the Authority on controlling insurers' commission and other expenses

Section 64L(1)(b). The advice goes to the Authority, not to insurers.

Function (c): reporting

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

Section 64L(1)(c). This is a duty to report to the Authority.

Function (d): incidental matters

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

Section 64L(1)(d). Both the notification and the approval are needed.

Fees

Collect fees laid down in the Council's bye-laws from general insurers

Section 64L(2). Proviso: the Council may by resolution waive fees for a year, and if the Authority approves the resolution, no fees are collected for that year.

Who may carry on insurance business (s. 2C(1))

Eligible forms = public company | registered co-operative society | statutory body set up by an Act of Parliament | foreign re-insurer's branch in India (re-insurance only), including Lloyd's or its Members

A person cannot begin any class of insurance business unless it fits one of these forms. An insurer other than an Indian insurance company cannot begin insurance business in India after the IRDA Act, 1999 commenced, except as the Act allows.

Valuation of assets (s. 64V(1))

Value of asset ≤ market value or realisable value

This is for checking compliance with section 64VA. The Authority may exclude certain assets by regulations.

Valuation of liabilities (s. 64V(2))

Proper value on every item of liability, as per regulations

No liability may be left out or undervalued.

Annual certified statement (s. 64V(3))

Statement of assets and liabilities as on 31 March, certified by an approved Auditor (general insurance) or approved actuary (life insurance)

It is filed with the Authority along with the returns required under the Act, within the time set by regulations.

Foreign insurer's filing (s. 63)

File particulars with the Authority within 3 months of setting up a place of business in India or appointing a representative to obtain insurance business

Any later change must be furnished forthwith.

Capital structure scheme appeal (s. 6B(2))

Appeal to the Securities Appellate Tribunal within 90 days of the order sanctioning the scheme

The decision of the Tribunal, or of the officer if no appeal is made, is final and binding.

Administrator's report (s. 52B(1))

Report to the Authority choosing the best course for life policyholders: transfer, continue, wind up, or another course

The Authority's order under s. 52B(2) binds all concerned, even against the memorandum or articles.

Quick revision

• Underwriting means assessing and pricing risk before accepting it.
• Reinsurance lets an insurer transfer part of its risk to another insurer.
• Claims handling covers intimation, investigation, assessment and settlement.
• The Executive Committee of the General Insurance Council has four elected member representatives, an eminent person from outside insurance nominated by the Authority, and four nominated representatives of agents, third party administrators, surveyors and loss assessors, and policyholders.
• The Chairperson of that Executive Committee is one of the four elected representatives.
• An Executive Committee lasts three years from its first meeting; outgoing members continue until a new one is constituted.
• If a body fails to elect a member, the Authority may nominate a person to fill the vacancy.
• An act of the Committee cannot be questioned merely because of a vacancy or a defect in its constitution.
• The General Insurance Council's Executive Committee must meet at least once before 31 March every year to advise on limits for expenses of management under the proviso to section 40C(1).
• After a warning to an insurer for breaching section 40C, two warnings disregarded allow the Authority to take prescribed action.
• The Executive Committee may collect fees laid down in the Council's bye-laws from general insurers.

Common mistakes

• Treating underwriting and reinsurance as the same thing. Fix: Underwriting is the insurer accepting a proposal from its customer. Reinsurance is the insurer passing part of that risk to another insurer.
• Saying risk can be assumed on a promise to pay later in every case. Fix: Under Section 64VB, premium must be received, or guaranteed in the prescribed manner and time, or a prescribed deposit made. The Central Government may relax this for certain categories by rules.
• Saying the surveyor's report binds the insurer. Fix: Quote the proviso to Section 64UM(4): the insurer may pay or settle at a different amount.
• Quoting a fixed rupee threshold for a compulsory survey. Fix: Say the amount is the one specified in the regulations, and give a number only if your current study material states it.
• Treating reinsurance and coinsurance as the same Fix: Ask who owes the insured. In reinsurance the insured has no claim against the reinsurer.
• Saying the policyholder is a party to the reinsurance contract Fix: State that the reinsurance contract is between insurer and reinsurer only.
• Saying a broker acts for the insurer. Fix: Remember: agent sells for the insurer, broker acts for the client.
• Stating that the surveyor's assessment binds the insurer. Fix: The proviso to Section 64UM(4) lets the insurer pay or settle at a different amount.
• Saying the committee fixes the limit on management expenses or commission. Fix: Write that the committee only advises the Authority. Under section 64M it meets at least once before 31 March each year to advise on expense limits, and the Authority fixes them.
• Attributing the functions to the Life Insurance Council. Fix: Section 64L covers only the General Insurance Council's committee. Remember that the General Council covers general, health and re-insurance business.

Exam tips

• Write the section number with its rule in plain words. Section 41, 64VB, 101A and 64VA are the safest ones to cite.
• Show the process as numbered stages in a short note, then add principles and compliance for full marks.
• For case questions, follow provision, analysis, conclusion, and give a practical compliance point at the end.
• Always state the exceptions: published tables under Section 41, relaxation by rules under Section 64VB(5).
• If you are unsure of an IRDAI regulation's exact title or number, describe the requirement in words rather than guess.
• Write Section 64UM sub-section numbers only for rules you are sure of: (1) eligibility, (4) compulsory report, (7) fees, (8) small claims, (10) exemptions.
• Keep the Act separate from IRDAI regulations. Cite the Act for surveyors and the regulations for timelines.
• In case-based questions, follow provision, analysis, conclusion. Close with a compliance point such as documenting reasons for repudiation.