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The Insurance Act, 1938

As Amended by the Insurance Laws
(Amendment) Act, 2015

Important Definitions (Sec.2)

(7A) "Indian insurance company" means any insurer, being a company which is
limited by shares, and,

a) which is formed and registered under the Companies Act, 2013 as a public
company or is converted into such a company within one year of the commencement
of the Insurance Laws (Amendment) Act, 2015;

(b) in which the aggregate holdings of equity shares by foreign investors, including
portfolio investors, do not exceed 49% of the paid up equity capital of such Indian
insurance company, which is Indian owned and controlled, in such manner as may
be prescribed.
The expression "control" shall include the right to appoint a majority of the directors
or to control the management or policy decisions including by virtue of their
shareholding or management rights or shareholders agreements or voting
agreements;

(c) whose sole purpose is to carry on life insurance business or general insurance
business or re-insurance business or health insurance business.

(9) "Insurer" means

(a) an Indian Insurance Company, or
(b) a statutory body established by an Act of Parliament to carry on insurance
business, or
(c) an insurance co-operative society, or
(d) a foreign company engaged in re-insurance business through a branch
established in India.
"foreign company" shall mean a company or body established or incorporated
under a law of any country outside India and includes Lloyd's established
under the Lloyd's Act, 1871 (United Kingdom) or any of its Members.

(16B) "Re-insurance" means the insurance of part of one insurer's risk by another
insurer who accepts the risk for a mutually acceptable premium.

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Provisions Related To Insurance

(a) Indian properties not to be insured with foreign insurers (section 2CB)
Without the permission of the IRDA, no person shall take out or renew any policy
of insurance in respect of any property in India or any ship or other vessel or
aircraft registered in India with an insurer whose principal place of business is
outside India.

(b) Requirements as to Capital (Section 6)

Type of Insurance Minimum Paid-up equity capital required
Business (with a provision for further enhancement &
Paid-up equity excludes preliminary
expenses incurred during formation and
registration)
Life insurance or general R100 crore
insurance
Health insurance (exclusively) R100 crore
Re-insurer (exclusively) R200 crore (besides re-insurer shall not be registered
unless he has net owned funds of not less than 5,000
crore)

(c) Further Conditions (Section 6A)

To carry on the business of life or general or health or re-insurance the following
further requirements are to be satisfied by such companies:
that the capital of the company shall consist of equity shares each having a
single face value and such other form of capital, as may be specified by the
regulations;
that the voting rights of shareholders are restricted to equity shares;
that, except during any period not exceeding 1 year allowed by the company
for payment of calls on shares, the paid-up amount is the same for all
shares, whether existing or new.

(d) Audit of accounts of insurance companies (Section 12) & Submission of

returns (Section 15)
Unless subject to audit under the Companies Act, 2013, the balance sheet, profit
and loss account, revenue account and profit and loss appropriation account of
every insurer, in respect of all insurance business transacted by him, shall be
audited annually by an auditor. Such auditor shall 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 147 of the
Companies Act, 2013.

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The audited accounts and statements and the abstract and statement referred to
in section 13 shall be printed, and 4 copies thereof shall be furnished as returns
to the Authority within 6 months from the end of the period to which they refer.
Of the 4 copies so furnished, 1 shall be signed in the case of a company by the
chairman and 2 directors and by the principal officer of the company and, If the
company has a managing director by that managing director and 1 shall be
signed by the auditor who made the audit or the actuary who made the
valuation, as the case may be.

(e) Actuarial Valuation/Report (section 13)

At least once a year, every insurer carrying on life insurance business shall
cause an investigation of the life insurance business carried on by him including
a valuation of his liabilities in respect thereto and shall cause an abstract of the
report of such actuary to made in accordance with the regulations.
The Authority may, having regard to the circumstances of any particular insurer,
allow him to have the investigation made as at a date not later than 2 years
from the date as at which the previous investigation was made. If the
investigation is made annually by any insurer, the statement need not be
appended every year but shall be appended at least once in every 3 years.

(f) Record of Policies and claims (Section 14)

Every insurer, in respect of all business transacted by him, shall maintain
1. a record of policies, in which shall be entered, in respect of every policy
issued by the insurer, the name and address of the policyholder, the date
when the policy was effected and a record of any transfer, assignment or
nomination of which the insurer has notice;
2. a record of claims, every claim made together with the date of the claim,
the name and address of the claimant and the date on which the claim was
discharged, or, in the case of a claim which is rejected, the date of rejection
and the grounds thereof;
3. a record of policies and claims may be maintained in any such form,
including electronic mode, as may be specified by the regulations made
under this Act;
4. Every insurer shall, in respect of all business transacted by him, endeavour
to issue policies above a specified threshold in terms of sum assured and
premium in electronic form, in the manner and form to be specified by the
regulations made under this Act.

(g) Investment of Assets (Section 27)

Every life insurer shall invest and at all times keep invested assets equivalent
to not less than the sum of -
The amount of his liabilities to holders of life insurance policies in India on
account of matured claims

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Add: The amount required to meet the liability on policies of life insurance
maturing for payment in India,
Less: the amount of premiums which have fallen due to the insurer on such
policies but have not been paid and the days of grace for payment of which have
not expired,
Less: any amount due to the insurer for loans granted on and within the
surrender values of policies of life insurance maturing for payment in India

issued by him or by an insurer whose business he has acquired and in respect

of which he has assumed liability in the following manner namely:-
1. = 25% of the said sum in Government securities,
2. = or > 25% of the said sum in Government securities or other approved
securities; and
3. the balance in any of the approved investments as may be specified by
the regulations subject to the limitations, conditions and restrictions specified
therein.

In the case of an insurer carrying on general insurance business,

1. 25% of the assets in Government Securities,
2. = or > 10% of the assets in Government Securities or other approved
securities and
3. the balance in any other investment in accordance with the regulations of
the Authority and subject to such limitations, conditions and restrictions as
may be specified by the Authority in this regard.

No insurer carrying on life insurance business shall invest or keep invested any
part of his controlled fund and no insurer carrying on general business shall
invest or keep invested any part of his assets otherwise than in any of the
approved investments as may be specified by the regulations subject to such
limitations, conditions and restrictions therein. (Section 27A)

All assets of an insurer carrying on general insurance business shall subject to

such conditions, if any, as may be prescribed, be deemed to be assets invested
or kept invested in approved investments specified in section 27. (Section 27B)

An insurer may invest < or = 5% in aggregate of his controlled fund or assets in

the companies belonging to the promoters, subject to such conditions as may be
specified by the regulations. (Section 27C)

(h) Prohibition of loans (Section 29)

No insurer shall grant loans or temporary advances either on hypothecation of
property or on personal security or otherwise, except loans on life insurance
policies issued by him within their surrender value, to any director,
manager, actuary, auditor or officer of the insurer company or to any other
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company or firm in which any such director, manager, actuary or officer holds
the position of a director, manager, actuary, officer or partner.
This shall not apply to such loans made by an insurer to a banking company, as
may be specified by the Authority. Further this shall not be applicable from
granting such loans or advances to a subsidiary company or to holding company
if the previous approval of the Authority is obtained for such loan or advance.
The provisions of section 185 of the Companies Act, 2013 shall not apply to a
loan granted to a director of an insurer being a company, if the loan is one
granted on the security of a policy on which the insurer bears the risk and the
policy was issued to the director on his own life, and the loan is within the
surrender value of the policy.

(i) Liability of directors for contravention (Section 30)

If by reason of a contravention of any of the provisions of section 27, 27A,27B,
27C, 27D or section 29, any loss is sustained by the insurer or by the policy
holders, every director, manager or officer who is knowingly a party to such
contravention shall, without prejudice to any other penalty to which he may be
liable under this Act, be jointly and severally liable to make good the amount of
such loss.

(j) Obligations of Insurers in respect of third party risks of motor vehicles

(Section 32D)
Every insurer carrying on general insurance business shall, after the
commencement of the Insurance Laws (Amendment) Act, 2015, underwrite
such minimum percentage of insurance business in third party risks of
motor vehicles as may be specified by the regulations:
The Authority may, by regulations, exempt any insurer who is primarily engaged
in the business of health, re-insurance, agriculture, export credit guarantee, from
the application of this section.
If an insurer fails to comply with the provisions of section 32B, section 32C and
section 32D, he shall be liable to a penalty not exceeding 25 crore rupees.
(Section 105B)

(k) Power of investigation and inspection by authority (Section 33)

The Authority may, at any time, if it considers expedient to do so by order in
writing, direct an Investigating Officer specified in the order to investigate the
affairs of any insurer or intermediary or insurance intermediary, as the case may
be, and to report to the Authority on any investigation made by such
Investigating Officer: The Investigating Officer may, wherever necessary, employ
any auditor or actuary or both for the purpose of assisting him in any
investigation under this section. Notwithstanding anything to the contrary
contained in section 210 of the Companies Act, 2013, the Investigating Officer
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 the books of account

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of any insurer or intermediary or insurance intermediary, as the case may be,

and the Investigating Officer shall supply to the insurer or intermediary or
insurance intermediary, as the case may be, a copy of the report on such
inspection.

It shall be the duty of every manager, managing director or other officer of the
insurer including a service provider, contractor of an insurer where services are
outsourced by the insurer, or intermediary or insurance intermediary, as the
case maybe, to produce before the Investigating Officer directed to make the
investigation or inspection, all such books of account, registers, other documents
and the database in his custody or power and to furnish him with any statement
and information relating to the affairs of the insurer or intermediary or insurance
intermediary, as the case may be, as the Investigating Officer may require of him
within such time as the said Investigating Officer may specify.

The Investigating officer shall make a report to the Authority on such inspection
and the Authority may after giving such opportunity to the insurer or intermediary
to make a representation. All expenses incidental to any investigation shall be
defrayed by the insurer or intermediary or insurance intermediary and shall have
priority over the debts due from the insurer and shall be recoverable as an arrear
of land revenue.

(l) Prohibition of payment by way of commission or otherwise for procuring

business (Section 40)
No person shall, 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 in such manner as may be specified by the regulations. No
insurance agent or intermediary or insurance intermediary shall receive or
contract to receive commission or remuneration in any form in respect of policies
issued in India, by an insurer in any form in respect of policies issued in India, by
an insurer except in accordance with the regulations specified in this regard.

(m) Appointment of insurance agents (Section 42)

An insurer may appoint any person to act as insurance agent for the purpose of
soliciting and procuring insurance business. Such person should not suffer from
any of the disqualifications. Further no person shall act as an insurance agent
for more than one life insurer, one general insurer, one health insurer and one of
each of the other mono-line insurers: The Authority shall, while framing
regulations, ensure that no conflict of interest is allowed to arise for any agent in
representing two or more insurers for whom he may be an agent.

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(n) Prohibition of insurance business through principal agent, special agent

and multilevel marketing (Section 42A)
No insurer shall, on or after the commencement of the Insurance Laws
(Amendment) Act, 2015, appoint any principal agent, chief agent, and special
agent and transact any insurance business in India through them.
No person shall allow or offer to allow, either directly or indirectly, as an
inducement to any person to take out or renew or continue an insurance policy
through multilevel marketing scheme.
The Authority may, through an officer authorised in this behalf, make a complaint
to the appropriate police authorities against the entity or persons involved in the
multilevel marketing scheme.
"Multilevel Marketing Scheme" means any scheme or programme or
arrangement or plan (by whatever name called) for the purpose of soliciting and
procuring insurance business through persons not authorised for the said
purpose with or without consideration of whole or part of commission or
remuneration earned through such solicitation and procurement and includes
enrolment of persons into a multilevel chain for the said purpose either directly
or indirectly.

(o) Policy not to be called in question after 3 years (Section 45)

No policy of life insurance shall be called in question on any ground
whatsoever after the expiry of 3 years from the date of the policy, i.e., from the
date of issuance of the policy or the date of commencement of risk or the date of
revival of the policy or the date of the rider to the policy, whichever is later.
A policy of life insurance may be called in question at any time within 3 years
from the date of issuance of the policy or the date of commencement of risk or
the date of revival of the policy or the date of the rider to the policy, whichever is
later, on the ground of fraud. The insurer shall have to communicate in writing
to the insured or the legal representatives or nominees or assignees of the
insured the grounds and materials on which such decision is based.

(p) Agent/intermediary not to be a director (Section 48A)

No insurance agent or intermediary or insurance intermediary shall be eligible to
be or remain a director in insurance company. Any director holding office at the
commencement of the Insurance Laws (Amendment) Act, 2015 shall not be
disqualified by reason of this section until the expiry of 6 months from the date
of commencement of the said Act.
The Authority may permit an agent or intermediary or insurance intermediary to
be on the Board of an insurance company subject to such conditions or
restrictions as it may impose to protect the interest of policyholders or to avoid
conflict of interest.

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(q) Prohibition of business on dividing principle (Section 52)

No insurer shall commence any business upon the dividing principle, that is to
say, on the principle that the benefit secured by a policy is not fixed but depends
either wholly or partly on the result of a distribution of certain sums amongst
policies becoming claims within certain time-limits, or on the principle that the
premiums payable by a policyholder depend wholly or partly on the number of
policies becoming claims within certain time limits:
This does not deem to prevent an insurer from allocating bonuses to holders of
policies of life insurance as a result of a periodical actuarial valuation either as
reversionary additions to the sums insured or as immediate cash bonuses or
otherwise.

(r) Councils of Life and General Insurance (Section 64C)

On and from the date of commencement of this Act, the existing Life Insurance
Council, a representative body of the insurers, who carry on the life insurance
business in India; and the existing General Insurance Council, a representative
body of insurers, who carry on general, health insurance business and re-
insurance in India, shall be deemed to have been constituted as the respective
Councils under this Act.

(s) Surveyors or loss assessors (Section 64UM)

No person shall act as a surveyor or loss assessor in respect of general
insurance business after the expiry of a period of 1 year from the
commencement of the Insurance Laws (Amendment) Act, 2015, unless he
possesses such academic qualifications as may be specified by the
regulations made under this Act; and is a member of a professional body of
surveyors and loss assessors, namely, the Indian Institute of Insurance
Surveyors and Loss Assessors. In the case of a firm or company, all the
partners or directors or other persons, who may be called upon to make a
survey or assess a loss reported, as the case may be, shall fulfil the same
requirements. Every surveyor and loss assessor shall comply with the code of
conduct in respect of his duties, responsibilities and other professional
requirements, as may be specified by the regulations made under the Act.

(t) Assets and liabilities how to be valued (Section 64V)

Assets shall be valued at value not exceeding their market or realizable value
and certain assets may be excluded by the Authority in the manner as may be
specified by the regulations made in this behalf. A proper value shall be placed
on every item of liability of the insurer in the manner as may be specified by the
regulations made in this behalf.
Every insurer shall furnish to the Authority along with the returns required to be
filed under this Act, a statement, certified by
an Auditor, approved by the Authority in respect of general insurance
business, or
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an actuary approved by the Authority in respect of life insurance

business,
of his assets and liabilities assessed in the manner required by this section as
on the 31st March of each year within such time as may be specified by the
regulations.

(u) Sufficiency of assets (Section 64V)

Every insurer and re-insurer shall at all times maintain an excess of value of
assets over the amount of liabilities of, not less than 50% of the amount of
minimum capital as stated under section 6 and arrived at in the manner specified
by the regulations. An insurer or re-insurer, as the case may be, who does not
comply with shall be deemed to be insolvent and may be wound-up by the court
on an application made by the Authority. The Authority shall by way of regulation
made for the purpose, specify a level of solvency margin known as control level
of solvency on the breach of which the Authority shall act in accordance with
without prejudice to taking of any other remedial measures as deemed fit.

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