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

Under section 40B of the Insurance Act, 1938, Mahalakshmi Life Insurance Co. spent on expenses of management in a financial year more than the limit applicable to it. What is the correct position?

The insurer has breached section 40B. A life insurer cannot spend in a financial year any amount exceeding the amount specified by regulations made under the Insurance Act, 1938, and no exception exists for higher claim settlements.

  1. AThe limit is fixed by the insurer's board and only reported to the Authority
  2. BNo insurer may spend in a financial year any amount exceeding the amount specified by the regulations made under the ActCorrect
  3. CThe limit applies only to general insurers
  4. DThe limit may be exceeded if claims settled in that year were higher than expected

Explanation

Section 40B provides that no life insurer shall spend as expenses of management in any financial year an amount exceeding what is specified by the regulations. There is no exception for high claims. Option on board-fixed limits is wrong because the cap is regulatory.

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