Unit:2 Insurance Agent –

Introduction Procedures for Becoming an Agent: Pre-requisite for obtaining a

license: Duration of license; Cancellation of license; Revocation or
suspension/termination of agent appointment; Code of conduct; Unfair practices.

INTRODUCTION

An insurance agent is a representative of a particular insurance company selling its

insurance policies and related products. Apart from selling the products of the
company, an agent also helps in improving the brand image of the company. An
agent receives in-house training from the company itself, and he/she has to obtain a
license as part of the regulations put forth by IRDAI Insurance License. This piece
of writing talks about the duties and functions of an insurance agent in India.

Who is an insurance agent in India?

An insurance agent is the representative of the insurance company, i.e. the insurer.
According to section 42 of the Insurance Act, 1938, an insurance agent is a
licensed person who receives or agrees to receive payment commission or
remuneration in consideration for soliciting or procuring business and includes
business related to the continuance, renewal or revival of policies of insurance. In
other words, an insurance agent in India is a person who agrees to work for the
insurer in exchange for remuneration or commission. Such an agent promotes the
products and services offered by the insurer.

Key functions of an insurance agent in India

Following are the key functions of an insurance agent in India:

1. Soliciting and procuring new business: from the above definition of the
insurance agent provided under the Act, it can be easily concluded that the
primary function of an insurance agent is to solicit prospective clients and
procure new business. The agent should make efforts to get new insurance
proposals.

 Conserve the existing business: In addition to procuring new business, an

insurance agent in India must also ensure that the existing customers
continue with the policies of the company he represents and prevents them
from lapsing on account of default in payment of premium.
  Assistance in selection of the best suitable policy: An insurance agent,
though representing a particular company only, should guide the prospective
client in selecting the best possible policy according to the requirements of the
client.

 Enquire into the client’s details: An insurance agent is supposed to enquire

into all the necessary details of the client with a view to assess the extent of
risk and to assist the client in taking a claim accordingly.

 Assuring the date of birth and other related medical information: An

insurance agent should always assure himself of all the necessary medical
information related to the client, including the date of birth of the insured, so
that no technical complications arise in future with respect to the settlement of
claims. It further helps in the future settlement of policies.

 Ensure that the policyholder averts instances of default: it is also the duty
of the insurance agent in India to remind the policyholder about the due date
of making payment on his premium and prevent the instances of default in
payment of premiums. This helps to avoid the applicable penalties for late
payments.

 Preventing the policy from lapsing: An insurance agent should inform and
remind the policyholder of all the possible disadvantages that may accrue to
the policyholder on account of the lapse of an insurance policy.

 Remind the insured about the importance of the nominee: An important

duty on the part of an insurance agent is to inform the policyholder about the
need to appoint a nominee in his policy. The appointment of a nominee helps
in the future settlement of policies without any ambiguity.

 Preparation of the required documentation: An insurance agent is required

to guide and assist the prospective client in the preparation of the necessary
documentation for the required policy, such as birth certificate, medical
certificate, major injuries etc.

Insurance Regulatory and Development Act

Important Duties of an Insurance Agent in India

Some of the important duties to be executed by an insurance agent

in India include the following are:

1. An insurance agent must properly inform the prospective buyer

of the insurance policy about all its terms and conditions in
great detail so as to avoid misrepresentation, and both the
policyholder and agent are on the same page.
2. It is also the duty of the agent to suggest the best possible
policy to the client on the basis of their needs and
requirements.
3. An insurance agent is supposed to introduce himself as an
insurance agent and show the identity card when demanded by
the client.
4. The insurance agent is supposed to tell the client about the
applicable rate of commission that agent will gain for selling the
policy.
5. The agent is supposed to explain the details of the insurance
application form to the client.
6. The agent is to make the client aware of the instances where
the insurance agency can refuse the insurance application.
7. The insurance bond is bound to comply with the rules and
regulations for insurance agents laid down by the Insurance
Regulatory and Development Authority of India.
8. The client should be provided with the insurance bond within a
period of 45 days.

Types of an Insurance Agent

The following are the different types of Insurance Agents recognized under the
Regulations:
(1) Individual Agent
(2) Corporate Agent
(3) Micro Insurance Agent
(1) Individual Agents IRDA (Licensing of Insurance Agents) Regulations, 2000 as
amended from time to time, contains provisions relating to licensing of individual
Insurance Agents. The following are the different types of licences issued within the
Regulations:
(a) Direct Life
(b) Direct Non-Life
(c) Composite Licence (both Life and Non-Life)
(2) Corporate Insurance Agent Corporate entities represent an insurance company
and sell its policies. When a bank becomes the corporate agent of an insurance
company it is referred to as a bancassurance arrangement or partnership. Banks offer
insurance policies to their customers based on their knowledge of their situation and
needs.
(3) Micro Insurance Agent Micro insurance Agents are a special category of
insurance agents who support financial inclusion, i.e. the distribution of financial
services at an affordable cost to the masses. Micro insurance contracts are typically
low sum assured contracts which provide for the sum assured to be paid either on
death – both natural and accidental, or an Endowment (which also provides a sum
assured on maturity in addition to death) or a health insurance.

The following are the pre-requisites for a candidate intending to get

a licence issued (common for all types of agents):

(1) Minimum qualifications: The minimum qualifications prescribed are a pass in

12th standard or equivalent examination conducted by a recognised Board/Institution.
This condition is relaxed to a pass in 10th standard for applicants residing in a place
where the population is not less than 5,000 (‘Rural agents’).
(2) The applicant must not suffer from the following disqualifications:
a. That the applicant is not minor
b. That he is not found to be of unsound mind by a Court of competent jurisdiction
c. That he has not been found guilty of criminal misappropriation or criminal breach of
trust or cheating or forgery or an abetment of or an attempt to commit any offence by
a Court of competent jurisdiction and five years have not elapsed from the date of
conviction
d. That he has been found guilty of or has knowingly participated in or connived at any
fraud, dishonesty or misrepresentation against an insurer or an insured during the
course of:
(i) Any judicial proceeding relating to any policy of insurance(or)
(ii) Winding up of an insurance company(or)
(iii) In the course of investigation of affairs of an insurer
(e) That he does not violate the code of conduct prescribed under the Regulations
(3) Practical Training: The applicant shall undergo a minimum of 50 hours practical
training on insurance related matters in life or general insurance business, as the case
may be, spreading to 1 to 2 weeks. Where the application is for a composite licence,
the training shall be 75 hours spread over 3 to 4 weeks covering both life and general
insurance subjects. Where the applicant holds special qualifications such as
membership of Institute of Chartered Accountants of India, Institute of Cost and Works
Accountants of India, Institute of Company Secretaries of India, Insurance Institute of
India or the Institute of Actuaries of India or a Master degree in Business
Administration of any institution recognised by Central Government or State
Government, it is sufficient if the training is undergone for 25 hours (35 hours if the
licence is composite). The training can be undergone in any of the IRDA accredited
training institutions.
(4) Examination: Every applicant shall undergo a pre-recruitment examination in life
or general insurance business or both, as the case may be, conducted by the
Insurance Institute of India or any other body authorised by IRDA.
(5) AML & ULIP training: In addition to the above, the insurer with whom the agent is
attached provides a special training on Anti money laundering (under the IRDA’s Anti
money laundering Guidelines dated 31 March 2006) for all Insurance Agents. Training
in Unit Linked Insurance Products (ULIP) is compulsory for life insurance agents
before they are allowed to sell ULIPs on behalf of a life insurer (under the IRDA (Linked
Insurance Products) Regulations, 2013)
(6) Payment of fees of Rs.250 along with the application for grant of licence enclosing
proof of age, qualifications, training and examination.

Cancellation or Suspension of IRDA

License
As per the fresh guidelines by IRDAI about the IRDA registration and cancellation
insurance firms in India, the authority is entitled to append or cancel the IRDAI/R3
certificate (Certificate of Registration) given to an insurance company. The
cancellation or suspension of the license can be for a category of Insurance
business for a specific time frame as mentioned under the notice. The suspension or
cancellation of the registration certificate can be due to several reasons like:

 The insurance company is unable to adhere to the necessities of the

Insurance Act 1938 and Sections 64V and 64VA of the act.
 The insurance company turns insolvent or is presently facing liquidity.
 The insurance company is given to any other individual or combined with
another insurance company without the prior endorsement.
  There is a avoidance in adhering to the provision or any requirement of the
act, rules, regulation, Direction or order.
 The nature of the company’s business is harmful to the interests of the
policyholders.
 The insurance company fails to provide the required information to the IRDA
 The insurance company does not submit any returns with the authority
 The insurance company does not provide support in the inquiry performed by
the IRDA.
 The insurer indulges in unethical business practices and devious practices.
 The insurer does invest in the infrastructure or social domain.
 The authority has a valid reason to assert that any claim coming on the
insurer stays unpaid for 3 months after the eventual order of the court of law.
 The insurance company performs other business activities than for which the
registration certificate was awarded.
 The insurance company fails to comply with the instructions or orders passed
by the authority.
 The insurance company fails to comply with the provisions of the Companies
Act 2013, General Insurance Business (Nationalisation) Act, 1872, FEMA
1999 or PMLA, 2002.
 The insurance company is unable to pay the annual charges.
 The insurance company or promoter does not comply with the “fit & proper”
criteria.
 The insurance company is condemned of an offence.

Renewal of licence
A licence is issued for a period of three years at a time. At the end of the third year,
the licence is required to be renewed.
The following are the conditions for renewal of licence:
(a) Completion of practical training for 25 hours for Life or General insurance, as the
case may be or 50 hours for renewal of composite agency licence
(b) Payment of fees of Rs.250 towards renewal of licence. If the application for renewal
does not reach at least 30 days before the due date for renewal, an additional fee of
Rs.100 by way of penalty is payable. If the application for renewal reaches after the
expiry of licence, IRDA may consider the application for renewal upon imposition of a
penalty ofRs.750.
(c) Maintenance of a minimum persistency of 50% during the licence period (as per
IRDA’s persistency guidelines.
(d) The Agent does not suffer from any of the disqualifications mentioned in the
previous section
(e) Renewal training on Anti-money laundering as may be prescribed by the insurer
from time to time
Suspension of Appointment of an Agent:

1) The appointment of an agent may be cancelled or suspended after due notice and
after giving him/her a reasonable opportunity of being heard if he/she:-
a) violates the provisions of the Insurance Act,1938 (4 of 1938), Insurance Regulatory
and Development Authority Act, 1999 (41 of 1999) or rules or regulations, made there
under as amended from time to time;
b) attracts any of the disqualifications mentioned in Reg. 7.
c) Fails to comply with the code of conduct stipulated in Reg. 8 and directions issued
by the Authority from time to time.
d) Violates terms of appointment.
e) Fails to furnish any information relating to his/her activities as an agent as required
by the Insurer or the Authority;
f) Fails to comply with the directions issued by the Authority;
g) Furnishes wrong or false information; or conceals or fails to disclose material facts
in the application submitted for appointment of Agent or during the period of its validity.
h) does not submit periodical returns as required by the Insurer/Authority;
i) does not co-operate with any inspection or enquiry conducted by the Authority;
j) fails to resolve the complaints of the policyholders or fails to give a satisfactory reply
to the Authority in this behalf;

Code of Conduct
1) Every agent, shall adhere to the code of conduct specified below :-
a) Every insurance agent shall---
i) identify himself and the insurer of whom he is an insurance agent;
ii) show the agency identity card to the prospect, and also disclose the agency
appointment letter to the prospect on demand;
iii) disseminate the requisite information in respect of insurance products offered for
sale by his insurer and take into account the needs of the prospect while
recommending a specific insurance plan;
iv) where the Insurance agent represents more than one insurer offering same line of
products, he should dispassionately advice the policyholder on the products of all
Insurers whom he is representing and the product best suited to the specific needs of
the prospect.
v) disclose the scales of commission in respect of the insurance product offered for
sale, if asked by the prospect;
vi) indicate the premium to be charged by the insurer for the insurance product offered
for sale;
vii) explain to the prospect the nature of information required in the proposal form by
the insurer, and also the importance of disclosure of material information in the
purchase of an insurance contract;
viii) bring to the notice of the insurer every fact about the prospect relevant to insurance
underwriting, including any adverse habits or income inconsistency of the prospect,
within the knowledge of the agent, in the form of a report called “Insurance Agent’s
Confidential Report” along with every proposal submitted to the insurer wherever
applicable, and any material fact that may adversely affect the underwriting decision
of the insurer as regards acceptance of the proposal, by making all reasonable
enquiries about the prospect;
ix) obtain the requisite documents at the time of filing the proposal form with the
insurer; and other documents subsequently asked for by the insurer for completion of
the proposal;
x) advise every prospect to effect nomination under the policy
xi) inform promptly the prospect about the acceptance or rejection of the proposal by
the insurer;
xii) render necessary assistance and advice to every policyholder on all policy
servicing matters including assignment of policy, change of address or exercise of
options under the policy or any other policy service, wherever necessary;
xiii) render necessary assistance to the policyholders or claimants or beneficiaries in
complying with the requirements for settlement of claims by the insurer;

2) No insurance agent shall---

a) solicit or procure insurance business without being appointed to act as such by the
insurer
b) induce the prospect to omit any material information in the proposal form;
c) induce the prospect to submit wrong information in the proposal form or documents
submitted to the insurer for acceptance of the proposal;
d) resort to multilevel marketing for soliciting and procuring insurance policies and/or
induct any prospect/policyholder to join a multilevel level marketing scheme.
e) behave in a discourteous manner with the prospect;
f) interfere with any proposal introduced by any other insurance agent;
g) offer different rates, advantages, terms and conditions other than those offered by
his insurer;
h) demand or receive a share of proceeds from the beneficiary under an insurance
contract;
i) force a policyholder to terminate the existing policy and to effect a new policy from
him within three years from the date of such termination of the earlier policy;
j) apply for fresh agency appointment to act as an insurance agent, if his agency
appointment was earlier cancelled by the designated official, and a period of five years
has elapsed from the date of such cancellation;
k) become or remain a director of any insurer;

3) Every insurance agent shall, with a view to conserve the insurance business
already procured through him, make every attempt to ensure remittance of the
premiums by the policyholders within the stipulated time, by giving notice to the
policyholder orally and in writing;
4) Any person who acts as an insurance agent in contravention of the provisions of
this Act shall be liable to a penalty which may extend to ten thousand rupees and any
insurer or any person acting on behalf of an insurer, who appoints any person as an
insurance agent not permitted to act as such or transact any insurance business in
India through any such person shall be liable to penalty which may extend to one crore
rupees.
5) The insurer shall be responsible for all acts and omissions of its agents including
violation of code of conduct specified under these Regulations, and shall be liable to
a penalty which may extend to one crore rupees.

Unfair Practice
The Insurance Regulatory and Development Authority of India (IRDAI) has put in place
Integrated Grievance Management System (IGMS), which captures the complaints
registered against all insurers. A statement showing the number of complaints
received and attended to in the said system against both public and private general
insurers during the last 3 years and the current year is given in Annexure.
IRDAI has notified IRDAI (Protection of Policyholders’ Interests) Regulations, 2017.
Vide Regulation 5(1)(iv) of the said Regulations, the IRDAI has mandated all insurers
to have in place a board approved policy which shall contain steps to be taken to
prevent mis-selling and unfair business practices at point of sale and service. Further,
vide Regulation 6, prescribed specific point of sale provisions to be complied with by
all insurers, agents and intermediaries. In case any insurer, agent, intermediary
violates the above provision the IRDAI can initiate action against them.
IRDA (Advertisement and Disclosure) Regulations, 2000 and other guidelines relating
to advertisements are aimed at ensuring that any communication (including those on
the internet) which directly or indirectly result in eventual sale or solicitation of policy
should not be unfair or misleading.
IRDAI has also notified various other regulations namely IRDAI (Appointment of
Insurance Agents) Regulations, 2016, IRDAI (Registration of Corporate Agents)
Regulations, 2015, IRDAI (Insurance Brokers) Regulations, 2018 prescribing code of
conduct for agents, corporate agents and brokers so that they do not resort to mis-
selling and unfair business practices at point of sale. This was stated by Shri Anurag
Singh Thakur, Minister of State for Finance & Corporate Affairs in a written reply to a
question in Rajya Sabha.

EXAMPLES
the National Association of Insurance Commissioners (NAIC) to
issue guidance related to the sale of insurance products. The NAIC
defines unfair trade practices in the following ways:

 It misrepresents the benefits, advantages, conditions, or terms of

any policy.
 It misrepresents the dividends or share of the surplus to be received
on any policy.
 It makes a false or misleading statement as to the dividends or share
of surplus previously paid on any policy.
 It is misleading or is a misrepresentation as to the financial condition
of any insurer, or as to the legal reserve system upon which any life
insurer operates.
 It uses any name or title of any policy or class of policies
misrepresenting the true nature thereof.
 It is a misrepresentation, including any intentional misquote of the
premium rate, for the purpose of inducing or tending to induce the
purchase, lapse, forfeiture, exchange, conversion, or surrender of
any policy.
 It is a misrepresentation for the purpose of effecting a pledge or
assignment of or effecting a loan against any policy.
 It misrepresents any policy as being shares of stock.