Important Sections of Indian Insurance Act 1938
Important Sections of Indian Insurance Act 1938
Important Sections of Indian Insurance Act 1938
(1) No person shall, after commencement of this Act, being to carry on any class of insurance business in India and no insurer carrying on any class of insurance business in India shall, after the expiry of three months from the commencement of this Act, continue to carry on any such business, unless he has obtained from the Authority a certificate of registration for the particular class of insurance business:
Section 12
: Audit of Insurers
The balance-sheet, profit and loss account, revenue account and profit and loss appropriation account of every insurer, in the case of an insurer in respect of all insurance business transacted by him, and in the case of any other insurer in respect of the insurance business transacted by him in India, shall, unless they are subject to audit under the Indian Companies Act, 1913 (7 of 1913), be audited annually by an auditor, and the auditor shall in the audit of all such accounts have the powers of, exercise the functions vested in, and discharge the duties and be subject to the liabilities and penalties imposed on, auditors of companies by section 145 of the Indian Companies Act,
Section 27
Section 27-A
: Investments of Fund
Life Business: In terms of explanation in Section 27 A of the Act, the Authority has determined that assets relating to Pension business, Annuity business and Linked Life Insurance business shall not form part of the Controlled Fund for the purpose of that section. Without prejudice to Section 27 or Section 27A of the Act, - Every insurer carrying on the business of life-insurance shall invest and at all times keep invested his controlled fund (other than funds relating to pension and general annuity business and unit linked life insurance business) in the following manner:
S.No i) ii)
Government Securities or other approved Securities (including (i) above) iii) _______ a) Approved Investments as specified in Schedule I _____________________________________ Infrastructure and Social Sector Explanation: For the purpose of this requirement, Infrastructure and Social Sector shall have the meaning as given in regulation 2(h) of Insurance Regulatory and Development Authority (Registration of Indian Insurance Companies) Regulations, 2000 and as defined in the Insurance Regulatory and Development Authority (Obligations of Insurers to Rural and Social Sector) Regulations, 2000 respectively. _______ b) Others to be governed by Exposure norms as specified in regulation 5. Investment in other than approved, Investments can in no case exceed 15% of the fund _____________ Not 35% exceeding _____________ Not less than 15%
(2) Pension and General Annuity Business: Every insurer shall invest and at all times keep invested funds belonging to his Pension Business, General Annuity Business in the following manner:Sl.No. Type of Investment Percentage 20% 40% Not exceeding 60%
(i) Government Securities, being not less than (ii) Government Securities or other approved securities (inclusive (I) above, being not less than) (iii) Balance to be invested in Approved Investments
Section 27-B
: Investments of Funds
General Business: Without prejudice to Section 27 or Section 27B of the Act, - Every insurer carrying on the business of general insurance shall invest and at all times keep invested his total assets in the manner set out below: S.No i) Type of Investment Central Government Securities being not less than 30% 5% Percentage 20%
ii) State Government securities and other Guaranteed Securities including (i) above being not less than iii) Housing and Loans to State Government for Housing And Fire Fighting equipment, being not less than, (Subscription to/purchase of Bonds/debentures issued by HUDCO, National Housing Bank or House building institutions duly accredited by National Housing Banks, for house building activities, duly guaranteed by Government or carrying current rating of not less than AA by independent, reputed and recognised rating agencies would also qualify for compliance of this regulation.)
iv) Investments in Approved Investments as specified in Schedule II a) Infrastructure and Social Sector Not less than 10%
b) Others to be governed by Exposure Norms specified in regulation 5 so however that investment in other than approved investments can in no case exceed 25% of the assets.
Section 31-B
The Authority may if it is satisfied that any insurer for the business transacted by him is paying any person remuneration, whether by way of commission or otherwise on a scale disproportionate, according to the normal standards prevailing in insurance business, to the resources of the insurer, call upon the insurer to comply within six months with such directions as it may think fit to issue in the matter (2) Every insurer shall, before the close of the month following every year, submit to the Authority a statement in the form specified by the regulations made by the Authority showing the remuneration paid whether by way of commission or otherwise, to any person in cases where such remuneration exceeds such sum as may be specified by the regulations made by the Authority. (3) Where any person not being a chief agent, principal agent or special agent is in respect of remuneration exceeding the sum of five thousand rupees in any year, the Authority may, by notice in writing, require the insurer to submit certified copies of the agreement entered into between the insurer and any such person, and the insurer shall comply with any such requisition within the time specified in the notice. (4) Every direction under this section shall be issued by an order made by the Authority:
Section 32-B
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.
amalgamated with the life insurance business of any other insurer except in accordance with a scheme prepared under this section and approved by the Authority. (2) Any scheme prepared under this section shall set out the agreement under which the transfer or amalgamation is proposed to be effected, and shall contain such further provisions as may be necessary for giving effect to the scheme. (3) Before an application is made to the Authority to approve any such scheme, notices of the intention to make the application together with a statement of the nature of the amalgamation or transfer, as the case may be, and of the reason there for shall, at least two months before the application is made, be sent to the Authority and certified copies four in number, of each of the following documents shall be furnished to the Authority, and other such copies shall during the two months aforesaid be kept open for the inspection of the members and policy-holders at the principal and branch offices and chief agencies of the insurers concerned, namely:(a) a draft of the agreement or deed under which it is proposed to effect the amalgamation or transfer; (b) balance-sheets in respect of the insurance business of each of the insurers concerned in such amalgamation of transfer, prepared in the form set forth in Part II of the First Schedule and in accordance with the regulations contained in Part I of the Schedule; (c) actuarial reports and abstracts in respect of the life insurance business of each of the insurers so concerned, prepared in conformity with the requirements of Part II of the Fourth and Fifth Schedules and in accordance with the regulations contained in Part I of the Schedule concerned ; (d) a report on the proposed amalgamation or transfer, prepared by an independent actuary who has never been, professionally connected; with any of the parties concerned in the amalgamation or transfer at any time in the five years preceding the date on which he signs his report; (e) any other reports on which the scheme of amalgamation or transfer was founded. The balance-sheets, reports and abstracts referred to in Clauses (b), (c) and (d) shall all be prepared as at the date at which the amalgamation or transfer if approved by the Authority is to take effect, which date shall not be more than twelve months before the date on which the application to the Authority is made under this section: Provided that if the Authority so directs in the case of any particular insurer there may be substituted respectively for the balance-sheet, report and abstract referred to in Clauses. (b) and (c) prepared in accordance with this sub-section certified copies of the last balance-sheet and last report and abstract prepared in accordance with Sections 11 and 13 of this Act or Sections 7 and 8 of the Indian Life Assurance Companies Act, 1912 (6 of
1912), if that balance-sheet is prepared as at a date not more than twelve months, and that report and abstract as at a date not more than five years, before the date on which the application to the Authority is made under this section.
nominate one or more than one person as nominees. Nominees are entitled for valid discharge and have to hold the money as a trustee on behalf of those entitled to it. Nomination can be done at either the time the policy is bought or later. A person having a policy on the life of another cannot make a nomination. Under section 39 of the Insurance Act 1938, the holder of a policy on their own life may nominate the person or persons to whom the money secured by the policy shall be paid in the event of their death.
Section 40-A
: Commissions to Agents
No person shall after the expiry of six months from the commencement of this Act, pay or contract to pay any remuneration or reward whether by way of commission or otherwise for soliciting or procuring insurance business in India to any person except an insurance agent or an intermediary or insurance intermediary. No insurance agent shall be paid or contract to be paid by way of commission or as remuneration in any form an amount exceeding, in the case of life insurance business, forty per cent of the first years premium payable on any policy or policies effected through him and five per cent of a renewal premium, payable on such a policy, or, in the case of business of any other class, fifteen per cent of the premium:
Section 40-B
(l) Every insurer transacting life insurance business in India shall furnish to the Controller, within such time as may be prescribed, statements in the prescribed form certified by an actuary on the basis of premiums currently used by him in regard to new business in respect of mortality, rate of interest, expenses and bonus loading. (2) After the 31st day of December, 1950, no insurer shall, in respect of life insurance business transacted by him in India, spend as expenses of management in any calendar year an amount in excess of the prescribed limits and in prescribing any such limits regard shall be had to the size and age of the insurer and the provision generally Made for expenses of management in the premium rates of insurers: Provided that where an insurer has spent as such expenses in any year an amount in excess of the amount permissible under this sub-section, he shall not be deemed to have contravened the provisions of this section, if the excess amount so spent is within such limits as may be fixed in respect of the year by the Authority after consultation with the Executive Committee of the Life Insurance Council constituted under section 64-F, by which the actual expenses incurred may exceed the expenses permissible under this subsection.
Section 42-D
The Authority or an officer authorized by it in this behalf shall, in the manner determined by the regulations made by the Authority and on payment of the fees determined by the regulations made by the Authority, issue to any person making an application in the manner determined by the regulations, and not suffering from any of the disqualifications herein mentioned, a licence to act as an intermediary or an insurance intermediary under this Act:
(1) No intermediary or insurance intermediary shall be paid or contract to be paid by way of commission, fee or as remuneration in any form, an amount exceeding thirty per cent of the premium payable as may be specified by the regulations made by the Authority, in respect of any policy or policies effected through him: Provided that the Authority may specify different amounts payable by way of commission, fee or as remuneration to an intermediary or insurance intermediary or different classes of business of insurance. (2) Without prejudice to the provisions contained in this Act, the Authority may, by the regulations made in this behalf, specify the requirements of capital, form of business and other conditions to act as an intermediary or insurance intermediary.
Section 52-A
: Appointment of Administrator
If at any time the Authority has reason to believe that an insurer carrying on life insurance business is acting in a manner likely to be prejudicial to the interests of holders of life insurance policies, he may, after giving such opportunity to the insurer to be heard
as he thinks fit, make a report thereon to the Central Government. The Central Government, if it is of opinion after considering the report that it is necessary or proper to do so, may appoint an Administrator to manage the affairs of the insurer under the direction and control of the Authority.
Section 52-H
If, upon receipt of a report from the Authority, the Central Government is satisfied that an insurer, has persistently failed to comply with 1) any direction given to him under Section 34, Section 34-F or Section 34G,or 2) any order made under Sec. 34-E; or is being managed in a manner detrimental to the public interest or to the interests of his policy-holders, or share-holders,
Section 53-A
Notwithstanding anything contained in any other law, in ascertaining for any purpose of this Act the solvency or otherwise of an insurer no account shall be taken of any assets of the insurer consisting of unpaid-up share capital.
Section 64-U
(1) With effect from the commencement of the Insurance (Amendment) Act,.1968, there shall be established a Committee, to be called the Tariff Advisory Committee (hereafter in this Part-referred to as the Advisory Committee) to control and regulate the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business. (2) The Advisory Committee 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, both moveable and immoveable, and to contract, and may, by the said name, sue and be sued.
Section 113
A policy of life insurance under which the whole of the benefits become payable either on the occurrence, or at a fixed interval or fixed intervals after the occurrence, of a contingency which is bound to happen, shall, if all premiums have been paid for at least three consecutive years in the case of a policy issued by an insurer, acquire a guaranteed surrender value, to which shall be added the surrender value of any subsisting bonus already attached to the policy, and every such policy issued by insurer shall show the guaranteed surrender value of the policy at the close of each year after the second year of its currency or at the close of each period of three years throughout the currency of the policy.
Section 114
The IRDA has the power to make regulations under section 114A of the Insurance Act 1938. Since 2000 it has introduced various regulations ranging from the registration of companies for carrying on insurance business to the protection of policyholders interests.