Insurance Regulatory and Development Authority Act, 1999

Introduction

The Insurance Act, 1938 had provided for setting up of the Controller of Insurance to act as a strong and powerful supervisory and regulatory authority for insurance. Post nationalisation, the role of Controller of Insurance diminished considerably in significance since the insurance companies were owned by the Government.

With the opening up of the insurance industry to the private sector, the need for a strong, independent and autonomous Insurance Regulatory Authority was felt. As the enacting of legislation would have taken time, the then Government constituted through a Government resolution an Interim Insurance Regulatory Authority pending the enactment of a comprehensive legislation.

The Insurance Regulatory and Development Authority Act, 1999 is an act to provide for the establishment of an Authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto and further to amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General insurance Business (Nationalisation) Act, 1972 to end the monopoly of the Life Insurance Corporation of India (for life insurance business) and General Insurance Corporation and its subsidiaries (for general insurance business).

The act extends to the whole of India and will come into force on such date as the Central Government may, by notification in the Official Gazette specify. Different dates may be appointed for different provisions of this Act.

The Act has defined certain terms , some of the most important ones are as follows :-

Appointed day means the date on which the Authority is established under the act.

Authority means the established under this Act.

Interim Insurance Regulatory Authority means the Insurance Regulatory Authority set up by the Central Government through Resolution No. 17(2)/ 94-lns-V dated the 23rd January, 1996.

Words and expressions used and not defined in this Act but defined in the Insurance Act, 1938 or the Life Insurance Corporation Act, 1956 or the General Insurance Business (Nationalisation) Act, 1972 shall have the meanings respectively assigned to them in those Acts.

Insurance Regulatory Authority

Establishment and incorporation of Authority

With effect from such date as the Central Government may, by notification, appoint, the Insurance Regulatory and Develop is to be constituted. The Authority shall be a body corporate, having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property, and to contract and can be sue or be sued in its own name. The head office of the Authority shall be at such place as the Central Government may decide from time to time and it may establish offices at other places in India.

Composition of Authority

The Authority shall consist of the following members, namely

(a) a Chairperson;

(b) not more than five whole-time members;

to be appointed by the Central Government from amongst persons of ability, integrity and standing who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration or any other discipline which would, in the opinion of the Central Government, be useful to the Authority:

The Central Government while appointing the Chairperson and the whole-time members, must ensure that at least one person each is a person having knowledge or experience in life insurance, general insurance or actuarial science respectively.

Tenure of office of Chairperson and other members The Chairperson and every other whole-time member shall hold office for a term of five years from the date on which he enters upon his office and shall be eligible for reappointment:

However, no person shall hold office as such Chairperson after he has attained the age of sixty-five years and no person shall hold office as such whole-time member after he has attained the age of sixty-two years.

A part-time member shall hold office for a term not exceeding five years from the date on which he enters upon his office.

A member may :-

(a) relinquish his office by giving in writing to the Central Government notice of not less than three months; or be removed from his office in accordance with the following provisions.

Removal from office

The Central Government may remove from office any member who :-

(a) is, or at any time has been, adjudged as insolvent;

(b) has become physically or mentally incapable of acting as a member;

(d) has acquired such financial or other interest as is likely to affect prejudicially his functions as a member;

(e) has so abused his position as to render his continuation in office detrimental to the public interest.

No such member shall be removed under clause (d) or clause (e) unless he has been given a reasonable opportunity of being heard in the matter.

Salary and allowances of Chairperson and members

The salary and allowances payable to, and other terms and conditions of service of, the members other than part-time members shall be such as may be prescribed. The part-time members shall receive such allowances as may be prescribed. The salary, allowances and other conditions of service of a member shall not be varied to his disadvantage after appointment.

Bar on future employment of members

The Chairperson and the whole-time members shall not, for a period of two years from the date on which they cease to hold office as such, except with the previous approval of the Central Government accept: –

(a) any employment either under the Central Government or under any State Government; or

(b) any appointment in any company in the Insurance sector.

Administrative powers of Chairperson

The Chairperson shall have the powers of general superintendence and direction in respect of all administrative matters of the Authority.

Meeting of Authority

The Authority shall meet at such times and places, and shall observe such rules and procedures in regard to transaction of business at its meetings (including quorum at such meetings) as may be determined by regulations. The Chairperson, or if for any reason he is unable to attend a meeting of the Authority, any other member chosen by the members present from amongst themselves at the meeting shall preside at the meeting. All questions which come up before any meeting of the Authority shall be decided by a majority vote of the members present and voting, and in the event of an equality of votes, the Chairperson, or in his absence, the person presiding shall have a second or casting vote. The Authority may make regulations for the transaction of business at its meetings.

Vacancies, etc., not to invalidate proceedings of Authority

No Act or proceeding of the Authority shall be invalid merely by reason of :-

(a) any vacancy in, or any defect in the constitution of, the Authority;

(b) any defect in the appointment of a person acting as a member of the Authority;

Officers and employees of Authority

The Authority may appoint officers and such other employees as it considers necessary for the efficient discharge of its functions under this Act. The terms and other conditions of service of officers and other employees of the Authority shall be governed by regulations made under this Act.

Transfer of assets, liabilities, etc, of the Interim Insurance Regulatory Authority will be transferred to the Authority on the appointed day.

All suits and other legal proceedings instituted or which could have been instituted by or against the Interim Insurance Regulatory Authority immediately before that day may be continued or may be instituted by or against the Authority.

Duties, powers and functions of Authority

Subject to the provisions of this Act and any other law for the time being in force, the Authority has the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. The powers and functions of the Authority include:-

(a) to issue to the applicant a certificate of registration, to renew, modify, withdraw, suspend or cancel such registration

(b) protection of the interests of the policy-holders in matters concerning assigning of policy, nomination by policy-holders, insurable interest, settlement of insurance claim, surrender value of policy, and other terms and conditions of contracts of insurance

(c) specifying requisite qualifications code of conduct and practical training for intermediary or insurance intermediaries and agents

(d) specifying the code of conduct for surveyors and loss assessors

(e) promoting efficiency in the conduct of insurance business

(f) promoting and regulating professional organisations connected with the insurance and reinsurance business

(g) levying fees and other charges for carrying out the purposes of this Act

(h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business

(i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938

(j) prescribing the form and manner in which books of account shall be maintained and statement of accounts will be rendered by insurers and other insurance intermediaries

(k) regulating investment of funds by insurance companies

(l) regulating maintenance of margin of solvency

(m) adjudication of disputes between insurers and intermediaries or insurance intermediaries

(n) supervising the functioning of the Tariff Advisory Committee

(o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations

(p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector

(q) exercising such other powers as may be prescribed.

Finance, accounts and audit

Grants by Central Government

The Central Government may, after due appropriation made by the Parliament by law in this behalf, make to the Authority grants of such sums of money as the Government may think fit for being utilised for the purposes of this Act.

Fund

A Fund to be called “The Insurance Regulatory and Development Authority Fund” is to be established and the following sums will be credited thereto :-

(a) all Government grants, fees and charges received by the Authority

(b) all sums received by the Authority from such other source as may be decided upon by the Central Government

The Fund shall be applied for meeting the following expenses :-

(a) the salaries, allowances and other remuneration of the members, officers and other

employees of the Authority

(b) the other expenses of the Authority in connection with the discharge of its functions and for the purposes of this Act.

Accounts and audit

The Authority shall maintain proper accounts and other relevant records and prepare an annual statement of accounts in such form as may be prescribed by the Central Government in consultation with the Comptroller and Auditor General of India. The accounts of the Authority shall be audited by the Comptroller and Auditor General of India at such intervals as may be specified by him and any expenditure incurred in connection with such audit shall be payable by the Authority to the Comptroller and Auditor General of India. The Comptroller and Auditor-General of India and other person appointed by him in connection with the audit of the accounts of the Authority shall have the same rights and privileges and authority in connection with such audit as the Comptroller and Auditor General generally has in connection with the audit of the Government accounts and, in particular, shall have the right to demand the production of books, accounts, connected vouchers and other documents and papers and to inspect any of the officers of the Authority. The accounts of the Authority as certified by the Comptroller and Auditor General of India or any other person appointed by him in this behalf together with the audit report thereon shall be forwarded annually to the Central Government and that Government shall cause the same to be laid before each House of Parliament.

Powers of Central Government

The Authority shall, in exercise of its powers or the performance of its functions under this Act, be bound by such directions on questions of policy, other than those relating to technical and administrative matters, as the Central Government may give in writing to it from time to time

However, Authority must , as far as practicable, be given an opportunity to express its views before any such direction is given. The decision of the Central Government, whether a question is one of policy or not, shall be final.

Power of Central Government to supersede Authority

If at any time the Central Government is of the opinion: –

(a) that, on account of circumstances beyond the control of the Authority, it is unable to discharge the functions or perform the duties imposed on it by or under the provisions of this Act: or

b) that the Authority has persistently defaulted in complying with any direction given by the Central Government under this Act or in the discharge of the functions or performance of the duties imposed on it by or under the provisions of this Act and as a result of such default the financial position of the Authority or the administration of the Authority has suffered; or

the Central Government may, by notification and for reasons to be specified therein, supersede the Authority for such period, not exceeding six months, as may be specified in the notification and appoint a person to be the Controller of Insurance. However, before issuing any such notification, the Central Government shall give a reasonable opportunity to the Authority to make representations against the proposed supersession and shall consider the representations, if any, of the Authority.

Upon the publication of such notification superseding the Authority :-

(a) the Chairperson and other members shall, as from the date of supersession, vacate their offices as such;

(b) all the powers, functions and duties which may, by or under the provisions of this Act, be exercised or discharged by or on behalf of the Authority shall, until the Authority is reconstituted, be exercised and discharged by the Controller of Insurance; and

(c) all properties owned or controlled by the Authority shall, until the Authority is reconstituted vest in the Central Government.

On or before the expiration of the period of supersession specified in such a notification, the Central Government shall reconstitute the Authority by a fresh appointment of its Chairperson and other members and in such case any person who had vacated his office under the notification shall not be deemed disqualified for reappointment.

The Central Government shall cause a copy of the notification issued and a full report of any action taken under this section and the circumstances leading to such action to be laid before each House of Parliament at the earliest.

Furnishing of returns, etc., to the Central Government

The Authority must furnish to the Central Government at such time and in such form and manner as may be prescribed, or as the Central Government may direct, such returns and statements and such particulars in regard to any proposed or existing programme for the promotion and development of the insurance industry as the Central Government may, from time to time, require.

The Authority must, within nine months after the close of each financial year, submit to the Central Government a report giving a true and full account of its activities including the activities for promotion and development of the insurance business during the previous financial year. Copies of the reports must be laid, as soon as may be after they are received, before each House of Parliament.

Chairperson, members, officers and employees of Authority to be public servants

The Chairperson, members, officers and other employees of the Authority shall be deemed, when acting or purporting to act in pursuance of any of the provisions of this Act, to be public servants within the meaning of section 21 of the Indian Penal Code.

Protection of action taken in good faith

No suit, prosecution or other legal proceedings shall lie against the Central Government or any officer of the Central Government or any member, officer or other employee of the Authority for anything which is in good faith done or intended to be done under this Act or the rules or regulations made thereunder. However, nothing in this Act exempts any person from any suit or other proceedings which might, apart from this Act, be brought against him.

Delegation of powers

The Authority may, by general or special order in writing, delegate to the Chairperson or any other member or officer of the Authority, subject to such conditions, if any, as may be specified in the order such of its powers and functions under this Act as it may deem necessary. The Authority may, by a general or special order in writing, also form Committees of the members and delegate to them the powers and functions of the Authority as may be specified by the regulations.

Power to make rules

The Central Government may, by notification, make rules for carrying out the purposes of this Act. Such rules may provide for all or any of the following matters, namely:-

(a) the salary and allowances payable to and other conditions of service of the members other than part-time members

(b) the allowances to be paid to the part-time members

(d) the form of annual statement of accounts to be prepared by the Authority

(e) the time at, the form and the manner in which returns and statements and particulars are to be furnished to the Central Government

(f) the matters on which the Insurance Advisory Committee shall advise the authority

(g) any other matter which is to be, or may be, prescribed, or in respect of which provision is to be or may be made by rules.

Establishment of Insurance Advisory Committee

The Authority may, by notification, establish with effect from such date as it may specify in such notification, a Committee to be known as the Insurance Advisory Committee. The Insurance Advisory Committee shall consist of not more than twenty-five members excluding ex officio members to represent the interests of commerce, industry, transport, agriculture, consumer forum, surveyors, agents, intermediaries, organisations engaged in safety and loss prevention, research bodies and employees’ association in the insurance sector. The Chairperson and the members of the Authority shall be the ex officio Chairperson and ex officio members of the Insurance Advisory Committee. The objects of the Insurance Advisory committee shall be to advise the Authority on matters relating to the making of the regulations. The Insurance Advisory Committee may advise the Authority on such other matters as may be prescribed.

Power to make regulations

The Authority may, by notification, make regulations consistent with this Act and the rules made thereunder to carry out the purposes of this Act. Such regulations may provide for all or any of the following matters,:-

(a) the times and places of meetings of the Authority and the procedure to be followed at such meetings including the quorum necessary for the transaction of business

(b) the transactions of business at its meetings

(d) the powers and functions which may be delegated to Committees of the members

(e) any other matter which is to be or may be specified by regulations or in respect of which provision is to be made or may be made by regulations.

Rules and regulations to be laid before Parliament Every rule and every regulation made under this Act shall be laid, after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions. If, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in modifying or annulling the rule or regulation, the rule or regulation shall thereafter have effect only in such modified form or have no effect, as the case may be. However, any such modification or annulment shall not affect anything previously done under that rule or regulation.

Application of other laws not barred The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.

Power to remove difficulties

If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, make such provisions not inconsistent with the provisions of this Act as may appear to be necessary for removing the difficulty.

However, no order can be made after the expiry of two years from the appointed day. Every such order made under this section shall be laid as soon as it is made, before each House of Parliament.

Amendment of the Insurance Act, 1938

The Insurance Act, 1938 shall be amended in the manner specified in the First Schedule to this Act. These amendments to the Insurance Act. 1938 are consequential in nature to enable the Insurance Regulatory Authority to effectively regulate, promote and ensure orderly growth of the insurance industry. The Amendments provide for the substitution of the word “Controller” by the word “Authority” and substitution of the word “Central Government” by the word “Authority” in certain sections of the Insurance Act, 1938. It also provides for certain definitions including definition of an Indian insurance company. It amends certain provisions of the Insurance Act, 1938 pertaining to registration of insurers, percentage of equity capital to foreign company, investment provisions, regulation of licence to intermediaries or insurance intermediaries and power of the Authority make regulations.

Amendment of the Life Insurance Corporation Act, 1956

The Life Insurance Act, 1956 shall be amended in the manner specified in the Second Schedule to this Act. These amendments ends the monopoly of the Life Insurance Corporation of India to do life insurance business in India and opens the entry of private sector Indian companies into the life insurance business.

Amendment of General Insurance Business (Nationalisation) Act, 1972

The General Insurance Business (Nationalisation) Act, 1972 shall be amended in the manner specified in the Third Schedule to this Act. These amendments ends the monopoly of the General Insurance Corporation of India and its subsidiaries to do general insurance business in India and opens the entry of private sector Indian companies into the general insurance business.

Major Amendments to Insurance Act

THE FIRST SCHEDULE

The main amendments to the insurance act, 1938 are as follows :-

1. A new defination of “Indian Insurance Company” has been inserted. “Indian insurance company” means any insurer being a company :-

(a) which is formed and registered under the Companies Act, 1956

(b) in which the aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed twenty-six per cent. paid up capital in such Indian insurance company:

Explanation: For the purposes of this clause, the expression “foreign company” shall have the meaning assigned to it under clause (23A) of section 2 of the Income-tax Act. Under the said section, a foreign company has been defined to mean a company which is not a domestic company. A domestic company means an Indian company and includes any company which has made the arrangements prescribed for deduction of income tax at source on dividends declared, distributed or paid out of its income taxable in India.

2. No insurer other than an Indian insurance company can begin to carry on any class of insurance business in India under this Act on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999.

3. Any person or insurer carrying on any class of insurance business in India, on or before the commencement of the Insurance Regulatory and Development Authority Act, 1999, for which no registration certificate was necessary prior to such commencement, may continue to do so for a period of three months from such commencement or, if he had made an application for such registration within the said period of three months, till the disposal of such application. However, any certificate of registration, obtained immediately before the commencement of the Insurance Regulatory and Development Authority Act, 1999, shall be deemed to have been obtained from the Authority in accordance with the provisions of this Act..

Every application for registration shall be made in such manner as may be determined by regulations made by the Authority and shall be accompanied by the required details. And fees not exceeding Rs. 50 thousand.

The Authority may by order, suspend or cancel any registration in such manner as may be determined by regulations made by it: However, no such order shall be made unless the person concerned has been given reasonable opportunity of being heard.

The Authority may, on payment of such fee, not exceeding five thousand rupees, as may be determined by the regulations, issue a duplicate certificate of registration to replace a certificate lost, destroyed or mutilated, or in any other case where the Authority is of opinion that the issue of duplicate certificate is necessary.

Capital Requirements

Requirement as to capital

No insurer carrying on the business of life insurance, general insurance, or re-insurance in India on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999, shall be registered unless he has :-

1. a paid-up equity capital of rupees one hundred crores, in case of a person carrying on the business of life insurance or general insurance; or

2. a paid-up equity capital of rupees two hundred crores, in case of a person carrying on exclusively the business as a reinsurer:

In determining the paid-up equity capital specified under clause (i) or clause (ii), the deposit to be made under section 7 and any preliminary expenses incurred in the formation and registration of the company shall be excluded:

An insurer carrying on business of life insurance, general insurance or re-insurance in India before the commencement of the Insurance Regulatory and Development Authority Act, 1999 and who is required to be registered under this Act, shall have a paid-up equity capital in accordance with clause (i) and clause (ii), as the case may be, within six months of the commencement of that Act.

5. Where, the nominal value of the shares intended to be transferred by any individual, firm, group, constituents of a group, or body corporate under the same management, jointly or severally exceeds one per cent. of paid up capital of the insurer, previous approval of the Authority must be obtained for the transfer.

Explanation- For the purpose of this sub-clause, the expressions “group” and “same management”, shall have the same meanings respectively assigned to them in the Monopolies and Restrictive Trade Practices Act, 1969.

6. The following sections have been inserted :-

6AA. Manner of divesting excess share holding by promoter in certain cases No promoter shall at any time hold more than twenty-six per cent. or such other percentage as may be prescribed, of the paid up capital in an Indian Insurance company:-

Provided that in a case where an Indian insurance company begins the business of life insurance, general insurance or reinsurance in which the promoters hold more than twenty-six per cent of the paid up capital or such other excess percentage as may be prescribed, the promoters shall divest in a phased manner the share capital in excess of the twenty-six per cent. of the paid up capital or the such excess paid up capital as may be prescribed, after a period of ten years from the date of commencement of the said business by such Indian insurance company or within such period as may be prescribed by the Central Government.

Explanation- For the removal of doubts it is hereby declared that nothing contained in the above proviso shall apply to the promoters being foreign company, foreign institutional investor, non-resident Indian and overseas body corporate referred to in clause b of the defination of Indian Insurance Company.

The manner and procedure for divesting the excess share capital shall be specified by regulations made by the Authority.

Every insurer, on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999, in respect of insurance business transacted by him and in respect of his shareholders’ funds, shall at the expiration of each financial year prepare with reference to that year, a balance sheet, a profit and loss account, a separate account of receipts and payments, a revenue account in accordance with the regulations made by the Authority. Every insurer shall keep separate accounts relating to funds of share holders and policy holders.

27C. Provisions of investment of funds outside India

No insurer shall directly or indirectly invest outside India, the funds of the policy holders.

27D. Manner and conditions of investment

The Authority may, in the interests of the policy holders, specify by regulations made by the Authority, the time, manner and other conditions of investment of assets to be held by an insurer for the purposes of this Act.

The Authority may, after taking into account the nature of business and to protect the interests of the policy holders, issue to an insurer the directions relating to the time, manner, and other conditions of investment of assets to be held by him. However, no directions shall be issued unless the insurer concerned has been given a reasonable opportunity of being heard.

32B. Insurance business in rural or social sector

Every insurer shall, after the commencement of the Insurance Regulatory and Development Authority Act, 1999, undertake such percentages of life insurance business and general insurance business in the rural or social sector, as may be specified, in the Official Gazette by the Authority, in this behalf.

Investigation & Inspection

33. Power of investigation and inspection by Authority

The Authority may, at any time, by order in writing, direct any person (to be called “Investigating Authority”) specified in the order to investigate the affairs of any insurer and to report to the Authority on any investigation made by such Investigating Authority. The Investigating Authority may, wherever necessary, employ any auditor or actuary or both for the purpose of assisting him in any investigation. The Investigating Authority may, at any time, and shall, on being directed so to do by the Authority, cause an inspection to be made by one or more of his officers of any insurer and his books and account; and the Investigating Authority shall supply to the insurer a copy of his report on such inspection.

It shall be the duty of every manager, managing director or other officer of the insurer to produce before the Investigating Authority directed to make the investigation or inspection all such books of account, registers and other documents in his custody or power and to furnish him with any statement and information relating to the affairs of the insurer as the said Investigating Authority may require of him within such time as the said Investigating Authority may specify.

Any Investigating Authority, directed to make an investigation inspection may examine on oath, any manager, managing director or other officer of the insurer in relation to his business and may administer oaths accordingly.

The Investigating Authority shall, if he has been directed by the Authority to cause an inspection to be made, and may, in any other case, report to the Authority on any inspection made.

On receipt of any such report, the Authority may, after giving such opportunity to the insurer to make a representation in connection with the report as, in the opinion of the Authority, seems reasonable, by order in writing,

(a) require the insurer, to take such action in respect of any matter arising out of the report as the Authority may think fit; or

(b) cancel the registration of the insurer; or

(c) direct any person to apply to the court for the winding up of the insurer, if a company, whether the registration of the insurer has been cancelled under clause (b) or not.

The Authority may, after giving reasonable notice to the insurer, publish the report submitted by the Investigating Authority or such portion thereof as may appear to it to be necessary. The Authority may by the regulations made by it specify the minimum information to be maintained by insurers in their books, the manner in which such information shall be maintained, the checks and other verifications to be adopted by insurers in that connection and all other matters incidental thereto as are, in its opinion, necessary to enable the Investigating Authority to discharge satisfactorily his functions under this section.

Explanation- For the purposes of this section, the expression “insurer” shall include in the case of an insurer incorporated in India: –

(a) all its subsidiaries formed for the purpose of carrying on the business of insurance exclusively outside India; and

(b) all its branches whether situated in India or outside India.

No order made under this section other than an order of cancellation of registration of insurer shall be capable of being called in question in any court.

All expenses of, and incidental to, any investigation made under this section shall be defrayed by the insurer, shall have priority over that. debts due from the insurer and shall be recoverable as an arrear of land revenue.

Insurance Agents, Intermediaries and Surveyors

Insurance Agents :

The Authority or an officer authorised by it in this behalf shall, in the manner determined by the regulations made by it and on payment of the fee determined by the regulations, which shall not be more than two hundred and fifty rupees, issue to any person making an application in the manner determined by the regulations, a licence to act as an insurance agent for the purpose of soliciting or procuring insurance business. However in the case of an individual, he does not suffer from any of the relevant disqualifications and in the case of a company or firm, any of its directors or partners does not suffer from any of the said disqualifications.

Any licence issued immediately before the commencement of the Insurance Regulatory and Development Authority Act, 1999 shall be deemed to have been issued in accordance with the regulations which provide for such licence.

A licence issued under this section, after the date of the commencement of the Insurance Regulatory and Development Authority Act, 1999, shall remain in force for a period of three years only from the date of issue, but shall, if the applicant, being an individual does not, or being a company or firm, any of its directors or partners does not, suffer from any of the relevant disqualifications and the application for renewal of licence reaches the issuing authority at least thirty days before the date on which the licence ceases to remain in force, to be renewed for a period of three years at any one time on payment of the fee determined by regulations made by the Authority which shall not be more than rupees two hundred and fifty, and additional fee of an amount determined by the regulations not exceeding rupees one hundred by way of penalty, if the application for renewal of the licence does not reach the issuing authority at least thirty days before the date on which the licence ceases to remain in force.

The Authority may, if satisfied that undue hardship would be caused otherwise, accept any application in contravention of this sub-section on payment by the applicant of a penalty of seven hundred and fifty rupees.

An insurance agent among other things must possess the requisite qualifications and practical training for a period not exceeding twelve months, as may be specified by the regulations made by the Authority in this behalf; and must pass such examination as may be specified by the regulations made by the Authority in this behalf. He must not violates the code of conduct as may be specified by regulations made by the Authority.

The Authority may issue a duplicate licence to replace a licence lost, destroyed or mutilated, on payment of such fee not exceeding rupees fifty as may be determined by regulations.

8. 42D. Issue of licence to intermediary or insurance intermediary

The Authority or an officer authorised by it in this behalf shall, in the manner determined by regulations and on payment of the fees determined by regulations made by the Authority issue, to any person making an application in the manner determined by regulations, a licence to act as an intermediary or an insurance intermediary under this Act provided that: –

(a) in the case of an individual, he does not suffer from any of the disqualifications or

(b) in the case of a company, firm, any of its directors or partners does not suffer from any of the said disqualifications

A licence issued under this section shall entitle the holder thereof to act as an intermediary or insurance intermediary or insurance intermediary.

A licence issued under this section, shall remain in force for a period of three years only from the date of issue, but shall, if the applicant, being an individual does not, or being a company or firm any of its directors or partners does not suffer from any of the disqualifications and the application of or renewal of licences reaches the issuing authority at least thirty days before the date on which the licence ceases to remain in force, be renewed for a period of three years at any one time on payment of the fee determined by regulations made by the Authority and additional fee for an amount determined by the regulations not exceeding one hundred rupees by way of penalty, if the application for renewal of the licence does not reach the issuing authority at least thirty days before the date on which the licence ceases to remain in force.

No application for renewal of a licence under this section shall be entertained if the application does not reach the issuing authority before the licence ceases to remain in force. The Authority may, if satisfied that undue hardship would be caused otherwise, accept any application in contravention of this sub-section on payment by the applicant of a penalty of seven hundred and fifty rupees.

The disqualifications above referred to shall be the following:-

(a) that the person is a minor

(b) that he is found to be of unsound mind by a court of competent jurisdiction

(c) that he has been found guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit any such offence by a court of competent jurisdiction: However, where at least five years have elapsed since the completion of the sentence imposed on any person in respect of any such offence, the Authority, shall ordinarily declare in respect of such person that his conviction shall cease to operate as a disqualification under this clause

(d) that in the course of any judicial proceedings relating to any policy of insurance of the winding up of an insurance company or in the course of an investigation of the affairs of an insurer it has been found that he has been guilty of or has knowingly participated in or connived at any fraud dishonesty or misrepresentation against an insurer or an insured;

(e) that he does not possess the requisite qualifications and practical training for a period not exceeding twelve months, as may be specified by the regulations made by the Authority in this behalf;

(f) that he as not passed such examinations as may be specified by the regulations made by the Authority in this behalf.

(g) that he violates the code of conduct as may be specified by regulations made by the Authority.

If it is found that an intermediary or an insurance intermediary suffers from any of the foregoing disqualifications, without prejudice to any other penalty to which he may be liable, the Authority shall, and if the intermediary or insurance intermediary has knowingly contravened any provision of this Act may, cancel the licence issued to the intermediary or insurance intermediary or an insurance intermediary under this section.

The Authority may issue a duplicate licence to replace a licence lost, destroyed or mutilated, on payment of such fee, as may be determined by regulations made by the authority.

Any person who acts as an intermediary or an insurance intermediary without, holding a licence issued under this section to act as such shall be punishable with fine and any insurer or any person acting on behalf of an insurer, who appoints as an intermediary or an insurance intermediary any person not licensed to act such or transacts any insurance business in India through any such person, shall be punishable with fine.

Where the person contravening the above provisions is a company or a firm, then, without prejudice to any other proceedings which may be taken against the company or firm, every director, manager, secretary or other officer of the company, and every partner of the firm who is knowingly a party to such contravention shall be punishable with fine.

9. Surveyors

Every person who intends to act as a surveyor or loss assessor after the expiry of a period of one year from the commencement of the Insurance Regulatory and Development Authority Act, 1999, shall make an application to the Authority within such time, in such manner and on payment of such fee as may be determined by the regulations made by the Authority. However, any licence issued immediately before the commencement of the Insurance Regulatory and Development Authority Act, I999 shall be deemed to have been issued in accordance with the regulations providing for such licence.

Every surveyor and loss assessor shall comply with the code of conduct in respect of their duties, responsibilities and other professional requirements as may be specified by regulations made by the Authority.

Maintenance of assets

10. Maintenance of Assets

Every insurer shall, at all times, on or after the commencement of the Insurance Regulatory and Development Authority Act, 1999, maintain an excess of the value of his assets over the amount of his liabilities of not less than the amount arrived at as follows :-(hereinafter referred to in this section referred to as the “required solvency margin”)

(i) in the case of an insurer carrying on life insurance business, the required solvency margin, shall be the higher of the following amounts :-

(a) fifty crores of rupees (one hundred crores of rupees in case of re-insurers); or

(b) the aggregate sums of the results arrived at in items (I) and (II) stated below:-

(I) the aggregate of the results arrived at by applying the calculation described in item (A) below (Step 1) and the calculation described in item (B) below (Step II)

(A) for Step I :-

(A.1) there shall be taken, a sum equal to a percentage determined by regulations not exceeding five per cent. of the mathematical reserves for direct business and re-insurance acceptances without any deduction for re-insurance cessions:

(A. 2) the amount of mathematical reserves at the end of the preceding financial year after the deduction of re-insurance cessions shall be expressed as a percentage of the amount of those mathematical reserves before any such deduction; and

(A.3) the sum mentioned in item (A.I) above shall be multiplied-

(A.3.1)where the percentage arrived at under item (A. 2) above is greater than eighty-five per cent. (or in the case of a re-insurer carrying on exclusive re-insurance business, fifty per cent.), by that greater percentage; and

(A.3.2)in any other case, by eighty-five per cent. (or in the case of a re-insurer carrying on exclusive re-insurance business, fifty per cent.);

(B) for Step II-

(B.I) there shall be taken, a sum equal to a percentage determined by the regulations made by the Authority not exceeding one per cent. of the sum at risk for the policies on which the sum at risk is not a negative figure, and

(B. 2) the amount of sum at risk at the end of the preceding financial year for policies on which the sum at risk is not a negative figure after the deduction of re-insurance cession shall be expressed as a percentage of the amount of that sum at risk before any such deduction, and

(B.3) the sum arrived at under item (B.I) above shall be multiplied-

(B. 3.1)where the percentage arrived at under item (B.2) above is greater than fifty per cent,, by that greater percentage; and

(B. 3.2)in any other case, by fifty per cent.

(II) a percentage determined by the regulations made by the Authority of the value of assets determined in accordance with the provisions of section 64V;

(ii) in the case of an insurer carrying on general insurance business, the required solvency margin, shall be the highest of the following amounts:-

(a) fifty crores of rupees (one hundred crores of rupees in case of re-insurer); or

(b) a sum equivalent to twenty per cent. of net premium income; or

subject to credit for re-insurance in computing net premiums and net incurred claims being actual but a percentage, determined by the regulations, not exceeding fifty per cent.:

If in respect of any insurer, the Authority is satisfied that either by reason of an unfavourable claim experience or because of sharp increase in the volume of the business, or for any other reason, compliance with the provisions of this sub-section would cause undue hardship to the insurer, the Authority may direct, for such period and subject to such conditions, such solvency margin not being less than the lower of the amount mentioned in sub-clause (i) or sub-clause (ii) above, as the case may be.

Explanation- For the purposes of this sub-section, the expressions- “mathematical reserves” means the provision made by an insurer to cover liabilities (excluding liabilities which have fallen due and liabilities arising from deposit back arrangement in relation to any policy whereby an amount is deposited by re-insurer with the cedant) arising under or in connection with policies or contracts for life insurance business. Mathematical reserves also include specific provision for adverse deviations of the bases, such as mortality and morbidity rates, interest rates, and expense rates, and any explicit provisions made, in the valuation of liabilities, in accordance with the regulations made by the Authority for this purpose;

“net incurred claims” means the average of the net incurred claims during the specified period of not exceeding three preceding financial years;

“sum at risk“, in relation to a life insurance policy, means a sum which is-

(a) in any case in which an amount is payable in consequence of death other than a case falling within sub-clause (b) below, the amount payable on death, and

(b) in any case in which the benefit under the policy in question consists of the making, in consequence of death, of the payments of annuity, payment of a sum by installments or any other kind of periodic payments, the present value of that benefit, less in either case the mathematical reserve in respect of the relevant policies.

If, at any time an insurer does not maintain the required solvency margin in accordance with the provisions of this section, he shall, in accordance with the directions issued by the Authority, submit a financial plan, indicating a plan of action to correct the deficiency to the Authority within a specified period not exceeding three months.

An insurer who has submitted a plan to the Authority shall propose modifications to the plan if the Authority considers it inadequate, and shall give effect to any plan accepted by the Authority as adequate.

An insurer who does not comply with the above provisions shall be deemed to be insolvent and may be wound up by the court

11. Every insurer shall furnish to the Authority his returns as the case may be, in case of life insurance business a statement certified by an actuary approved by the Authority, and in case of general insurance business a statement certified by an auditor approved by the Authority, of the required solvency margin maintained by the insurer in the manner required.

Miscellaneous Provisions

12. Penalty for default in complying with, or act in contravention of, this Act.

lf any person, who is required under this Act, or rules or regulations made thereunder,-

(a) to furnish any document, statement, account, return or report to the Authority, fail to furnish the same; or

(b) to comply with the directions, fails to comply with such directions;

(d) to comply with the directions on the insurance treaties, fails to comply with sue directions on the insurance treaties,

he shall be liable to a penalty not exceeding five lakh rupees for each such failure and punishable with fine.

13. If a person makes a statement, or furnishes any document, statement, account, return or report which is false and which he either knows or believes to be false or does not believe to be true,-

(a) he shall be liable to a penalty not exceeding five lakh rupees for each such failure; and

(b) he shall be punishable with imprisonment which may extend to three years or with fine for each such failure.

14. If any director, managing director, manager or other officer or employees of an insurer wrongfully obtains possession of any property or wrongfully applies to any purpose of the Act, he shall be liable to a penalty not exceeding two lakh rupees for each such failure.

15. Offences by companies Where any offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the Company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Nothing contained in this sub-section shall render any such person liable to any punishment, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

Where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation.-For the purposes of this section,-

(a)”company” means any body corporate, and includes a firm, an association of person or a body of individuals whether incorporated or not; and

(b) “director“, in relation to-

(i) a firm. means a partner in the firm;

(ii) an association of persons or a body of individuals, means any-member controlling the affairs thereof.

16 Power of Authority to make regulations.

The Authority may, by notification in the Official Gazette, make regulations consistent with this Act and the rules made thereunder, to carry out the provisions of this Act.

URL:http://www.indianrailways.gov.in/RPF/Files/law/BareActs/Insurance.doc#a