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CS Professional · Banking and Insurance - Laws and Practice · Functions in Insurance and Compliance related thereto (Part II)

An insurer believes that a proposed assignment of Neha Gupta's policy is meant only for trading in the policy. It decides to decline to act on the endorsement. Which step is required of the insurer by the Insurance Act, 1938?

The insurer must record its reasons for refusal in writing and communicate them to the policyholder within thirty days of the policyholder giving notice of the assignment. Refusal is permitted where the assignment is for trading of the policy, but not silently.

  1. ARecord its reasons in writing and communicate them to the policyholder within thirty days of the noticeCorrect
  2. BRefuse silently, since reasons need not be recorded
  3. CObtain prior consent of the assignee before refusing
  4. DRefer the matter to the Authority before refusing, which then decides within sixty days

Explanation

Section 38(2) allows refusal where the assignment is not bona fide, not in the policyholder's or public interest, or is for trading in policies. Section 38(3) requires written reasons to be recorded and communicated within thirty days of the notice. A silent refusal breaches this.

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