Insurance Regulation, Licensing, and Market Conduct
Scope
The exam tests the statutory skeleton of Indian insurance: who may transact insurance business, how intermediaries are licensed, and the conduct standards that protect policyholders. Questions often turn on which Act, regulation or forum applies, so name the source precisely.
Core rules
- The Insurance Act, 1938 governs registration of insurers (Section 3), minimum capital, deposits and prohibitions such as Section 41 (rebates). The IRDA Act, 1999 created the regulator in 2000 and sets its duties: protect policyholders' interests, regulate and promote orderly growth.
- Insurers must maintain a solvency margin of 150% of the required margin and file periodic returns. Agents, corporate agents, brokers, web aggregators, TPAs, surveyors and loss assessors each need a separate registration with their own eligibility and conduct rules.
- Market-conduct obligations include KYC, accurate proposal documentation, a 15-day free-look period (30 days for distance marketing), grievance redressal within 14 days, escalation to the Insurance Ombudsman, and disclosure of remuneration.
Worked example
An agent tells a prospect: "Take this motor policy and I'll pay you ₹5,000 from my commission." The customer buys. Is the policy void, and what is the agent's exposure? Reasoning. The payment is a rebate. Section 41 of the Insurance Act, 1938 prohibits offering or accepting rebates as an inducement, and the agent's code of conduct repeats the bar. The contravention is punishable and the agent's licence may be suspended or cancelled. The policy itself is not automatically void: the rebate is an offence by the intermediary, not a defect in the cover, so the insured can still claim.
Traps
Confusing the IRDA Act, 1999 with the Insurance Act, 1938; treating the Ombudsman as a court or as the first port of call; assuming a registration never lapses; believing a rebate voids the policy.