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

Suraksha General Insurance Ltd. wants to expand its reach in Bihar by appointing a 'special agent' who would in turn recruit sub-agents and transact the insurer's business on its behalf. Under the Insurance Act, 1938, what is the legal position?

The appointment is prohibited. Section 42A(1) of the Insurance Act, 1938 bars insurers from appointing principal agents, chief agents or special agents and from transacting insurance business in India through them. Licensing, Council approval or a rural focus does not make such an appointment lawful.

  1. APermitted if the special agent is a licensed company
  2. BPermitted with prior approval of the General Insurance Council
  3. CProhibited, as an insurer cannot appoint a principal agent, chief agent or special agent to transact insurance business in IndiaCorrect
  4. DPermitted only for rural business

Explanation

Section 42A(1) bars insurers, after the Insurance Laws (Amendment) Act, 2015, from appointing any principal agent, chief agent or special agent and transacting insurance business through them. No approval or licence status cures this. The options on Council approval and rural business have no basis in the section.

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