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

Ramesh enrols ten friends into a chain, each of whom is to bring in more people to solicit policies of an insurer, though none of them is an authorised agent, and promises a share of commission earned. Which statement is correct under the Insurance Act, 1938?

The arrangement is a multilevel marketing scheme, and inducing anyone to take out, renew or continue a policy through it is prohibited under section 42A(2). The definition covers unauthorised persons soliciting business with or without commission, and includes enrolment into a multilevel chain.

  1. AIt is a multilevel marketing scheme, and offering inducement to take out or renew policies through it is prohibitedCorrect
  2. BIt is lawful if the commission is shared only partly
  3. CIt is lawful if the insurer is not a party to it
  4. DIt is lawful if no consideration is actually paid

Explanation

The Explanation to section 42A defines a multilevel marketing scheme as soliciting and procuring insurance business through unauthorised persons, with or without consideration of whole or part of the commission, including enrolment into a multilevel chain. So partial commission or non-payment does not take it outside the definition, and section 42A(2) prohibits inducements through it.

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