Insurance Act, 1938
The Insurance Act 1938, which came into effect from 1st July 1939, and was amended in 1950 and later in 1999, is the principle enactment relating to the business of insurance in India. The act contains provisions regarding licensing of agents and their remunerations, prohibition of rebates, and protection of policyholder’s interests. It also has provisions placing limits on the expenses of insurers, use of funds and patterns of investments, maintaining solvency levels, and Insurance Councils and Tariff Advisory Committee for General Insurance.
Sections 2(5A) defines ‘chief agent’ as a person who, not being a salaried employee of an insurer, in consideration of commission i) performs any administrative and organizing functions for the insurer and ii) procures life insurance business for insurer by employing or causing to be employed, insurance agents on behalf of the insurer. Section 2 (17) defines a ‘special agent’ as one who procures life insurance business, in consideration of commission, employing or causing to be employed insurance agents on behalf of the insurer. He only procures business through agents but does not perform administrative functions like an agent. Special agents can work in the life insurance business, not in the general insurance business.
Individuals, companies or firms can be appointed as chief agents or special agents. The individuals, the directors of companies or partners of firms, wanting to become chief agents or special agents must be free of the disqualifications specified in connection with agents.
Section 42 A provides for the registration of chief agents and special agents. Certificates to function as such are to be issued after registration. The certificates are valid for 12 months and may be renewed. The provisions also stipulate the number of insurance agents that a chief agent may employ directly or through special agents and the minimum business they have to do. Similarly, there are stipulations about number of agents to be employed by a special agent and the minimum business to be done. Renewal of certificates is subject to compliance with these requirements. No chief agents or special agents were registered till the end of 2001.
The Act vests the IRDA with powers to inspect documents, to appoint additional directors, to issue directions, to take over the management of an insurer and to appoint administrator. The IRDA has powers to adjudicate on disputes between insurers and intermediaries or between intermediaries and to decide on disputes relating to settlements of claims of amounts not exceeding Rs. 2000. Not many disputes are likely to be referred to the Authority under this section, as the amount of Rs. 2000 is very small.
