Ic 14

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Regulation of Insurance Business: Paper No. 14 of Insurance Institute of India
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Regulation of Insurance Business
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Solved Objective Type Questions
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INSURANCE FOUNDATION CENTRE (R) 1
INDEX
S. No. Chapter Page No.

1* Development of Insurance legislation in India 2–6
and Insurance Act 1938
2 IRDA functions and Insurance Councils 7 – 19
3 IRDA and its Licensing functions 20 – 33
4 Regulation and conduct of business 34 – 72
5* Policyholders rights of Assignment, Nomination 73 – 80
and Transfer
6 Protection of policyholders interest 81 – 98
7 Dispute resolution mechanism 99 – 111
8* Financial regulatory aspects of solvency margin 112 – 116
and investments
9* International trends in insurance regulation 117 – 119
Question bank Set 1 120 – 124
Question bank Set 2 125 - 139
2 INSURANCE FOUNDATION CENTRE (R)
Chapter 1
DEVELOPMENT OF INSURANCE LEGISLATION
IN INDIA AND INSURANCE ACT 1938
This chapter deals with growth, development and nationalization of life

and general insurance in India. It also explains the reforms in this sector
which led to private sector participation.
Development and growth of Insurance Industry in India

The Central Legislature of India is empowered by the Constitution of
India to regulate the Insurance Industry in India and hence, law in this
regard is same and uniform throughout India.
Following are the stages of development of life Insurance industry:

 Establishment of British firm, Oriental Life Insurance Company in
1818 in Calcutta.
 Bombay Life Assurance Company in 1823, Madras Equitable life
Insurance Society in 1829 and Oriental Life Assurance Company in
1874.
 Till the establishment of Bombay Mutual Life Assurance Society in
1871, Indians were charges extra premium of upto 20% as
compared to British.
 Passing of the “Indian Life Assurance Companies Act, 1912 was first
statutory measure to regulate life insurance.
 Other classes of insurance business were left out in this Act as they
were non-prevalent at that time and legislative controls were not
necessary.
Following are the stages of development of non-life Insurance industry:

 The first general Insurance Company, Triton Insurance Company Ltd
was promoted in 1850 by British nationals in Calcutta.
 First Insurance Company established by an Indian was Indian
Mercantile Insurance Company Ltd in Bombay in 1907.
 Non-life Insurance was regulated in 1938 through the passing of
Insurance Act, 1938. This Act, along with various amendments
continues till date controls both, Life Insurance and General
Insurance.
Nationalization of Insurance business in India

 On January 19, 1956, Central Government took-over the
management of life insurance business of 245 Indian and foreign
insurers and provident societies.
 Life Insurance Corporation (LIC) was formed in September 1956 by
Life Insurance Corporation Act of 1956 (LIC Act).
 General insurance business was also nationalised with effect from
January 1, 1972 (GIC Act)
 Under provisions of GIC Act, shares of existing general insurance
companies and undertakings of other existing insurers were
transferred to General Insurance Corporation to secure development
of general insurance business in India and regulate and control
them.
 GIC was established by Central Government in accordance with
provision of Companies Act 1956 in November 1972 and
commenced business on January 1, 1973.
 Prior to 1973, there were 107 companies offering general insurance
in India, including foreign companies. These companies were mixed
and grouped into four subsidiary companies of GIC:
o National Insurance Company Ltd
o New India Assurance Company Ltd
o Oriental Insurance Company Ltd
o United India Assurance Company Ltd
 GIC takes mainly re-insurance apart from aviation insurance.
Reforms in Insurance Sector:

 In 1993, Govt of India approached R.N. Malhotra committee to lay
down for private participation in insurance sector.
 The committee submitted its report in 1999, the enabling legislation
was passed in year 2000 amending Insurance Act of 1938 and
legislating IRDA Act of 2000.
 The same year the newly appointed insurance regulator IRDA
started issuing licences to private life insurance companies formed
and registered under Companies Act 1950.
 As per current FDI norms, foreign participation in Indian Insurance
Company is restricted to 26% equity/ordinary sharing capital with the
balance being funded by Indian promoter entities.
Insurance Association of India

All insurers and provident societies in India are members of Insurance
Association of India and all those incorporated or domiciled elsewhere
than in India are associate members of Insurance Association.
There are two councils of Insurance Association, namely;
 Life Insurance Council, and
 General Insurance Council
Life Insurance Council

The LIC conducts agent examinations. It also fixes the limits for actual
expenses by which the insurers carrying on life insurance business or
any group of insurers can exceed from prescribed limits under the
Insurance Act.
General Insurance Council

The GIC may fix the limits by which the actual expenses of management
incurred by an insurer carrying on general insurance business may
exceed the limits as prescribed in the Insurance Act.
Intext Question 1
As per current FDI norms, how much is the FDI limit for insurance
sector?
a. 26% d. There is no FDI in insurance
b. 74% sector
c. 100%
General Insurance Business (Nationalisation) Act, 1972

(GIBNA)
The GIC of India was formed as a Government company under
subsection (1) of Section 9 of General Business (Nationalisation) Act,
1972. It commenced business from January 1, 1973. The purpose of
establishment of GIC as a holding company of four operation (subsidiary)
companies, was superintending, controlling and carrying on the business
of general insurance.
Functions of GIC
 Carrying on business of general insurance (deemed as desirable)
 Aiding, assisting and advising the companies and maintaining
standards of conduct and sound practice.
 Advising the acquiring companies in matters of controlling the

expenses.
 Advising the acquiring companies in matters of investment of funds.
 Issuing direction to acquiring companies’ conduct of general
insurance business.
Provisions of the Act

1. It has been stated in the GIBNA that GIC shall keep in mind
desirability of encouraging competition among subsidiary companies
to make their services more efficient. On the formation of GIC,
shares of all other insurance companies were transferred to GIC and
all of them became subsidiaries of GIC. Under the schemes framed
under GIBNA, 1972the Indian Insurance companies got merged into
one another and ultimately four Indian companies were left, namely:
o National Insurance Company Ltd
o New India Assurance Company Ltd
o Oriental Insurance Company Ltd
o United India Assurance Company Ltd
2. The IRDA Act 1999 incorporated a new subclause in section 2 of
insurance act 1938 under which allowed Indian Insurance
Companies to carry on life or general insurance or re-insurance
business.
3. GIC became the Indian re-insurer to which all the domestic insurers
were obliged to cede 2% of gross direct premium in India. All the four
General Insurance Companies became independent insurers
delinked from GIC.
4. At present the GIC of India is undertaking re-insurance business in
India and also underwriting direct general insurance business in civil
aviation and crop insurance.
5. GIC has been made to operate only in reinsurance arena.
Intext Question 2
How many general insurance subsidiaries did GIC have?
a. 1 c. 3
b. 2 d. 4
Self exam questions

1. In India the ________ is empowered to regulate the insurance
industry
a. Central legislature
b. State legislature
c. State and Central legislature combined
d. Supreme Court
2. _________ in 1818 in Calcutta was first life insurance company to

start operation in India.
a. Bombay life assurance company
b. Oriental life insurance company
c. Oriental life assurance company
d. Madras equitable life insurance society
3. _____ in Bombay in 1907 was the first general insurance company

established by an Indian
a. Triton insurance company ltd
b. India first general insurance company ltd
c. Indian mercantile insurance company ltd
d. GIC ltd
Chapter 2
IRDA FUNCTIONS AND INSURANCE COUNCILS
Government of India enacted the Insurance Act, 1938 and the Insurance
Regulatory and Development (IRDA) Act, 1999 for smooth and orderly
functioning of insurance business in India.
The insurance councils are formed under section 64C of the Insurance
Act, 1938. IRDA is a national agency of GoI.
Insurance is a tool of risk management. It is used to protect financial

well-being of the insured. The insurer, in exchange for payments from
the insured, agrees to reimburse the losses of the insured on the
occurrence of a specific event, covered in the said insurance policy.
An insurer is a company selling insurance; an insured is a person or

entity buying the insurance policy, premium is the payment made by the
insured to the insurer and claim is the compensation that is paid if the
insured event occurs during the policy term.
Insurance Regulatory and Development Authority (IRDA) was formed

by the Govt of India by passing IRDA Act, 1999 in the parliament. IRDA
is national agency of Govt of India for supervision and development of
Insurance sector in India.
The preamble of IRDA states the mission of IRDA which is “to provide for
the establishment of an Authority to protect the interests of holders of
insurance policies, to regulate, promote and ensure orderly growth of the
insurance industry and for matters connected therewith or incidental
thereto. IRDA Act led to amendment of the Insurance Act, 1938, the Life
Insurance Corporation Act, 1956 and the GIBNA Act, 1972.
Composition of IRDA
The authority consists of following members:
a. A chairperson
b. Not more than five whole-time members, and
c. Not more than four part time members.
The Central Govt shall, while appointing the Chairperson and the whole-
time members, ensure that at least one person each is person having
knowledge or experience in life/general insurance or actuarial science

respectively.
Purpose of forming IRDA

1. To protect the interest of policyholders.
2. Bring speedy and orderly growth of the industry
3. To set, promote, monitor and enforce high standards of integrity,
financial soundness, fair dealing and competence.
4. Ensure speedy settlement of genuine claims, prevent malpractice.
5. Promote fairness, transparency and orderly conduct in financial
markets dealing with insurance.
6. To take action where such standards are inadequate or ineffectively
enforced.
7. To bring optimum self-regulation in day-to-day working of industry.
Duties, powers and functions of the IRDA

1. To regulate, promote and ensure orderly growth of insurance and re-
insurance business
2. The powers shall include:
a. Deal with applicant registration.
b. Protect interest of policyholders
c. Supervising the functions of Tariff Advisory Committee
d. Set and enforce various rules and regulations for development of
insurance industry in the country
Regulations issued by IRDA

 Licensing of Insurance Agents Regulations, 2000
 Assets, Liabilities and Solvency Margin of Insurers Regulation, 2000
 General Insurance- Reinsurance Regulations, 2000
 Obligations of Insurance to Rural Social Sector Regulations, 2000
 Insurance Surveyors and Loss Assessors Regulations, 2000
 Third Party Administrator- Health Services Regulations, 2001
 Protection of Policy holders’ Interest Regulations, 2002
 Insurance Brokers Regulation, 2000
 Micro Insurance Regulations, 2005
Motor Vehicles Act, 1988

This policy is required to cover the insured’s liability in respect of death or
bodily injury of certain persons and damage to property of third parties.
The limits of liabilities required to be covered are also prescribed in the

Act.
The compensation payable to the claimants is determined by the Motor
Accident Claims Tribunal (MACT) established under the MV Act.
Settlement through alternative forum

The legal Services Authorities Act, 1987 provides for organizing of Lok
Adalat by the Legal Services Committees at various levels, to determine
and arrive at a settlement between parties to a dispute in respect of any
case pending before any court for which Lok Adalat is organized.
No Fault Liability
The main change in the law is that the negligence of the owner or user of
the motor vehicle is no longer relevant to decide the question of liability.
Sec 140 (3) specifically provides that the claimants shall not be required
to prove that death or disablement was due to any wrongful act of the
owner of the vehicle or any other person. This concept is known as No
Fault Liability.
Hit and Run Accidents

An accident arising out of the use of a motor vehicle(s) whose identity
cannot be established in spite of reasonable efforts.
As per Sec 163, Solatium Fund can be utilized by Central Govt. for
paying compensation in respect of death/injury to persons resulting from
Hit and Run Motor Accidents.
Solatium Fund
The Solatium scheme 1989 has been made by Central Govt for payment
of compensation to the victims of ‘hit and run’ motor accident. The
st
scheme came into force from 1 July, 989. The scheme provides for
nomination of offices of the insurance companies in each district for
settlement of claims.
Marine Insurance Act, 1963

This act codifies the law relating to Marine Insurance. It closely follows
the UK Marine Insurance Act, 1906.
A good working knowledge of these laws is necessary for underwriters to
pursue rights of recovery from carriers or bailee under subrogation
proceedings.
The Carriage of Goods by Sea Act, 1925

This act defines the responsibilities, liabilities and immunities of a ship-
owner in respect of loss damage to cargo carried.
The Bill of Lading Act, 1885

This act defines the character of the Bill of Lading as an evidence of the
contract of carriage of goods between the ship owner and the shipper, as
an acknowledgement of the receipt of the goods on board the vessel
and, as a document of title.
Indian Railways Act, 1989

The act deals with various aspects of railway administration. There are
also provisions which are relevant to marine insurance.
The Railways Claims Tribunal Act, 1987 provides for formation of
Tribunals to deal with claims for cargo loss, personal injuries, refund of
excess freight etc and prescribes procedures there under.
The Carriers Act, 1865

This act defines rights and liabilities of truck owners who carry goods for
public hire in respect of loss/damage to goods carried by them.
Workmen’s Compensation Act, 1923

The act provides for payment by employers to their workmen for
compensation for injury by accident, or disease arising out of and in the
course of employment.
Employee’s State Insurance Act, 1948

This act provides certain benefits to employees in case of sickness,
maternity, and employment injury and to make provisions for certain
other matters in relation thereof.
Public Liability Insurance Act, 1991

Public liability insurance for providing immediate relief to the person
affected by accident occurring while handling any hazardous substance
and for matters connected therewith or incidental thereto. Introduced in
1991, the act gives relief on principles of No Fault.
Following relief is provided for such deaths:
1. Reimbursement of medical expenses incurred upto a maximum of
Rs. 12,500 in each case.
2. For fatal accidents the relief will be Rs. 25,000 per person in addition
to reimbursement of medical expenses, if any, incurred on the victim
up to a maximum of Rs. 12,500.
3. Upto Rs 6,000 depending upon the actual damage for and damage
to private property.
The Indian Stamp Act, 1899

The Indian stamp act requires that the policy of insurance be stamped
with schedules of the rates prescribed therein.
Intext Question 1
Which of the following institution’s mission is to protect the interests of
holders of insurance policies?
a. SEBI
b. IRDA
c. RBI
d. AMFI (association of mutual funds of India)
The Insurance Association of India consists of:

1. Members: All insurers that are incorporated or domiciled in India.
2. Associate members: All insurers that are incorporated or domiciled
outside India.
Two Insurance Councils in India are:

1. Life Insurance Council: all members and associate members of the
Association who carry on life insurance.
2. General Insurance Council: all members and associate members of
the Association who carry on general insurance in India.
Executive Committee of LIC and GIC

(1) Executive Committee of LIC consist of
i) Two officials nominated by the authority, one Chairman and the
other member.
ii) Eight representatives of members of the Insurance Association of
India.
iii) One non official not connected with any insurance business,
nominated by the authority
iv) Five persons connected with life insurance business, nominated
by the Authority.
(2) Executive Committee of GIC consist of

i) Two officials nominated by the authority, one Chairman and the
other member.
ii) Eight representatives of members of the Insurance Association of
India.
iii) One non official not connected with any insurance business,
nominated by the authority
iv) Five persons connected with life insurance business, nominated
by the Authority.
v) No official nominated by the IRDA shall be entitled, whether as
Chairman or as a member to vote in respect of any matter.
Duration and dissolution of Executive Committee

According to Sec 64H of Insurance Act, 1938:
1. Duration of the Executive Committee of the LIC or GIC shall be three
years from the date of its first meeting on the expiry of which it shall
stand dissolved and a new Executive Committee constituted.
2. Notwithstanding the dissolution of the Executive Committee of the
LIC or GIC, the out-going members thereof shall continue to hold
office.
Functions of the Executive Committee of LIC and GIC

1. To aid, advice and assist insurers.
2. To advice IRDA in matter of controlling the expenses.
3. To bring to notice of IRDA the case of any insurer acting unethically.
4. To act in any matter incidental in any matter in 1. and 2. with the
approval of IRDA.
Powers of the Executive Committee to act together in certain

cases
Executive Committee of the LIC and GIC may hold joint meetings for
purpose of dealing with any matter of common interest to both
Committees, and it shall be lawful for the two Committees at such joint
meetings to carry on the proceedings.
Intext Question 2
The Insurance Association of India consists of ___________.
a. Members: All insurers that are incorporated or domiciled in
India.
b. Members: All insurers that are incorporated or domiciled outside

India.
c. Associate members: All insurers that are incorporated or domiciled
outside India.
d. Associate members: All insurers that are incorporated or domiciled in
India.
Self-Examination Questions
Question 1
Which of the following is not an objective of IRDA?
a. To protect the interest of and secure fair treatment to policyholders.
b. To consolidate the various laws existing at that time and amend
the law elating to business.
c. To ensure that insurance customers receive precise, clear and
correct information about products and services.
d. To ensure speedy settlement of claims and prevent insurance
frauds.
Question 2
Which of the following is a duty of IRDA?
i) Protection of the interest of the policyholders.
ii) Specifying requisite standards for insurance intermediaries and
agents.
iii) Specifying the code of conduct for surveyors and loss assessors.
a. Only i) and ii) c. All of the above
b. Only ii) and iii) d. None of the above
Question 3
Which of the following is not among the Insurance Councils mentioned in
Sec 64C of Insurance Act, 1938?
i) LIC of India
ii) Health Insurance Council of India
iii) GIC of India
a. Only i) and ii) c. All of the above
b. Only ii) d. None of the above
Question 4
The duration of the Executive Committee of the LIC or GIC is ______
years from the date of its first meeting.
a. One c. Three
b. Two d. Four
Question 5
Whose function is to aid, advice and assist insurers carrying on life
insurance business?
a. Executive Committee of LIC c. Both
b. Executive Committee of GIC d. None
Question Bank
1. Insurance is an agreement by which one party called the ______
pays a stipulated consideration called ______ to the other party
called the______
a. Insured, insurer, premium c. Insured, premium, insurer
b. premium, Insured, insurer d. Insurer, premium, Insured
2. Insurance is a tool in the-

a. Management of Perils c. Management of Hazard
b. Management of risks d. All of the Above
3. There is a delicate ____________ relationship between the insured

and the insurer; therefore insurance is a highly regulated industry
worldwide.
a. Moral c. Financial
b. Ethical d. Sentimental
4. In India _____________ and ___________ are direct legislations for

smooth and orderly functioning of insurance business.
a. The Insurance Act, 1938 c. The Insurance Act, 1939
and IRDA Act, 1999 and IRDA Act, 1998
b. The Insurance Act, 1999 d. The Insurance Act, 1999
and IRDA Act, 1938 and IRDA Act, 1983
5. The Insurance Act, 1938 which became effective from _____

primarily governs the conduct of insurance business in India.
a. July 1, 1940 c. July 1, 1999
b. July 1, 1938 d. July 1, 1939
6. The Provisions of the Insurance Act, 1939 are applicable to-

a. Only Life class of Insurance c. All classes of Insurance
business business
b. Only General class of motor d. All of the above
Insurance business
7. The Insurance Regulatory and Development Authority (IRDA) is a

national agency of the Government of India, based
in________________
a. Hyderabad c. Bangalore
b. Secunderabad d. Chennai
8. IRDA was formed by an act of Indian Parliament known

as___________
a. Insurance Act, 1999 c. Regulation Act, 1999
b. IRDA Act, 1999 d. None of the above
9. “To protect the interest holders of insurance policies, to regulate,

insure, promote and ensure orderly growth of the insurance industry
and for matters connected therewith or incidental thereto. The IRDA
Act lead to amendments of the Insurance Act, 1938, the Life
Insurance Corporation Act, 1957 and the General Insurance
Business (Nationalisation) Act, 1972.”, is stated in the preamble of
the mission of-
a. LIC c. IRDA
b. GIC d. III
10. The purpose of forming IRDA was-

a. To protect the interest of competence in the industry
policyholders and secure that it regulated.
their fair treatment d. To bring out optimum
b. To take action where such amount of self regulation in
standards are inadequate or day to day working of the
ineffectively enforced. industry consistent with the
c. To, set, promote, monitor requirements of prudential
and enforce high standards regulation
of integrity, financial e. All of the Above
soundness, fair dealing and
11. Which section lays down the duties, powers and functions of IRDA-
a. Section 15 of IRDA Act, c. Section 14 of IRDA Act,
1999 1999
b. Section 16 of IRDA Act, d. Section 13 of IRDA Act,
1999 1999
12. The functions of IRDA are-

a. Issuance of Certificates of c. Promoting efficiency in the
Registration, renewal, conduct of insurance
modification, withdrawal, business
suspension or cancellation d. Levying fees and other
of such registration. charges for carrying out the
b. Specifying the code of purpose of this Act.
conduct for surveyors and e. Regulating maintenance of
loss assessors. Margin of Solvency
f. All of the above
13. As per the insurance Act, all insurers carrying on insurance business
in India constitute a body corporate by the name-
a. Insurance Society of India c. India Insurance Association
b. Insurance Association of d. Society of Insurance in India
India
14. Under section 64C of the Insurance Act, 1938 two councils of the
Insurance Association of India are-
a. Life Insurance Council & c. Central Govt. and State
General Insurance Council Govt. Council
b. International and National d. Insurer’s and Insured’s
Insurance Council Council
15. Life Insurance Council consists of all the members and associate
members of the Association who carry on__________
a. General Insurance Business c. Life Insurance Business in
in India India
b. Life Insurance Business d. General Insurance Business
outside India outside India
16. General Insurance Council consists of all the members and

associate members of the Association who carry on
_________________
a. Life Insurance business in c. General Insurance Business
India outside India
b. Life Insurance Business d. General Insurance Business
outside India in India
17. The authorities of the Life & General Insurance Council shall be the
Executive Committees constituted in the manner provided in
_____________
a. Section 64F of the c. Section 64E of the
Insurance Act 1938 Insurance Act 1939
b. Section 64E of the d. Section 64E of the
Insurance Act 1938 Insurance Act 1999
18. The Executive Committee of the Life Insurance Council shall consist
of-
a. 2 officials from including c. 1 non official member
chairman nominated by IRDA
b. 8 representatives from d. 5 person nominated by
Insurance Association of IRDA connected with life
India carrying life Insurance insurance business
business e. All of the above
19. The Executive Committee of the General Insurance Council shall

consist of-
a. 2 officials from IRDA c. 1 non official member
including chairman nominated by IRDA
b. 8 representatives from d. 5 persons nominated by
insurance Association of IRDA connected with
India carrying general general insurance business
Insurance business e. All of the above
20. No official member nominated by the IRDA shall be entitled whether

as a chairman or as a member, to vote in respect of any matter
coming up before any meeting of the executive committee of any
council, as the case may be-
a. False b. True
21. The Secretary of the Executive Committee of the Life and General
Insurance Council shall in each case be an official nominated by.
a. LIC c. IRDA
b. GIC d. Insurance Council
22. The Duration of the Executive committee of the Life and General
Insurance Council shall be for____ years from the date of its first
meeting
a. Four c. One
b. Five d. Three
23. The outgoing members of the Executive Committee of both the

councils shall have the authority to discharge their duties until
a. The new executive insurance council has been
committee of the life created
insurance council has been c. Both a& b
created d. Neither a nor b
b. The new executive
committee of the general
24. To aid, advice and assist insurers carrying on life insurance business
in the matter of setting up standards of conduct and sound practice
and in the matter of rendering efficient service to holders of life
insurance policies is the function of-
a. The executive committee of c. Both a & b
the life insurance council d. Neither a nor b
b. The executive committee of
the general insurance
council
25. The function of life insurance council is to-

a. Render advise to LIC in the c. Render advice to IRDA in
matter of controlling the matter of controlling
expenses if insurers in expenses of insurers in
respect of their life respect of their life
insurance business in India insurance business in India
b. Render advice to GIC in the d. Render advice to Insurance
matter of controlling Council in the matter of
expenses f insurers in controlling expenses of
respect of their life insurers in respect of their
insurance business in India life insurance business in
India
26. For the purpose of enabling it effectively to discharge its functions,

the executive committee of the Life Insurance Council may collect
such sums of money, whether by way of fees or others wise, as may
be prescribed from-
a. All members of Insurance India carrying life insurance
Association of India carrying business
life insurance business c. Both a & b
b. All associate members of d. Neither a nor b
Insurance Association of
27. To aid, advise and assist insurers carrying on general insurance

business in the matter of setting up standards of conduct and sound
practice and in the matter of rendering efficient service to holders of
life insurance policies is the function of-
a. The executive committee of b. The executive committee of
the general insurance the life insurance council
council c. Both a & b
d. Neither a nor b
28. The function of general insurance council is to-

a. Render advice to GIC in the c. Render advice to IRDA in
matter of controlling the matter of controlling
expenses of insurers in expenses of insurers in
respect of their life respect of their life
insurance business in India insurance business in India
b. Render advice to Insurance d. Render advice to LIC in the
Council in the matter of matter of controlling
controlling expenses of expenses of insurers in
insurers in respect of their respect of their life
life insurance business in insurance business in India
India
29. For the purpose of enabling it effectively to discharge its functions,
the executive committee of the General Insurance Council may
collect such sums of money, whether by way of fees or otherwise, as
may be prescribed from-
a. All members of Insurance India carrying General
Association of India carrying insurance business
general insurance business c. Both a & b
b. All associate members of d. Neither a nor b
Insurance Association of
30. The ______ may prescribe the circumstances, manners and

conditions in which Executive committee of both the councils may
hold joint meetings for the purpose of dealing with any matter of
common interest to both committees.
a. Insurance Council d. IRDA
b. Central Govt. e. Non above
c. State Govt.
31. The Law Commission has made recommendations relating to

the______ issues arising in the Insurance Act 1938, leaving aside
matters to economic policy
a. Germane legal d. Germane Economic
b. Germane Financial e. Germane Moral
c. Germane material
Q. Q. Q. Q. Q. Q.
No Ans No Ans No Ans No Ans No Ans No Ans
1 c 7 a 11 c 17 a 22 d 27 a
2 b 8 b 13 c 18 e 23 c 28 c
3 c 9 c 14 a 19 e 24 a 29 c
4 a 10 e 15 c 20 b 25 c 30
5 b 12 f 16 d 21 c 26 c 31
6 b
Chapter 3
IRDA AND ITS LICENCING FUNCTIONS
Code of conduct applicable to Agents, Corporate Agents

and Brokers
1. Licensing
2. Status of Applicant
3. Authority for issuing Licenses
4. Qualifications
5. Functions
6. Disqualification
7. Training and examination
8. Capital requirement
9. Validity of Licence
10. Renewal of Licence
11. Cancellation or suspension of licence or certificate
12. Payment of Annual Fee (Regulation 18)
13. Remuneration (Regulation 19)
14. Ceiling on business from single client (Regulation 20)
15. Code of Conduct (Regulation 21)
16. Deposit requirements (Regulation 22)
17. ‘Insurance Bank Account’ (Regulation 23)
18. Professional Indemnity Insurance (Regulation 24)
19. Maintenance of books of accounts, records etc (Regulation 25 and
26)
20. Membership
Intext Question 1
In case of insurance (individual) agent, the agent’s license is granted/
renewed for a period of ________ years.
a. One c. Three
b. Two d. Four
Intext Question 2
What is fee charged by the Authority to issue a duplicate copy of license
to Corporate Agents?
a. Rs 10 c. Rs 500
b. Rs 50 d. Rs 1,000
Regulations on the functioning of TPA

TPAs were introduced by the IRDA in year 2001. The core service of a
TPA is to ensure better services to policyholders.
Their basic role is to function as an intermediary between the insurer and
the insured and facilitate cash less service at the time of hospitalization.
Conditions and procedure for Licensing of TPA

1. The minimum paid up capital of the company shall be in equity
shares amounting to Rs 1 crore.
2. TPA shall never have a working capital of Rs 1 Crore
3. At least one of the directors of TPA shall be a medical doctor
registered with MCI.
4. The aggregate holdings of equity shares by a foreign company shall
not exceed 26% of paid up equity capital of a TPA.
5. Any transfer of share exceeding 5% of paid up share capital shall be
intimated to the authority within 15 days.
The TPA shall obtain from the Authority a license to function as a TPA for
rendering health service.
Where a license granted by the Authority is lost or mutilated, the Authority

may issue a duplicate license on payment of a fee of Rs 1,000 accompanied
by an application in writing made by the TPA.
The authority may initiate action under Regulation 13 for any of the
following reasons:
1. TPA functioning improperly and/or against interest of the
insured/policyholder or an insurance company
2. Financial condition of the TPA has deteriorated and TPA cannot
function properly.
3. Character and ownership of TPA has changed significantly since the
grant of license.
4. Breach of code of conduct prescribed by regulation 21.
Code of conduct for TPA

It shall be the duty of TPA, its CAO or CEO or its employees to:
1. Establish its identity to the concerned people/company.
2. Rule out the inconsistencies and bring them to notice of companies.
3. Render necessary assistance/advice to policyholders or claimants.
4. Avoid trading on information and records of the business and

maintain confidentiality of the data.
5. Avoid inducing an insured/policyholder to omit any material
information, or submit any wrong information.
6. Follow the guidelines/directions that may be issued by the Authority.
Maintenance and confidentiality of Information

The books and records shall be maintained by a TPA in accordance with
accepted professional standards for a period not less than three years
such records shall be shall be available to the insurance company and
the Authority and access to them shall not be denied by the TPA. Every
TPA shall furnish to the insurance company and the IRDA an annual
report and any other return as may be required by the Authority.
Registration of insurance companies

1. General regulation requirements
2. Capital structure requirements
3. Procedure for obtaining a certificate of registration
4. Renewal of registration
5. Suspension of registration
6. Cancellation of certificate of registration
7. Revival of registration
Regulations related to Life and General Reinsurance

Reinsurance is a contract of insurance where one insurer (called
reinsurer) agrees, for a portion of the premium, to indemnify another
insurer for losses paid by the reinsured under insurance policies issued
to its policyholders. Reinsurance allows companies to share risk.
Various Regulations related to Life and General Reinsurance

Objectives of reinsurance are:
 Maximise retention within the country
 Develop adequate capacity
 Secure the best possible protection for reinsurance costs incurred
 Simplify the administration of business.
The placement of reinsurance in the Indian Market is governed by

reinsurance regulations for both life and general insurance. These
regulations are given in easy tabular form to facilitate easy comparison in

the standard books issued by III, Mumbai.
Regulations:
 Life insurer: mandatory to have programme of reinsurance in respect
of life covered
 General insurer:
o Maximum premium retention proportional to financial strength
and volume of business
o Provisions of outstanding claims for reinsurance accepted on
basis of loss information advices from brokers/cedents
o Provisions for IBNR claims on reinsurance portfolio
Intext Question 3
Which of the following is not a fundamental objective of reinsurance of
life and non-life insurances?
a. Minimise retention within the country
b. Develop adequate capacity
c. Secure the best possible protection for the reinsurance costs
incurred
d. Simplify the administration business
Roles and duties of Surveyors and Loss Assessors

1. Assess the losses and damage and serve as a link between insurer
and insured.
2. Assess actual loss and avoid false claims.
3. Conducting inspection and re-inspection, examining, inquiring,
investigating, verifying and checking upon the causes and
circumstances of loss
4. Advising the insurer and insured about loss minimisation and loss
control, security and safety measures to avoid further losses.
5. Pointing out discrepancy in policy wordings.
6. Assess liability under the contract of insurance.
A surveyor or loss assessor shall submit his report to the insurer as
expeditiously as possible, but not later than 30 days of his appointment.
Licensing procedure: An application is made to the IRDA by the

individuals to IRDA. IRDA on verifying eligibility of the applicant grants
the license and other necessary documents to the applicant. The license
remains valid for five years from the date of issue unless cancelled
earlier.
If the applicant is a company or firm, IRDA shall be satisfied that all the
directors possess one or more of the qualifications specified in the Act
and then issue the relevant documents.
Renewal of license: the applicant shall apply to the IRDA at least thirty
days before the expiry of the period or IRDA may, if satisfied that undue
hardship would be caused, accept any application within six months of
expiry on payment by applicant of a penalty of Rs. 750
A license so renewed shall be valid for five years from the date of
renewal, unless cancelled earlier.
Categorization of Surveyors
Surveyors and loss asserts are categorized according to:
 Professional qualifications
 Training
 Experience
 Any other criteria as may be specified by the Authority time to time.
The categorization consists of allocation of one or more specified
departments of insurance business, based on the factors mentioned
above and categorization is done into three categories i.e. Category A,
Category B and Category C.
Submission of returns
Every licensed surveyor and Loss assessor shall furnish the documents,
return or report, as and when required by the IRDA and comply with the
directions. Also they submit an annual statement given in the schedule to
these regulations.
Self Examination Questions

Question 1
Which of the following is mandatory to purchase indemnity insurance?
a. Brokers c. Insurance agents
b. Corporate agents d. All of these
Question 2
What is minimum qualification that the applicant for insurance agent is
required to possess for the areas that have population less than 5000?
a. Pass in 10th standard d. No minimum qualification is
th
b. Pass in 12 standard required
c. Pass in graduate level exam
Question 3
In case of insurance broker, the Principal Officer and persons soliciting
and procuring business are required to undergo at least _____ hours of
theoretical and practical training from an institution recognized by the
Authority.
a. 10 c. 200
b. 100 d. 500
Question 4
The minimum capital required for direct broker is ______, a reinsurance
broker is ________ and composite broker is _________.
a. 50 lakhs, 100 lakhs, 200 c. 200 lakhs, 100 lakhs, 50
lakhs lakhs
b. 50 lakhs, 200 lakhs, 250 d. 250 lakhs, 200 lakhs, 50
lakhs lakhs
Question 5
IBNR stands for
a. Incurred But Not Reported c. Injured But Not Reported
b. Incurred But Not Realised d. Injured But Not Realised
Question 6
As per IRDA (Life Insurance – Reinsurance Regulations) 2000, the
reinsurer chosen by the insurer must enjoy a credit rating of a minimum
of ______ of Standard and Poor or equivalent rating of any International
rating agency.
a. AA+ c. BBB
b. AAA d. CCC
Question 7 Who is the National Reinsurer if India?

a. LIC of India c. Reinsurance Corporation of
b. GIC of India India
d. IRDA
Question 8
Which of the following needs to create outstanding claims provision for
every reinsurance arrangement accepted on the basis of loss information
advices received from Brokers/ Cedants and where such advices are not
received, on an actuarial estimation basis?
a. Life Insurers c. Both
b. General insurers d. None of these
Question 9
As per IRDA (Life Insurance – Reinsurance Regulations) 2000, an
insurer needs to file with the Authority, at least ____ days before the
commencement of each financial year, a note on its underwriting policy.
a. Fifteen c. Forty-five
b. Thirty d. Sixty
Question Bank
1. IRDA act 1999 defines intermediary to include
a) Brokers c) Surveyor & loss assessors
b) Consultants d) All above
2. Insurance agents and corporate agents are not intermediary. Which

statement is correct in respect of above?
a) Agents and corporate intermediaries even though
agents are not not defined
intermediaries since not c) Only insurance agents are
mentioned in the definition intermediary
of intermediary. d) Corporate agents are not
b) In conventional sense they intermediary
are regarded as e) None of above
3. Which statement is incorrect?

a) Direct brokers can work for d) Insurance agent and
any number of life or corporate agent may opt for
general insurers selecting two life companies
b) Corporate agent can work instead of one life and one
for one life and one non-life general
insurer. e) Re-insurance brokers can
c) Insurance agents can work work for any number if
for one life and one non-life insurers
insurer
4. Which statement is incorrect?

a) Brokers represent the d) Reinsurance brokers
clients, i.e. insured represent both insurer and
b) Agents represent insurer re-insurers
c) Corporate agent represent e) Brokers represent both
insurer client and insureds
5. Which is incorrect in respect of composite intermediary?

a) A composite broker may act c) A composite insurance
for any number of life and agent may work for one life
general insurers and one non-life insurer
b) A composite corporate d) A composite surveyor may
agent may act for one life work for all insurance
insurer and one non-life companies
insurer e) None of above
6. Which is correct in respect of re-insurance broker?

a) Reinsurance broker c) Re-insurance can be placed
arranges re-insurance for only in national market
direct insures with d) Re-insurer broker may
insurance and re-insurance charge commission based
companies on mutual understanding
b) Re-insurance can be placed with the insurance company
only in international market e) None of above
7. A broker license can be issued to

a) Proprietor / proprietary d) Cooperative Societies
concern e) Any other person
b) Partnership firm recognized by IRDA
c) Company formed under f) All above
Companies Act 1956
8. To be eligible for becoming a corporate agent the firm must be

a) A firm g) NGO, Micro landing
b) Company formed under Finance Organization,
Companies Act 1956 NBFC
c) Banking Company h) Any other institution
d) Regional Rural Bank approved by IRDA
e) Cooperative Society i) All of these
f) Panchayat or local authority
9. As per regulation__________ IRDA shall issue the license to broker

a) 10 d) 13
b) 11 e) 14
c) 12
10. A license for becoming an individual agent may be granted to person

th
a) Minimum qualification certificate in 10 standard is
required is pass marks in required
th
12 standard c) He must undergo specified
b) If the application resided in training
a place with a population of d) He must be sound mind
5000 and more a pass e) All of these
11. Who is authorized to issue license to intermediary

a) For broker – IRDA c) For agents – Designated
b) For corporate agents – persons in the insurance
Designated persons in the company
insurance company d) For surveyors – IRDA
e) All of these
12. Which of the statements relating to qualification of an intermediary is

incorrect?
a) The principal officer of the c) The agent must undergo the
broker firm must possess practical training and pass
minimum qualification and the exam, as prescribed by
must have passed IRDA
insurance brokers d) In case of corporate agent
examination. every person soliciting the
b) The corporate insurance insurance business must
executives of the corporate clear the IRDA exam
agent must undergo e) No such condition is
practical training as necessary as stated in
prescribed point.
13. Which of the following is not the function of insurance broker?

a) Placing business with d) Underwriting and issue of
insurer policy
b) Risk management e) Maintaining underwriting
c) Consultancy and assisting and claims record.
in claims
14. The_____________ identifies himself with the insurance company of

whom he is the representative and follows the code of conduct given
in IRDA regulation
a) Corporate agent d) Surveyor
b) Agent e) a and b above
c) Broker
15. Who’s function as an intermediary are broader

a) Agent c) Surveyor
b) Corporate Agent d) Broker
16. The disqualification for broker is specified under sub-

section__________ of section_________ of the insurance act.
a) 5, 43D c) 10, 43D
b) 5, 42D d) 10, 42D
17. The disqualification for agents and corporate agents are specified
under section of insurance act
a) 40 d) 44
b) 42 e) 45
c) 43
18. What are the provisions regarding training of intermediaries

a) The principal officer of the c) Corporate agent must
broker firm must undergo complete 50 hours of
100 hours training and clear agents training
the exams conducted by d) Exams for agents are
NIA Pune. conducted by NIA Pune.
b) Agents must complete 50 e) a, b and c above
hours of practical training
19. Capital required for direct broker is

a) 25 lakhs d) 100 lakhs
b) 50 lakhs e) 125 lakhs
c) 75 lakhs
20. Capital required for re-insurance broker is

c) 200 lakhs
21. Capital required for composite Insurance broker is

c) 300 lakhs
22. Capital required for agent and corporate agent is

b) 5 lakhs e) None of above
c) 10 lakhs
23. The license issued to agent, corporate agent, brokers is valid upto
________ years
a) 1 d) 4
b) 2 e) 5
c) 3
24. Which statement is incorrect in respect of renewal of license?

a) The renewal of broker d) In case of loss of license a
licensed shall be treated as duplicate may be issued on
fresh application. payment of RS.1000 by
b) The renewal license fees for brokers and Rs.250 by
brokers is Rs.1000 agents/corporate agents
c) The renewal license fees for e) No duplicate license can be
agent and corporate agent issued.
is RS.250
25. Which is correct in respect of cancellation or suspension of license?

a) Broker’s license may be c) Agent’s license may be
cancelled by IRDA under cancelled regulation 11 by
regulation 34 & 35. the designated person due
b) Corporate agent’s license to any disqualification under
may be cancelled under section 42D
regulation 11 by the d) License may be cancelled
designated person due to only after the expiry of 3
any disqualification under years
section 42 D. e) a, b, c above
26. Which of the following intermediaries pay the annual fee?

a) Broker d) Agent
b) Surveyor e) None of above
c) Corporate agent
27. Which statement is incorrect in respect of remuneration payable to

intermediaries?
a) Broker cannot be paid c) Agents are pad commission
remuneration exceeding as per provision section 40
commission as prescribed of the Act
under regulation 19. d) Insurers can pay overriding
b) Corporate agents are aid commission as per
commission as per agreement with the agent
provision section 40A of the and broker
Act
28. The circular of IRDA date 25.08.2008 limits the payment of

commission to brokers on general insurance business with effect
from
a) 01.01.2008 d) 11.01.2008
b) 01.10.2008 e) 11.10.2008
c) 01.07.2008
29. What is the ceiling on business from single client is prescribed for
brokers
a) 1st year not more than 50% c) 3rd year and onwards not
from one client more than 30% from one
nd
b) 2 year not more than 40% client
from on client d) All above
30. Which statement is correct in respect of ceilings of business from

agents and corporate agents?
a) In case of a corporate agent c) Agent cannot collect more
business from one client than 25% of premium of his
should not exceed more total portfolio from a single
than 50% of total premium client
procured in one year d) a, b above
b) There is no such provision e) None of above.
for an individual agent
31. Which statement is correct in respect of code of conduct?

a) Every broker shall abide by c) Every agent shall abide by
code of conduct of code of conduct as
regulation 21 as specified in specified in regulation 8
schedule 3. d) Every intermediary shall
b) Every corporate agent shall follow common code of
abide by code of conduct as conduct
specified in regulation 9 e) a, b, c above
32. A broker is required to maintain__________ percent of its initial

capital in fixed deposit in the bank
a) 10 d) 40
b) 20 e) 50
c) 30
33. An agent/corporate agent is required to maintain_________ as fixed

deposit
a) 1 lakh d) 4 lakhs
b) 2 lakhs e) Nil
c) 3 lakhs
34. Which intermediary is required to maintain insurance bank account

(regulation 23)
a) Agent d) Reinsurance/Composite
b) Broker brokers
c) Corporate agent e) Surveyor
35. Which intermediary is required to take professional indemnity

insurance as per regulation?
a) Agent c) Broker
b) Corporate agent d) Surveyor
36. What records must be maintained by insurance broker and submitted

to IRDA
a) Annual accounts every year fulfilment of requirements in
b) Half yearly un-audited accordance with provisions
financial statements of regulation 10.
containing details of d) Any other documents that
performance, financial IRDA may specify
position e) All above
c) The statement shall include
declaration confirming the
37. What records must be maintained by agent/Corporate agent

a) Cash book d) Prepare account as per
b) Ledger book rules of Companies Act
c) Balance sheet
38. Every insurance broker must be a member of

a) Insurance Brokers c) Insurance Brokers
Federation of India Association of India
b) Insurance Brokers of India d) Insurance Brokers Institute
of India
39. Every corporate agent/insurance agent must be a member of

a) Corporate Agent d) Insurance Agent Federation
Association of India of India
b) Corporate Agent Federation e) None of the above – there is
of India no such Association.
c) Insurance Agent
Association of India
40. _________ could arise in a scenario of increasing numbers of

insurers, intermediaries and insurance products and severe
competition of business.
a) Fair practice c) Foul practice
b) Unfair practice d) Unreasonable practice
41. IRDA regulations for intermediaries address issued relating to

a) Point of purchase d) Point of sale
b) Point of registration e) None of above
c) Point of delivery]
42. Every________ shall 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.
a) Insurance Agent d) Corporate Broker
b) Insurance Broker e) None of above
c) Corporate Agent
43. Intermediaries should take into account the_______ of a prospect

before recommending a particular insurance policy or product
a) Feedback d) Requirement
b) Want e) Purpose
c) Need
Answer key
Q. Ans Q. Ans Q. Ans Q. Ans Q. Ans Q. Ans
No No No No No No
1 d 9 b 17 e 25 e 33 e 41 d
2 b 10 e 18 e 26 a 34 d 42 a
3 d 11 e 19 b 27 d 35 c 43 c
4 e 12 e 20 c 28 b 36 e
5 d 13 d 21 e 29 d 37 d
6 a 14 e 22 e 30 d 38 c
7 f 15 d 23 c 31 e 39 e
8 i 16 b 24 e 32 b 40 b
Chapter 4
REGULATIONS ON CONDUCT OF BUSINESS
This chapter deals with various regulations laid down by the IRDA
regarding conduct of insurance business. It tells about the insurers’
obligations to rural and social sectors. It also tells about the nature of
micro-insurance, how it evolved and how it operates today.
IRDA (Obligations of Insurers to Rural Social Sectors)

Regulations, 2002
Rural Sector means any place classified as rural while conducting the
latest decennial population census.
The categories of workers under agricultural pursuits are:
 Cultivators
 Agricultural labours
 Workers in livestock, forestry, fishing etc.
Obligations
Every insurer who begins to carry on insurance must follow these
obligations during the first five financial years
a. No rural or social sector obligations shall be applicable if the
company commences operations in 2nd half of financial year (FY)
and is in operation for less than six months as on 31st March of the
FY.
b. The annual obligations shall be reckoned from the next FY which
shall be considered as the first year of operations.
c. If the company commences operations in 1st half of the FY, the
applicable obligations for the first year shall be 50% of the
obligations as specified.
1) Rural Sector
i) In respect of a life insurer
 7% in 1st FY
 9% in 2nd FY
 12% in 3rd FY
th
 14% in 4 FY
 16% in 5th FY
of total policies written direct in that year.
ii) In respect of a life insurer

st
 2% in 1 FY
nd
 3% in 2 FY
 5% thereafter
of total gross premium income written direct in that year.
2) Social Sector
i) In respect of all insurers
st
 5,000 lives in the 1 FY
 7,500 lives in the 2nd FY
rd
th
 20,000 lives in the 5th FY
Provided in the first FY, proportionate %age or number of lives shall be
taken.
Compliance
Compliance towards the rural sector in both general and life insurance is
based on the sale products conforming to the provision that all such
contracts meet the stipulation as to the minimum amount of cover as laid
down in Schedule I and II of IRDA (Micro Insurance) Regulations, 2005.
Compliance towards the social sector in both general and life insurance
is based on the sale products conforming to the provision that all such
contracts meet the stipulation as to the cover laid down in IRDA (Micro
Insurance) Regulations, 2005.
Submission of Returns
Every insurer shall submit a return as part of financial returns to be
submitted under IRDA (Preparation of Financial Statements and
Auditions Report of Insurance Companies) Regulations, 2002. Such
reporting shall form the part of ‘Notes to the Accounts’.
Micro Insurance
Micro-Insurance aims at providing insurance cover to poor and low
income people at affordable prices. It is the protection of low-income
people against specific perils in exchange for regular premium payments
proportionate to the likelihood and cost of the risk involved.
The features of micro insurance include:

 Low cost transactions
 Clients are essentially low-net-worth but not uniformly poor
 The essential role is to enhance risk management of the members of
the entire pool.
Instead of the people from the group coming together on their own,
Need for Micro-Insurance: the low-income group people may fall back
into poverty in times of hardships and that is where micro-insurance
comes to rescue. Projects offered include:
 Crop insurance
 Livestock/cattle insurance
 Insurance against theft
 Health insurance
 Term life insurance
Intext Question 1
_______ is a term related to insurance characterized by low premium
and designed to serve low income people.
a. Insurance c. Micro- Insurance
b. General Insurance d. Life Insurance
Government of India recommendations on micro-insurance

 Micro-insurance should be a part of the broader spectrum of
insurance in the country
 A proper channel of distribution should be established.
 The micro-insurance agent might be entrusted with certain additional
responsibilities.
 The agents would be compensated for their additional service.
 The terms and conditions governing the policy should be filed by the
insurer and approved by IRDA.
 Policy literature and documents are to be made available in regional
languages, and trainings is to be given to the agents in regional
languages.
 Marketing of micro-insurance products could be made mandatory as
part of the rural and social sector obligations.
Intext Question 2
In which country did concept of micro-insurance originate?
a. India c. Pakistan
b. United States d. Bangladesh
Conditions applicable to micro-insurance agents

 A micro-insurance agent shall not distribute any product other than a
micro-insurance product.
 A micro-insurance agent shall be appointed by the insurer by
entering into a deed of agreement.
 A micro-insurance agent shall not work for more than one insurer
each in life and general insurance.
 A micro-insurance agent shall employ specified persons with the
prior approval of the insurer.
 A micro-insurance agent may be paid remuneration for all the
functions rendered by him which shall not exceed the limits as stated
below:
For life insurance:
Single premium policies – 10% of the single premium
Non- Single premium policies – 20% of the premium for all the
years of the premium paying term
For non-life insurance: - 15% of the premium
Intext Question 3
What is the maximum remuneration limit for a micro-insurance agent for
non-life insurance business?
a. 10% of the premium c. 20% of the premium
b. 15% of the premium d. 5% of the premium
Regulations of ULIPs
A Unit Linked Insurance Plan (ULIP) is an insurance plan which is a
combination of insurance protection and investment.
It provides benefits of insurance protection, investment and income tax
benefits.
The investment risks in ULIP are borne by the policyholder/investor and
not by the insurance company.
SEBI v/s IRDA

Dispute between the regulators in respect of the 14 insurance companies
commenced when Securities and Exchange Board of India (SEBI) drew
attention of IRDA to the fact that the 14 companies were not permitted to
access the market as their ULIPs were not registered with SEBI. IRDA
chairman replied to SEBI that insurance companies are permitted to sell
ULIPs and that ULIPs have a mandatory insurance element. The dispute
between the two regulators on ULIPs highlights the penetration of ULIPs
in savings market.
The Government intervened and issued an ordinance that ULIPs will
continue to be regulated by IRDA and all ULIPs were in compliance with
regulations.
Working of ULIPs
A Unit is the component of the fund in a ULIP. The policyholder’s
investment in the fund is denoted in the form of units and is represented
by the value that is attains, called Net Asset Value (NAV).
The returns from the ULIP are dependent upon the performance of the
fund. The investment risk of the fund is borne by the policyholder.
ULIP is an insurance product and is governed by IRDA, and not by

SEBI.
IRDA guidelines for ULIPs

1. The 3 year lock-in period for all Unit Linked Products will be
increased to 5 years, including top-up premiums.
2. All regular /limited premium ULIPs shall have uniform paying
premiums.
3. All limited premium unit linked insurance products, other than single
premiums products, shall have premium paying term of atleast 5
years.
4. All unit linked products other than pension and annuity products shall
provide a minimum mortality cover or a health cover as follows:
i) Minimum mortality cover should be as follows:
Minimum sum assured for age at entry Minimum sum assured for age at
of below 45 years entry of above 45 years
Single premium (SP) contracts: 125% of Single premium (SP) contracts: 110% of
single premium. single premium.
Regular premium (RP) including limited Regular premium (RP) including limited
premium paying (LPP) contracts: 10 times premium paying (LPP) contracts: 7 times
the annualized premiums or (0.5 X T X the annualized premiums or (0.25 X T X
annualized premium) whichever is higher. annualized premium) whichever is

At no time the death benefit shall be less higher. At no time the death benefit shall
than 105% of total premiums (including be less than 105% of total premiums
top-ups) paid. (including top-ups) paid.
ii) Minimum health cover per annum should be as follows:

Minimum annual health cover for age Minimum annual health cover for age
at entry of below 45 years at entry of above 45 years
Regular premium (RP) contracts: 5 times Regular premium (RP) contracts: 5 times
the annualized premiums or Rs 10,000 the annualized premiums or Rs 75,000
per annum, whichever is higher. per annum, whichever is higher.
At no time the annual health cover shall At no time the annual health cover shall
be less than 105% of total premiums be less than 105% of total premiums
paid. paid.
Calculation of Net Asset Value (NAV)

The NAV is calculated by dividing the total market value of the fund by
the number of outstanding units of the fund.
Illustration: The total value of a fund is Rs 100 Crore. The fund has 9
crore outstanding units. The NAV of one unit will be:
NAV = total value of fund ÷ total number of outstanding units
NAV = Rs 100, 00, 00,000 ÷ 9, 00, 00,000 units
NAV = Rs 11.11
Switching is a process by which am individual can move all or part of his

investment from one fund to another by paying the applicable charges.
ULIPs are different from other insurance product because of the manner
in which money is invested.
ULIPs Other insurance products
The policyholder can choose the fund in The premiums of other insurance products
which their premium will be invested. are invested primarily in debt securities.
The policyholder can choose the funds in The policyholder has no right for choosing
which their premiums will be invested. the type of securities in which their funds
will be invested.
Intext Question 4
ULIPs are __________ -linked plans.
a. Insurance c. Market
b. Debt d. Indemnity
In case of ULIP, the customer has flexibility in terms of premium

payments, partial withdrawal, fund selection and switching once the
contract is issued. The policyholder has the knowledge of fund where the
premiums are invested and how the fund is increasing/decreasing on a
daily basis.
 Unit Linked Insurance Plan

o Market linked insurance plan
 Deducts life cover and other charges
 Invests remaining amount of premium in fund chosen by
policyholder
o Offers twin benefit to policyholders
 Life protection
 Investment
o Returns are dependent on performance of fund
 Option to invest in one or more funds or switch
 Risk is borne by policyholder
Applicable regulations to ULIPs

 Regulation 2 (i) of IRDA (Registration of Indian Insurance
Companies) Regulation, 2000
 Regulation 3 (3) of IRDA (Investment) Regulations, 2000
 IRDA (Insurance Advertisements and Disclosures) Regulations,
2000
 IRDA (Assets, Liabilities and Solvency Margin) Regulations, 2000
 IRDA (Protection and Policyholders’ Interests) Regulations, 2002
 IRDA (Treatment of Discontinued Linked Insurance Policies)
Regulations, 2010
 Code of Conduct applicable to Insurance Agents, Corporate Agents
and Insurance Brokers
Brief description of circulars applicable to ULIPs

 Reasonable insurance cover with linkage to premium payment.
 Availability of greater part of targeted sum at the longer end.
 Avoid technical myths.
 Remain simple for the public.
 Adequate disclosure of information regarding the funds and risks.
 Standard method of computation of NAV.
In this policy, the investment risk in investment portfolio is

borne by the policyholder.
Other necessary dynamics of ULIPs include the following:

i) Market Conduct
ii) Disclosure norms
iii) Advertisements
Product Design
 Benefit payable on death
o Insurance is expected to be essential ingredient of life insurance
product
o Extent of insurance cover depends upon age, medical history
and amount of premium paid
 Minimum policy term
o Protects long term nature of life insurance contract, minimum
policy term, if fixed, is 5 years
 Guarantee benefits
o Guarantees to extent of sum assured payable on death
 Lock in period
o For all ULIP plans, 5 years
 Partial withdrawal
o Liquidity features that creates value addition to life policies
 Top up premium
o Enable policyholder to increase annual contribution, avoiding
initial allocation charges
o Enable mopping up the savings of existing policyholder
 Loan period
o Maximum loan amount should not exceed 40% of surrender
value
 Distribution of overall charges
o Insurer distributes charges during lock in period
 Settlement options
o Entitles policyholder to receive maturity claim in specifies
number of years after the date of maturity.
 Unit pricing
o Objective is to protect interest of policyholder
 Pension schemes offer on maturity
o Minimum 4.5%p.a.
o Or as specified by IRDA
 Cap on charges
o 5% p.a. on policy administration charges
 Riders
o Must bear nature and character of main policy
 Treatment of discontinued linked insurance policies: option to
o Revive policy
o Withdraw funds with no risk cover
 Ratings
o At the end of every year, insurers are advised to obtain ratings
o Not indicative of future performance
Other related terms

1. Premium Allocation Charge (PAC): the percentage of premium
appropriated towards charges from the premium received. The
percentage shall be explicitly stated and could vary among other things
by the policy year in which premium is paid.
2. Fund Management Charge (FMC): the charge imposed as a
percentage of the value of assets and shall be appropriated by adjusting
the NAV. This charge is calculated at the time of computation of NAV.
3. Policy Administration Charge: this charge represents the expenses
other than those covered by premium allocation charges and the fund
management expenses.
4. Surrender Charge: the charge imposed on the unit fund at the time of
surrender of the contract
5. Switching Charge: the charge imposed on switching of monies from
one fund to another fund available within the product.
6. Mortality Change: this is the cost of life insurance cover.
7. Rider Premium Charge: the premium exclusive of expense loading
calculated separately to cover the cost of rider cover and is levied
imposed either by cancellation of units or by debiting the premium but
not both.
8. Partial Withdrawal Charge: the charge levied on the unit fund at the
time of part withdrawal of the und during the contract period.
9. Miscellaneous Charge: the charge levied for any alteration within the
contract, such as, increase in sum assured, premium redirection etc.
10. Notes: all charges other than premium allocation charge and the cost
of life insurance/mortality cost shall have an upper limit.
Money Laundering
The act of changing the appearance of money that comes from
illegitimate sources so that it appears to be legitimate money is called
Money Laundering.
 The process of turning dirty money into clean money.
 Process by which criminals attempt to conceal the true origin and
ownership of the proceeds of criminal activities
 In this process, Money can lose its criminal identity and appear
legitimate.
Reasons of Money Laundering:

 Illegal arms sales
 Drug trafficking
 Tax invasion
 Smuggling
 Bribery
 Terrorism
The issue of money laundering is gaining global attention due to

following reasons
- Enormity of amounts involved
- The range of illegal activity that includes terrorist activities that are now
erupting frequently in many parts of the world.
Stages of money laundering

 Placement: physically placing bulk cash occurs i.e. insertion of
illegitimate money into legitimate financial institution
 Layering: series of conversion/ movements of funds to separate
them from their source
 Integration: illegitimate funds re-enter legitimate economy in
legitimate form
Methods of money laundering

 Structuring deposits (smurfing): breaking up of large amounts of
money into small groups and depositing into one or more bank
accounts.
 Shell companies: shell companies are fake companies that exist for
the purpose of money laundering. They accept illegal payment as
payment for goods or services, but no goods are actually provided.
Transactions appear legitimate through fake invoices and balance

sheets.
 Overseas banks: money is sent through various bank accounts in
certain countries. These countries allow anonymous banking for all
purposes. For India, Swiss bank is the biggest heaven for money
laundering.
 Alternative banking: some countries have alternative banking system
which allow for undocumented deposits, withdrawals and transfers.
These leave no paper trail and operate outside the control of
government.
 Return premium: early cancellation of policies with return of premium
has been used to launder money.
 Overpayment of premiums: by arranging for excessively high values
of insurance reimbursements by cheque to be made. Insurers should
be careful where:
o Overpayment is of a huge amount.
o The size or regularity of overpayment is suspicious.
o The request to refund the excess premium was to a third party.
Concerns of money laundering and legislations

Anti-Money Laundering (AML) and Countering Financing of Terrorism
(CFT) are a part of creating a business friendly but stable financial
system. Since money laundering is an international problem, cooperation
at the international level is necessary in the fight against it. A number of
initiatives have been established to tackle this menace.
Financial Action Task Force (FATF) is policy-making inter-governmental
body whose purpose is the development and promotion of national and
international policies to fight against money laundering and terrorist
funding. The objective of the recommendations is as follows:
 To help uncover money laundering technique
 To harmonise anti-money laundering policies at an international level
 To introduce counter-measures.
India is a member in Asia-Pacific Group (APG) on money laundering and
observer in Financial Action Task Force (FATF).
Legislations in India include:

 The Narcotics and Psychotropic Substances Act (NDPS), 1985
 The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic
Substances Act, 1988
 The foreign exchange management act (FEMA), 1999
RBI guidelines for preventing money laundering are as follows:

 Banks and financial institutions should maintain records of all cash
transactions of the value of more than Rs 10 Lakhs and other
suspicious transactions
 Such records are to be retained for a period of 10 years from date of
completion of transaction
 Essential to maintain records under tight security and at the same
time, the records should be capable of being retrieved.
 The financial institutions’ internal auditors should evaluate Know
Your Customer (KYC) guidelines.
Know Your Customer (KYC)

Knowing a customer is a basic need of insurance companies. The data
collected serves the purpose of:
 Satisfying legal requirements for better customer relationship
 To become aware of customer needs and to provide required
services.
The KYC process involves identifying, validating and verifying the
customer’s information so as to ensure that the customer is genuine and
legitimate and does not have any fraudulent intentions. The process
involves collecting the customer’s photograph, identification proof and
address proof and verifying the same.
The KYC process is a step towards adhering to the PMLA and AML
guidelines which indicates appropriate measures to determine true
identity of customers.
Customer Profile
Low Risk Customers: the individuals and entities whose identities and
source of funds can be verified easily.
High Risk Customers: customers who carry an inherently higher than
average risk to insurance company.
Product Profile
Vulnerable product such as ULIPs, single premium products, policy
features like top-ups, partial withdrawals and free-look period etc are
high risks in product profile.
Other KYC norms in relation to Insurance Companies

 Remittance beyond a premium threshold of Rs 1 lakh p.a. needs
detailed due care.
 Insurable interest must be established where insurance premium is
paid by persons other than the person insured.
 All payments will have to be made after verification of bona fide
beneficiary through either account payee cheques or through e-
payments.
Guidelines for Anti Money Laundering (AML) and Counter

Financing of Terrorism (CFT)
Vulnerability: there are certain enabling features of an insurance contract
like ‘free look period’, single premiums, and top-ups etc. which are
misused by the launders for their purposes by which insurance
companies can become a medium for ML process.
AML/ CFT Guidelines:

Compliance and Control-
 Insurers are required to appoint a senior office not below Head Chief
Risk Officer who is responsible for implementing AML program in the
company and monitoring policies.
 AML policy/programs are required to be approved by the company
board. Periodic risk management reviews should be conducted to
ensure company’s strict adherence to laid down process.
 Acceptance of cash beyond Rs 50,000 is restricted for premium/
proposal deposit.
Reporting Obligations:
It is compulsory to report the following to India’s Financial Intelligence
Unit FIU-IND which was setup in 2004:
 Cash transactions exceeding Rs 10 lakhs within a month
 Cash transaction where fake currency notes or bank notes have
been used as genuine
 Receipts of non-profit organizations of value more than Rs 10 lakh or
its equivalent in foreign currency.
 Suspicious transactions like those transactions which may involve
crime/terrorist activities or those involving unjustified complexity.
Record Keeping
An effective AML program instructs proper audit trail through appropriate
record keeping.
 Records can be in electronic form.
 Records reported to FIU are retained for 10 years from the date of
occurrence of the transaction.
 Records for customer identification data are retained for 10 years
after relationship with the customer has ended.
 Records must permit easy reconstruction of transactions.
Manner of Receipt of Premium:

The premium is to be paid by the insured person at the commencement
of contract and later throughout the term at periodical intervals as per the
policy terms and conditions of the policy.
Insurance premium generally increases with increase in risk.
Methods of receipt of premium
 Cash
 Electronic Clearing Service (ECS)
 Cheque, postal money order, pay order or demand draft
 Credit card/ debit card held in his/her name
 Bank guarantee
 Online fund transfer
 Any other method approved by IRDA time to time
Commencement of Risk
The regulations state that in all cases of risk by the policies issued by an
insurer, the attachment of risk to an insurer will be in agreement with the
terms of section 64 VB of the Act. The risk on part of the insurer shall
begin only after it receives the premium.
 In case of general insurance policy, where the remittance made by
the proposer or policyholder is not realised by the insurer, the policy
shall be void from the beginning i.e. as if no policy existed.
 In case of a life insurance policy, the continuance of risk or otherwise
shall depend on the terms and conditions of policy already entered
into.
 The insurer may at its option, recover the collection charges of the
instrument from the proposer.
Section 64 VB states as under:

i) No insurer shall assume any risk in India in respect of any insurance
business on which premium is not ordinarily payable outside India unless
and until the premium payable is receive by him or is guaranteed to be
paid by such person in such manner and within such time as may be
prescribed or unless and until deposit of such amount as may be
prescribed is made in advance in the prescribed manner.
ii) For the purpose of this section, in case of risks for which premium can
be ascertained in advance, the risk may be assumed not earlier than the
date on which the premium paid in cash or by cheque to the insurer.
Specific and Open: Under section 64VB of Insurance Act, 1938, an

insured is required to pay the full premium in advance for the insurance
company to assume risk. In respect of a ‘specific’ policy (policy for one
kind of a property at one location of the insured), the full premium is
required to be paid before the commencement of risk.
Exemption of Section 64 VB in certain cases

The extent and manner of relaxation applicable to these categories of
insurance are mentioned in detail in Rule 59 of Insurance Rules:
 Policies issued to Govt/Semi Govt bodies
 Policies under Sickness Insurance, Group Personal Accident
Insurance, Medical Benefits Insurance and Hospitalization Insurance
Schemes
 Fidelity Guarantee Insurance
 Policies where exact premium cannot be calculated without
reference to Head Office, Principal Office etc
 Declaration policies
 Policies issued on the basis of adjustable premium
 Policies issued for a period of more than one year
 Policies relating to co-insurances
 Policies of re-insurance
 Policies of National Agricultural Insurance Scheme
Memorandum of Exchange Control Regulations relating to

General Insurance in India
Exchange Control regulations governing general insurance business
written in India are set out in this Memorandum. Directions contained in
this Memorandum have been issued under Foreign Exchange

Management Act, 1999.
Direct Insurance outside India by residents: Persons, firms, companies’

etc. resident in India are not permitted to take insurance cover of any
kind with insurance companies in foreign countries without prior
permission of RBI and Govt of India under GIBNA, 1972.
Transaction in Nepal and Bhutan: Payment of claims to persons in Nepal

and Bhutan against marine and non-marine policies may e freely made
in rupees.
The Memorandum is divided into four parts as under;

 Part A – Marine Insurance
 Part B – Non-marine Insurance
 Part C – Reinsurance
 Part D – Foreign Currency Accounts and Investments Abroad
Claims against Marine Policies

Claims against marine insurance policies, when payable to persons,
firms or companies in India should be paid only in rupees, irrespective of
the currency in which relative policies had been issued.
Remittance of Claims on Exports

In case of marine insurance against exports, remittances of claim will be
permitted by authorized dealers in foreign exchange. Applications should
be supported by following documents:
(a) Statement of claim certified by an official authorized by an insurance
company registered with IRDA for this purpose
(b) Insurance Policy
(c) Survey report or other proof of loss
(d) Bill of lading/Airway bill
(e) Citified copy of invoice
(f) Any other document required to support the claim
Payment of Foreign Currency of certain Import Claims

Insurers may settle claims from their foreign currency balances in favour
of overseas suppliers in following categories of imports:
 Imports by Govt Departments and PSUs
 Imports by private sector undertakings against foreign credits

provided the insurance cover should be taken in foreign currency
 In all other cases where ownership of goods is with overseas
supplier and no payment has been made towards any part of the
cost of the goods.
Non-marine Insurance
Assets in India: insurance cover may be issued only in rupees.
Assets outside India: assets outside India owned by residents of India
may be covered in rupees or in foreign currency provided that, in respect
of immovable property held outside India by Indians, permission of RBI
has been obtained.
War Risks Insurance on Marine Hulls

Insurance on Marine Hulls covering All Risks against war and other allied
risk arising out of civil commotion, political or labour disturbances etc. are
to be obtained from insurers in India only.
Personal Accident Insurance

Personal Accident policies may be issued only in rupees and claims
thereon settled only in rupees. The Policies may be issued in foreign
currency, provided premiums are paid either in foreign currency or in
rupees derived by surrender of foreign currency to an authorized dealer.
Remittance of reinsurance premium by Local Brokers

Wherever local brokers arrange the reinsurance on behalf of insurers,
local brokers may remit the premium through the branch of the
authorized dealer designated by the insurance company subject to the
production of following documents:
 Relative debit notes from overseas companies insurance company.
 Detailed settlement of premium settled by the individual insurance
company.
 A certificate from the Chartered Accountant of the local broker,
prepared on the basis of certificates and statements obtained from
the insurance companies.
Foreign Currency Accounts and Investments Abroad

Foreign currency accounts abroad: Insurers may open, hold and
maintain foreign currency accounts outside India for facilitating
transactions and expenses relating to general insurance business

undertaken in foreign countries in accordance with regulations in this
Memorandum.
Investments Abroad: renewal of existing investments, reinvestment and
fresh investment out of funds abroad, in government/semi government
securities and bank deposits nay be made by insurers freely without prior
approval of RBI, provided they are for meeting statutory retirements in
the foreign country concerned. All other investments will require prior
approval of RBI.
Exchange Regulations for Life Insurance

Exchange Control Regulations governing issue of life insurance policies
in rupees and foreign currencies to non-residents, collection of premium,
settlement of claims, maintenance and operations of foreign currency
accounts abroad, reinsurance, investment of surplus funds abroad and
allied matters are set out in this Memorandum.
Issue of policies and collection of premium

Residents
Policies may be issued in foreign currency to Indians provided the
premium are paid out of remittances from foreign currency funds held by
them abroad or from their Resident Foreign Currency (RFC) account with
authorized dealers in India.
Non- Residents
Insurers may issue policies denominated in foreign currency through
their offices in India or abroad to non-residents provided the premiums
are collected in foreign currency from abroad or out of NRE (Non
Resident External) FCNR (Foreign Currency Non Resident) accounts of
the insured or his family members held in India.
Settlement of claims
(i) The basic rule for settlement of claims on rupee life insurance policies
in favor of claimants’ resident outside India is that payments in foreign
currency will be permitted in proportion in which amount of premiums
paid in foreign currency, in relation to the total premiums payable.
(ii) Non-resident beneficiaries of insurance claims/maturity/surrender
value settled in foreign currency may be permitted to credit the same to
NRE/FCNR account, if they desire.
(iii) Resident beneficiaries of insurance claims/maturity/surrender value

settled in foreign currency may be permitted to credit the same to RFC
accounts, if they desire.
Commission to overseas Agents

Payments of commission from India to agents abroad will be governed
by instructions contained in Government Notification No. G.S.R. 381(E)
dated May 3, 2000 relating to Current Account transactions as amended
from time to time.
Reinsurance
Reinsurance arrangements for the insurance companies registered with
IRDA are to be decided by the companies themselves on annual basis
and approved by the respective insurance company’s Board in
consultation with IRDA.
Foreign currency accounts: Insurers may open, hold and maintain

foreign currency accounts outside India for facilitating transactions and
expenses relating to life insurance business undertaken in foreign
countries in accordance with regulations in this Memorandum.
Investments Abroad: renewal of existing investments, reinvestment and

fresh investment out of funds abroad, in government/semi government
securities and bank deposits nay be made by insurers freely without prior
approval of RBI, provided they are for meeting statutory retirements in
the foreign country concerned. All other investments will require prior
approval of RBI.
Referral arrangement: the arrangement between Referral Company

and an insurer for sharing of database of the customers of Referral
Company.
Restrictions on business activities if referral company:

The referral company shall not:
 Sell insurance products
 Undertake any insurance related activity
 Create a database of its customer groups for sale or distribution of
insurance products.
 Provide details of its customers without their permission.
 Receive any payment from insurer for providing the database of its
customers
 Be licensed as insurance agent, corporate agent etc
 Enter into referral arrangement with more than one life and/or one
general insurance company and/or one standalone health insurance
company.
 Earn more than 10% of its total income business from referral
business.
 Acquire databases with only purpose of selling it to insurers or any
organisation.
Compulsions on Referral Company

i) the company must maintain the specified net worth
ii) the company must maintain the records and reports of its activities.
iii) the company must obey all the provisions of Insurance Regulatory
and Development Act, 1999.
Compulsions on Insurer
i) The insurer must ensure that the referral company follows all the rules
and regulations of IRDA
ii) the insurer must maintain record of every agreement, total business
and total amount payable by it.
iii) the insurer must maintain separate record for each referral company.
IRDA Regulations on Advertisements by Insurance

Companies
Advertisements are necessary to:
i) encourage the customers to be receptive to sales calls
ii) encourage agents and brokers to sell insurance products
iii) enhance company’s public image
iv) support introduction of new products
Insurance Advertisement means any communication directly or indirectly

related to a policy and intended to result in the eventual sale or solicitation
of a policy from the members of the public, and includes, all forms of
printed and published materials or any material using the print and/or
electronic medium for public communication.
Unfair and misleading advertisements: any advertisements that:

i) fails to clearly identify the product as insurance
ii) makes claims beyond the ability of the policy
iii) uses words or phrases in a way that hides the cost of hazard insured
iv) omits to disclose important exclusions or limitations
v) gives information in a misleading way
vi)makes unfair or incomplete comparison with products which are not
comparable.
Changes in Advertisements
Any change in advertisement would be considered a new advertisement.
All the provisions shall apply to an advertisement referred to in such
regulation. IRDA must be informed at the time of filing the advertisement,
the extent of change in the original advertisement.
Advertisements by insurance company: Every company is required to

disclose full particulars of the company in the advertisement, and not
merely any trade name or monogram or logo.
Advertisements by insurance agents: Every advertisement must be

approved by the in writing prior to its issue.
Advertisements by insurance intermediaries: only properly licensed

intermediaries may advertise.
Advertising on the Internet: Every insurer or intermediary’s website shall

include disclosure statements, which outline the site’s specific policies
along with privacy of personal information.
Procedure for action in case of complaint

If an advertisement is not in accordance with regulations, IRDA may take
action in one or more of the following ways:
i) issue a letter to the advertiser seeking information within a specific
information within a specific time, not more than 10 days.
ii) direct the advertiser to correct or modify the advertisement already
issued in a manner suggested by IRDA.
iii) direct the advertiser to discontinue the advertisement
iv) any other proper action
Statutory warning
The IRDA (Insurance Advertisements) Regulations, 2000, seeks to
regulate and control every insurance advertisement. For this purpose,
every advertiser must establish and maintain a system of control over the
content, form and method of distribution of all advertisement concerning
its policies.
Self examination Questions

Question 1
Micro-insurance is based on the concept of ____________.
a. risk c. pooling
b. eventualities
Question 2
Who gave the idea of Grameen Bank in 1974?
a. Bill Clinton c. Nelson Mandela
b. Prof. Muhammad Yunus d. None of these
Question 3
For life micro-insurance products, what should be the minimum number
of members comprising a group?
a. 20 c. 10
b. 15 d. 30
Question 4
Micro-insurance products need prior approval of the authority under the
“File and Use” procedure and every such product shall predominantly
carry the caption “_______________”.
a. Insurance Product c. Life Insurance Product
b. Micro- Insurance Product d. Non-Life Insurance Product
Question 5
In the case of discontinued linked policies, the policyholder has an option
to either ________ the policy within the terms and conditions governing
the policy or ________ the entire funds from the underlying ULIP funds
with no risk cover.
a. review, withdraw c. Revive, forgo
b. terminate, withdraw d. terminate, forgo
Question 6
In case of regular premium ULIP policies, most of the insurance
companies allow the policyholders to pay premium on a ________ basis.
a. daily, weekly, monthly, c. monthly, quarterly, semi-
quarterly annually, annually
b. weekly, monthly, quarterly, d. weekly, monthly, quarterly,
semi-annually semi-annually, annually
Question 7
Madhav is going to pay Rs 50,000 as premium for a ULIP. According to
the terms of ULIP, 60% of the premium will be allocated to the
investment chosen by Madhav. He has decided to invest in the balance
fund, which has a NAV of Rs 12.
The number of units allocated to Madhav will be _________.
a. 2000 c. 2750
b. 2500 d. 3000
[Hint: 60% of Rs 50,000 will be invested in the fund, i.e. Rs 30,000
NAV of the fund is Rs 12
So, Number units to be issued to Madhav = Rs 30,000/Rs 12 = 2500 units]
Question 8
Who is responsible to provide appropriate training to insurance
agents/intermediaries before they are authorized to sell ULIPs?
a. IRDA c. Life insurance council
b. Life Insurance Companies d. Insurance institute of India
Question 9
For single premium contracts under ULIPs, the minimum sum assured
for the age at entry below 45 years is ________ of single premium paid.
a. 100% c. 125%
b. 110% d. 150%
Question 10
What is the lock-in period for all Unit Linked Products?
a. 1 year c. 5 years
b. 3 years d. 7 years
Question 11
Money laundering refers to ________
a. conversion of cash into gold d. transfer of cash from one
b. conversion of asset into cash account to another
c. conversion of illegal money
into legal money
Question 12
Which of the following is one of the stages of money laundering?
a. smurfing c. integration
b. shell companies d. None of these
Question 13
Financial Action Task Force (FATF) was setup in _______
a. Paris c. London
b. Berlin d. India
Question 14
Which if the following is an example of low risk customer?
a. non-residents c. companies having close
b. high net worth individuals family shareholding or beneficial
ownership
d. none of these
Question 15
Records of transactions reported to the FIU have to be retained for a
maximum of how many years?
a. 5 years c. 9 years
b. 7 years d. 10 years
Question 16
KYC norms include which of these?
a. obtain details for proper identification of new customers
b. verifying addresses
c. photographs
d. all of these
Question 17
When was the FIU setup in Delhi?
a. 1999 b. 2002
c. 2004 d. 2006
Question 18
Which is not a negotiable instrument?
a. debit card c. Pay order
b. Demand Draft d. Cheque
Question 19
What does a ‘void ab initio policy’ mean?
a. policy exists c. risk of insurer is deferred
b. policy does not exist d. risk of insurer commences
Question 20
When does the risk commences if the premium is tendered by postal
money order
a. date when money order is c. depends on the terms and
received conditions of the policy
b. date on which money order c. none of these
is booked
Question Bank
1. Micro insurance regulations were issued in the year
a. 2000 c. 2010
b. 2005 d. 2004
2. Who can become a micro insurance agent as per IRDA

Regulations?
a. Non- Governmental c. Microfinance institutions
Organizations (NGO) (MFI)
b. Self help groups (SHG) d. Micro Insurance institutions
e. a, b, c, Above
3. Abbreviations
a. NGO = Non Governmental c. MFI – Micro Finance
Organization Institutions
b. SHG = Self Help Group
4. Micro Insurance products can be sold by

a. NGO, SHG, MFI d. Corporate Agent
b. Agent e. All above
c. Brokers
5. Conventional insurance, agents and brokers are not allowed to sell

insurance
a. Statement is correct b. Statement is incorrect
6. Which is true in case of micro-insurance agents?

a. A micro insurance agent c. A micro insurance agent
shall not distribute any other can act for one life and one
product other than a micro non-life insurer
insurance product d. Micro insurance agent shall
b. Insurers must execute a employ specified persons
deed of agreement with the with prior approval of
micro insurance agents insurer
e. All above

a. All micro insurance agent c. Training must be given in
and specified person must local vernacular language
abide by code of conduct d. The IRDA may exempt
laid in insurance agent specified persons from
regulation. training
b. All micro insurance agents e. a, b, c above
must undergo training for 25
hours
8. The commission under micro life insurance policies is:

a. Single premium 10% d. None single premium 20%
b. Single premium 15% e. a, d above
c. Non single premium 15%
9. For general insurance business in micro insurance, the commission

is allowed upto
a. 10% c. 20%
b. 15% d. 25%
10. In group micro insurance the commission payable is

a. As decided by IRDA d. As per agreement with
b. As decided by insurer agent
c. Same as in individual
policies subject to the
maximum unit specified
11. Micro insurance products need

a. Prior approval of IRDA b. Get the approval under file
launches a micro insurance and use procedure
product
c. Every product must carry Insurance Product”

the caption “Micro d. All above
12. Every insurer shall issue micro insurance policy in_________

language which is simply and easily understandable
a. Local d. Hindi
b. Regional e. Particular
c. Vernacular
13. If it is not possible to issue a micro insurance policy in vernacular

language the insurer
a. Should not issue the policy c. Personally explain the
b. Ask micro insurance agent details to policy holder
to explain the terms to the d. Issue a detail write up for
policy holder policy in vernacular
language
14. Q Which is true in case of group micro insurance product?

a. Separate policy must be c. A separate certificate
issued to all policy must be covering details of individual
issued to all policy holders policy holders is issued
b. A single policy is issued d. No certificate is required to
including the details of the be issued
persons covered e. b, c above
15. The regulation in micro insurance provides for a tie-up between

a. Agent and insurer d. Life insurer and general
b. Insurer and policy holder insurer
c. Policy holder and agent
16. In micro insurance who has the authority to settle the claims
a. Life claim by life insurer d. Agent on behalf of the
b. None life claim by non life insurer
insurer e. a, b above
c. Any insurer
17. What is the minimum amount of cover that may be provided in micro
insurance?
a. 2000 d. 15000
b. 5000 e. 20000
c. 10000 f. 25000
18. What is the maximum amount of covered allowed in micro insurance

a. 20000 d. 1,00,000
b. 30,000 e. 25,000
c. 50,000 f. 15000
19. Q In life micro insurance plans the minimum age at entry is_____
and the maximum age at entry is__________
a. 15, 45 d. 18, 58
b. 18, 60 e. 18, 65
c. 20, 70
20. In life micro-insurance plans the term of minimum cover is_______

and term of maximum cover is__________
a. 5, 20 d. 10, 20
b. 5, 18 e. 3, 18
c. 5, 15
21. under micro health insurance individual plans the minimum amount
of cover is__________ and maximum cover is____________
a. 5000, 30000 d. 10000, 30000
b. 5000, 50000 e. 10000, 50000
c. 5000, 40000
22. In micro health insurance plans in non-life insurance the maximum

term of cover is________
a. 1 year d. 4 years
b. 2 years e. 5 years
c. 3 years
23. In all micro non-life plans the maximum term of coverage is

a. 1 year d. 4 years
b. 2 years e. 5 years
c. 3 years
24. In accident benefit and personal accident benefit the minimum

amount of cover is
a. 5000 d. 20000
b. 10000 e. 25000
c. 15000
25. What is the maximum and minimum age of entry in micro health
insurance plans?
a. 60, 18 d. 70, 18
b. 50, 18 e. 60, 20
c. Insurers discretion
26. The group size under micro insurance policies should be at least
a. 15 d. 30
b. 20 e. 35
c. 25
27. ______________ is the term used to describe the process of turning

dirty money into clean money”.
a. Cleaning Money d. Money Cleaning
b. Washing Money e. Non above
c. Money Laundering
28. The process of Money Laundering can be classified into______

stages
a. Two d. four
b. Three e. Non above
c. One
29. Stages of money Laundering are-

a. Placement d. Only a & c
b. Layering e. All of the above
c. Integration
30. The technique where small amount of deposits are made every day
in various financial institutions, in such a way that it does not attract
attention of legal enforcement authorities is called
a. Smacking c. Smurfing
b. Struggling d. Smuggling
31. When the launderer engages in conversions or movement of the

funds to distance them from their source in a series of multiple and
complex transactions, often including cross jurisdictions, it is known
as___________
a. Integration c. Placement
b. Layering d. None of the above
32. Illegal import of money is the Layering stage of money laundering-

a. True b. False
33. The stage in which the launderer actually utilizes the laundered
money for the purposes for which it was actually laundered is called-
a. Layering stage of Money c. Placement stage of Money
laundering laundering
b. Integration stage of Money d. All of the above
laundering
34. Post ‘9/11’ attacks, ‘financing of terrorism’ is considered as one of

the major threats posted by Money Laundering
a. False b. True
35. The part of creating a business friendly and stable financial system
is called-
a. Fighting Money Laundering c. Both a & b
b. Countering Financing of d. Neither a nor b
Terrorism
36. Large-scale money laundering schemes invariably contain_______

a. Cross-border elements c. National Elements
b. International Elements d. Foreign Elements
37. _______________ is policy making inter-governmental body whose

purpose is the development and promotion of national and
international policies to combat money laundering and terrorist
financing.
a. Financial Anti Terrorism c. Financial Action Task
Force Forum
b. Financial Action Task Force d. Federal Anti Terrorism
Force
38. FATF was established in_________ in the year 1989

a. London c. Paris
b. Bombay d. Washington
39. APG stands for-

a. Anti-pollution Group on c. Asia-Pacific Group on
Money Laundering Money Laundering
b. Anti-Pollution Group d. Asia-Pacific Group
40. India is currently undergoing evaluation and assessment process

towards members in FATF
a. True b. False
41. In which year was drug trafficking considered as a major Money

laundering practice?
a. 1980’s c. 1970’s
b. 1990’s d. 2000’s
42. Various legislations addressed predicate offences under Money

Laundering process until a comprehensive legislation criminalizing it
was enacted viz.-
a. The Prevention of Money c. The protection of Money
Laundering Act, 2004 Laundering Act, 2002
b. The Prevention of Money d. The Prevention of Money
Laundering Act, 2002 Laundering Act.2003
43. __________________ has issued comprehensive guidelines on

fighting Money Laundering/Countering Financing of Terrorism in the
insurance sector.
a. IRDA c. GIC
b. LIC d. Insurance Council
44. There are certain enabling features of an insurance contract like free
look period, etc., which are cleverly misused by the launderers for
their purpose by which insurance can become a conduit for Money
Laundering process unintentionally.
a. False b. True
45. Which contracts in insurance are not risky under the perspective of
Fighting Money Laundering?
a. Pure Health Insurance d. Retrocession and Group
b. Term Life Insurance Insurance contract
c. Reinsurance e. All of the above
46. Which products are exempt from AML guidelines?

a. Pure Health Insurance d. Retrocession and Group
b. Term Life Insurance Insurance contract
c. Reinsurance e. All of the above
47. Criminals prefer to maintain-

a. Disguise c. Ambiguity
b. Anonymity d. None of the above
48. The legislation of PMLA and the AML guidelines have indicated in
detail appropriate measures to determine the true identity of
customers requesting for its services which includes-
a. Obtain details for proper c. Financial statues
identification of new d. Purpose of insurance
customers contract
b. verifying addresses, e. All of the above
photographs
49. The measures taken by different law’s to determine the true identity
of their proposers is called as-
a. Know your Consumer c. Know your Customer Norms
Norms d. All of the above
b. Know your Client Norms
50. KYC norms are to be applied in a-

a. Risk based approach c. Hazard based approach
b. Peril based approach d. Calamity based approach
51. Customers risk profile can be categorized into-

a. Medium risk d. Low risk
b. Moderate Risk e. High risk and low risk
c. High risk
52. The class of people who fall under the category of low risk
customers are-
a. Salaried Employees c. Regulators and statutory
b. Government departments Bodies
and Government owned d. Trusts, charities and NGO’s
companies e. a, b, c above
53. The class of people who fall under the category of high risk
customers are-
a. None residents and High c. Companies having close
net worth individuals family shareholding, firms
b. Trusts, charities, NGO’s and with sleeping partners
organization receiving d. Regulators and statutory
donations bodies
e. a, b and c above
54. Remittance beyond a premium threshold of _____ per annum calls

for detailed due diligence.
a. Rs.5 lakh c. Rs.3 lakh
b. Rs.1 lakh d. Rs.10 lakh
55. KYC norms call for establishing insurable interest where-

a. Insurance premium is paid c. Insurance claim is received
by the insured by persons other than the
b. Insurance premium is paid insured
by persons other than the d. None of the above
insured
56. Life Insurers should not allow payments or insurance contracts to

third parties except in cases like-
a. Superannuation c. Payment to legal heirs in
accumulations case of death benefits
b. Gratuity accumulations d. All of the above
57. The KYC norms apply to non-life insurers at payout stage, i.e.
during refunds/claims especially when the payout is-
a. More than Rs.5 lakh c. more than Rs.1 lakh
b. Less than Rs.1 lakh d. Less than Rs.5 lakh
58. Life Insurers require that there is no contract with a customer whose
identity matches with any person with-
a. Criminal background d. Those who have reported

b. With banned entities links with Terrorist
c. Those who have reported organization’s
links with terrorists e. All above
59. Insurers are to appoint a senior level officer not below the rank of-
a. Head (Audit/Compliance) c. Both a & b
b. Chief Risk Officer d. Neither a nor b
60. AML guidelines stipulate that the AML policy/program is required to

be approved by the-
a. Insurance Council c. Board
b. Executive Committee d. IRDA
61. AML programs should be reviewed_________

a. Monthly c. Quarterly
b. Annually d. Bi-monthly
62. __________________ of insurers should review the robustness of

the internal policies and processes and make constructive
suggestions where necessary, to strengthen the AML policy of a
company.
a. Internal Audit Department c. Both a & b
b. Inspection Departments d. Neither a nor b
63. The highest vulnerable medium of transaction for money laundering

is-
a. Cheque c. Money order
b. Demand draft d. Cash
64. Restriction on acceptance of cash beyond___________ is therefore

laid on premium/proposal deposit remittances in the insurance
sector.
a. Rs.5000/- c. Rs.50000/-
b. Rs.2000/- d. Rs.25000/-
65. Money laundering process involves a series of complex transactions

involving various financial institutions-
a. True b. False
66. A______________________ to have a macro level view of all the

transactions in a financial system would aid in investigations on
ML/TF
a. Decentralized Unit c. Common Unit
b. Separate Unit d. Centralized Unit
67. India’s financial intelligence unit based in New Delhi was set up in
2004 and is called-
a. FIU-ND c. FIU
b. FIU-IND d. FIU-2004
68. India’s financial intelligence unit is a central agency to-

a. Process reports of specified c. Disseminate reports of
transactions specified transactions
b. Analyze reports of specified d. Receive reports of specified
transactions transactions
e. All of the above
69. Officers of an insurance company are allowed to disclose the fact of

having reported a transaction of their client, whose transactions are
being reported
a. False b. True
70. Suspicious activities in insurance include customers behavioral

aspects like-
a. Insisting anonymity, c. Assignments to unrelated
reluctance to parties without valid
provide/identifying consideration, unusual
information or providing terminating of policies and
fictitious information refunds
b. Frequent requests for d. Overpayment of premium
change of address, with request for refund of
unreasonable requests for amount overpaid
free-look cancellations e. All above
71. The obligation vests on the insurer’s to retain records of all

transactions which are related to transactions which are reported to
FIU and of customer identification data for a period of-
a. 5 years c. 10 years
b. 15 years d. 1 year
72. The records of transactions can be kept in an electronic form by an

insurer.
a. True b. False
73. Records of transactions reported to FIU will have to be retained for

10 years________
a. Beginning from the date of c. Beginning from the date of
CLAIM occurrence of the
b. Beginning from the date of transaction
relation from customer d. After the relationship from
the customer have ended
e. None of the Above
74. Records of customer identification data will have to be retained for

10 years-
a. Beginning from the date of c. Beginning from the date of
occurrence of the relation from customer
transaction d. After the relationship from
b. Beginning from the date of the customer have ended
CLAIM e. None of the Above
75. There is a possibility of misuse of insurance sector when launderer’s

plan to become a part of the system as employees/agents.
a. True b. False
76. The role of_______________ who deal with customers face is vital
towards effective compliance with AML/CFT programme especially
because they are in a position to access information of customers.
a. Agents c. Staff
b. Employees d. All of the above
77. Money laundering is a process by which

a. Criminals attempt to c. Changing the form
conceal a true origin d. Moving a fund to a place
b. Conceal the ownership of where they are less likely to
the proceeds of criminal attract attention
activities e. All above
78. Criminal activities include

a. Illegal arms sales d. Embezzlement and insider
b. Smuggling trading
c. Drug and human trafficking e. Bribery and computer fraud
f. All of above
79. In___________ stage, launderer introduces his illegal profits into the
financial system e.g. through purchase of art treasures and jewellery
purchase of series of monetary instruments
a. Placement c. Final
b. Layering d. None of above
80. _______________ proceeds creeping to the financial system can

shake its stability and is therefore or deterrence to its efficient
functioning
a. National d. Financial
b. Monetary e. Criminal
c. Social
81. In terrorists funding which can happen through_____ funds, there

would be attempts to divert attention of law enforcement authorities
by terrorist outfit
a. Legitimate fund d. Terrorist fund
b. Illegitimate fund e. a and b above
c. Common fund
82. Which has increased the concerns as regards to money laundering

a. Advancement and c. Speed and development in
development in technology technology
b. Sophistication and d. None of above
development in technology
83. CFT is also known as

a. Countering Financing of c. Counting Financing of
terrorism Terrorism
b. Catering Financing of d. None of above
Terrorism
84. FATF is the abbreviated form of

a. Final Action Task Force c. Final Action Task Fund
b. Financial Action Task Force d. Financial Action Task fund
85. Fighting ____ & _____ is a part of creating a business friendly and
stable financial system.
a. AFL & CFT c. AML & CFT
b. ADL & CFT d. ABL & CFT
86. Money laundering is a__________ problem

a. National d. International
b. Local e. Financial
c. State
87. _________ is a policymaking intergovernmental body whose

purpose is the development and promotion of nationals and
international policies to combat money laundering and terrorist
financing
a. Financial Action Task Force c. Finance Action Task Force
b. Financial Action Task Fund d. Finance Acton Task Fund
88. FATF was set up in the year _____________

a. 1988 d. 1889
b. 1989 e. 1990
c. 1987
89. FATF has issued___________ recommendation for money

laundering and__________ specials recommendation to address the
issue of terrorist financing
a. 20, 9 d. 50, 9
b. 30, 9 e. None of the above
c. 40, 9
90. IMF stands for

a. Indian Monetary Fund c. International Monetary Fund
b. Insurance Monetary Fund d. All of above
91. India is a member of________ and an observer in a FATF

a. APG d. MPG
b. EPG e. All of above
c. CPG
92. NDPS stands for

a. The Narcotics and c. The Narcotics and Physical
Psychotropic Substances Substances Act
Act d. None of above
b. The Narcotics and Psycho
Substances Act
93. FEMA stands for

a. Finance Exchange c. Fund Exchange
management Act Management Act
b. Foreign Exchange d. None of above
Management Act
94. Prevention of money launder Act 2002 came into force from
a. 1 July 2000 d. 1 July 2005
b. 1 July 2003 e. All of above
c. 1 July 2004
95. Which insurance features may be misused by money launderers

a. Free look period d. Assignments to third party
b. Single premium e. All of above
c. Partial Withdrawal
96. KYC stands for

a. Know your customer d. Know your Colleague
b. Know your consumer e. None of above
c. Know your Creditor
97. Which insurance products are not vulnerable?

a. Single premium b. ULIPs premium
c. Top up e. Whole life

d. Partial withdrawn
98. Insurance company should make payment to customer by

a. Cash d. E-payments
b. Money order e. c and d above
c. Account Payee Cheque
99. Non-life insurers will have to ensure that they do not insure assets
bought out of________ funds
a. legal d. Safet
b. Illegal e. Reserve
c. Insurance
100. Periodic__________ reviews should be conducted to ensure

companies strict adherence to laid down process and strong ethical
and control environment
a. Insurance d. Safety
b. Business e. None of above
c. Risk Management
101. Financial Institutions must report to Director, FIUIND in respect

of following transaction
a. Cash transaction c. Receipts by NGOs of value
individually or collectively more than Rs.10 lakhs or is
amounting to Rs.10 lakh equivalent in foreign
and more currency
b. Cash transaction where d. Suspicious transaction
counterfeit currency rates or e. All above
bank rates have been used
as genuine
102. Which officials of insurance company are prohibited from tipping

of to the customer?
a. Director d. Agents
b. Officers e. a, b and c above.
c. Employees
Answer key
Q. Ans Q. Ans Q. Ans Q. Ans Q. Ans Q. Ans
No No No No No No
1 b 21 a 41 a 61 b 81 e 101 e
2 e 22 a 42 b 62 c 82 b 102 e
3 -- 23 a 43 a 63 d 83 a
4 e 24 b 44 b 64 c 84 b
5 b 25 c 45 e 65 a 85 c
6 e 26 b 46 e 66 d 86 d
7 e 27 c 47 b 67 b 87 b
8 e 28 b 48 c 68 d 88 b
9 b 29 e 49 c 69 a 89 c
10 c 30 c 50 a 70 e 90 c
11 d 31 b 51 e 71 c 91 a
12 c 32 a 52 e 72 a 92 a
13 d 33 b 53 e 73 c 93 b
14 e 34 b 54 b 74 d 94 d
15 d 35 c 55 b 75 a 95 e
16 e 36 a 56 d 76 d 96 a
17 b 37 b 57 c 77 e 97 e
18 c 38 c 58 e 78 f 98 e
19 b 39 c 59 c 79 a 99 b
20 c 40 a 60 c 80 e 100 c
Chapter 5
POLICYHOLDERS RIGHTS OF ASSIGNMENT,
NOMINATION AND TRANSFER
One of the important benefits available under insurance policy is the

nomination facility. It is a facility where in case of death of the policy
holder, the funds are given to the nominee whose name is mentioned by
the policyholder while enrolling for the policy. Nominee can be changed
by the policyholder during the term of policy.
Another feature called assignment is included in the policy. When a

person wants to take a loan from bank, the policy can be assigned
(transferred) in the name of the person from whom the money is
borrowed as a collateral security.
Provisions related with assignment and transfer of policies

1. A transfer or assignment of life insurance policy may be made only by
an endorsement by the transferor or assigner and attested at least one
witness.
2. The transfer/assignment shall be effective after upon execution of
such endorsement.
3. Any rights and remedies prior to the commencement of this Act shall
not be affected by the provisions of this Section.
For easy understanding of the provisions of this section, the following

clarification is given:
Subsection (1) – How is it made?
A transfer/assignment can be made ONLY by endorsement upon the
policy, which must be signed by the transferor or assignor and attested
by atleast one witness.
Subsection (2) – When shall the assignment be complete?
As for insurer, the assignment is not operative unless insurer receives
notice and the instrument/endorsement.
Subsection (3) – Priority of claims
The date on which the notice is delivered determines the priority of
claims under a transfer/assignment. In case of multiple transfers, the
priority of claims is governed by the order in which the notices are
delivered.
Subsection (4) – What should the insurer do?

Upon receipt of notice, the insurer records the fact of such transfer on
payment of a fee not exceeding one rupee, and issue a written
acknowledgement of such fee. This acknowledgement is conclusive
evidence that the insurer has received such notice.
Subsection (5) – Recognition
The insurer shall recognize the transferee/assignee as the only person
entitles to benefit under the policy from the date of receipt of the notice.
Subsection (6) – Effect of earlier assignments
Any rights and remedies prior to the commencement of this Act shall not
be affected by the provisions of this Section.
Subsection (7) – Validity of conditional assignment
A conditional assignment shall be valid only if the specified event
happens during the life time of the life assured.
The final recommendations of the Law Commission in regard to Section

38 are as follows:
a. Subsection (7) of section 38 should be retained, with some
modifications for greater clarity.
b. The occurrence of assignment/transfer would be treated a
conditional one are to be clearly spelt. Every assignment/transfer is
deemed to be an absolute assignment/transfer, and the
assignee/transferee will be deemed as absolute assignee/transferee.
c. A separate subsection is inserted to indicate that in case of partial
assignment/transfer of policy, the liability of the insurer shall be
limited to the amount secured by the partial assignment/transfer, and
such policyholder shall not be entitled to further assign/transfer the
residual amount payable under the same policy.
d. The policyholder will have to disclose reasons for the assignments,
the antecents of the assignee and the exact norms on which the
assignment is being made. If the insurer is not satisfied that the
assignment is bonafide, it may decline to register such application.
Intext Question 1
The instrument through which a transfer or assignment of a policy of life
is made must be ________, _______ and _______.
(i) Signed (ii) Attested
(iii) Notified (iv) Stamped
a. (i), (ii) and (iii) c. (i), (ii) and (iv)
b. (i), (iii) and (iv) d. (ii), (iii) and (iv)
Provisions related with the nomination of insurance policies

Section 39 of the Insurance Act 1938 provides that the policyholder may
nominate one or more persons to whom money secured by the policy
shall be paid in event of death of the policyholder. The Law Commission
has now recommended that Section 39 be amended to make a
distinction between a ‘beneficial’ nominee and a ‘collector’ nominee. The
details of such categories of nominees are elaborated in the report.
 Subsection (1)
Nomination may be made by policyholder only the policy is on his own
life. Nomination can be made when effecting the policy OR at any time
before the policy matures for payment. Money is payable to the nominee
in event of death of the life assured. Where the nominee is minor, the
policyholder can appoint any person to receive the money secured by
the policy in event of his death during the minority of the nominee.
 Subsection (2)
Any such information in order to be effectual shall
a. Be made by an endorsement of the policy, unless it is
incorporated in the text of policy, AND
b. Be registered by him in records related to the policy.
Any such nomination can be cancelled OR changed by an endorsement
OR a further endorsement OR a will.
The insurer shall not be liable for payment under the policy made
bonafide by him to a nominee in the text of the policy OR registered in
records of the insurer.
 Subsection (3)
The insurer shall give a written acknowledgement of having registered
nomination OR cancellation OR change thereof, to the policyholder.
 Subsection (4)
A nomination shall automatically get cancelled if
a. The policy is transferred/assigned.
b. The policy matures during the lifetime of the person
c. All the nominees die before the policy matures for payment.
When nomination gets cancelled, the amount secured by the policy shall
be payable to the policyholder or his heirs or legal representatives.
 Subsection (6)
When life assured dies before nominee(s), the amount secured by the
policy shall be payable to such nominees who survive at the time of
death of life assured.
 Subsection (7)
The provisions of this section shall not apply to any policy of life
insurance to which section 6 of the Married Women’s Property Act, 1874
(3 of 1874), applies or has at any time applied.

39 are as follows:
a. A clear distinction be made in the provision itself between a
beneficial and a collector nominee.
b. It is not possible to agree to the suggestion made by some of the
insurers that in all cases to the nominee would be identical to a full
discharge of the insurer’s liability under the policy and that unless the
contrary is expressed, the nominee would be the beneficial nominee.
c. An option be given to the policyholder to clearly express whether the
nominee will collect the money on behalf of the legal representatives
(collector nominee) or he will be the absolute owner of the money
(beneficial nominee).
Intext Question 2
Nomination may be made by holder of the policy only when the policy is
on ________ life.
a. His/her own c. Both of these
b. Someone else’s d. None of these
Provisions related with prohibition of Rebates

Section 41 of Insurance Act, 1938 implies that:
1. No person should allow any person to take out or renew or continue
an insurance in respect of any kind of risk relating to lives or property
in India, any rebate of the whole or part of the commission payable
or any rebate of the premium.
OR
2. No person taking out or renewing or continuing a policy shall accept
any rebate, except such rebate as may be allowed as per the
published prospectuses or tables of the insurer.
Intext Question 3
Any person making default in complying with the provisions of section 41
shall be punishable with fine which may extend to ___________.
a. Rs 100 c. Rs 1,000
b. Rs 500 d. Rs 5,000
Repudiation (negation) Clause, Section 45

No policy of life insurance, effected before or after the commencement of
this act, shall after the expiry of two years from the date of
commencement of this act, be called in question by an insurer on the
ground that a statement made:
1. In the proposal for insurance, or
2. In any report of a
a. Medical officer, or
b. Referee, or
c. Friend of the insured
3. In any other document leading to the issue of policy , was inaccurate
or false, unless the insurer shows that:
a. Such statement was a material matter, OR
b. Suppressed facts which it was material to disclose, AND
c. That it was fraudulently made by the policyholder, And
d. That the policyholder knew at the time of making it that the
statement was false, OR
e. That it suppressed facts which it was material to disclose.
To avoid liability under a policy of life insurance two years after the policy
was effected, the life insurance company will have to prove:
1. That there was suppression of facts by the life assured,
2. That what was suppressed was a material fact, and
3. That such suppression was done intentionally with a view to defraud
the insurance company.
Recommendations of the Law Commission

45 are as follows:
a. No repudiation (rejection) of life insurance policy can take place
beyond 5 years, on any ground.
b. The insurer can repudiate (reject) a life insurance policy at any time
before 5 years from date of issuance or date of commencement or
risk or date of revival or date of rider of policy, whichever is later, on
the ground
i) of fraud.
ii) That the insured has made a misstatement of or suppressed a
material fact
c. The misstatement of suppression of fact will not be considered as

material unless it has a direct bearing on the risk undertaken by the
insurer.
d. A person who negotiates a contract of insurance should be deemed,
for the purpose of formation of the contract, to be the agent of the
insurers, and that the knowledge of such person should be deemed
to be the knowledge of the insurers.
e. The insurer will have to communicate in writing to the insured or the
legal representatives/nominees/assignees of the insured the grounds
and materials on which the decision to repudiate the policy on the
ground of misstatement or suppression of material fact is based.
Intext Question 4
As per section 45 of the Insurance Act, 1938, a life insurer can repudiate
the policy on the ground that any material facts in the proposal or
document are inaccurate or false within _____ year(s) from the date of
the issuance of the policy or commencement of risk.
a. 1 c. 3
b. 2 d. 5
Provisions under Section 64VB (related with no risk to be

assumed unless premium is received in advance)
1. No insurer shall assume any risk in India in any insurance policy on
which premium is not ordinarily payable outside India unless the
premium is received by him or deposited in advance in the
prescribed manner.
2. Where the premium is received by postal money order or cheque
sent by post, the risk may be assumed on the date on which the
money order is booked or the cheque is posted.
3. Any refund of premium shall be paid by the insurer directly to the
insured by crossed or order cheque and a proper receipt shall be
obtained by the insurer.
4. Agents collecting the premium from insured shall dispatch full
amount to the insurer within 24 hours of collection excluding bank
and postal holidays.
The act provides that the Central Government may, by rules, relax the
requirements of subsection (1) above in respect of particular categories
in insurance policies.
The Act also allows IRDA to issue regulations from time to time,
specifying the manner of receipt of premium by the insurer.
Relaxations provided by the Central Government are listed under rule 59
of Insurance Rules.
Intext Question 5
For policies under Group Personal Accident Insurance, the installment of
the premium covering a particular period must be paid within _____ days
from the date of commencement of that period.
a. 2 c. 15
b. 7 d. 30
Self examination Questions

Question 1
What type of assignment is valid only if the specified event happens
during the life time of the life assured?
a. Conditional c. Both of these
b. Unconditional d. None of these
Question 2
Section 39 of the Insurance Act, 1938 provides that the policyholder may
nominate ________ .
a. Only one person c. At least two people
b. One or more persons d. Maximum three people
Question 3
Nomination is cancelled where the nominee(s) ________ before the
policy matures.
a. Die c. Gets married
b. Becomes major d. Any of these
Question 4
Which of the following assignment transfers to the assignee all rights,
title and interest of the assignor in the policy?
a. Conditional c. Absolute
b. Unconditional d. All of these
Question 5
Any nomination can be at any time cancelled or changed before the
policy _______.
a. Matures c. Is rejected
b. Lapses d. Is repudiated
Chapter 6
PROTECTION OF POLICYHOLDERS INTEREST
It is necessary to provide clear and complete information to ensure fair

treatment to policyholders by the insurers. Hence, one of the important
objectives of IRDA is to protect policyholders’ interest.
The IRDA (Protection of policyholders’ Interests) Regulations, 2002 is of
interest to the small, isolated and defenseless policyholders against
large, powerful insurance companies. The IRDA (Protection of
policyholders’ Interests) Regulations, 2002 give the duties and
obligations of insurers and intermediaries, before and after sales.
IRDA and SEBI: Insurance Regulatory and Development Authority

regulates the insurance sector, while Securities and Exchange Board of
India regulates the capital market.
ULIPs are combination of benefit of life insurance with investment in
securities.
Stages of Insurance Policy

1. Pre-sale: this stage is related to performing pre-sale service.
Insurance is canvassed by the intermediaries to potential customers.
The various benefits of the policy are explained to the customer. The
pre-stage includes:
a. Point of sale, and
b. Proposal of insurance
2. Post-sale: this refers to providing after sales services such as issue
of policy bond, providing various policy services like change of
address, nomination, assignment, loan etc and finally settlement of
claim. The post sales include:
a. Issue of policy bond
b. Grievance Redressal Procedures
c. Complaint handling Procedures
d. Policyholders’ servicing
e. Claim settlement
Intext Question 1
What is the temporary insurance certificate issued to the customer before
issuing the insurance policy known?
a. Policy bond c. Acknowledgement letter
b. Cover note d. None of these
Pre-sale stage of insurance policy

Point of sale: the following points should be taken care of by the
company:
i) The prospectus of the insurance product should state the scope of
benefits, the extent of insurance over and explain the warranties,
exceptions and terms and conditions.
ii) The allowable rider(s) should be clearly spelt out and in no case, the
premium related to all the riders put together should exceed 30% of
the premium of the main product.
iii) Agents or intermediaries must advice the prospect neutrally.
iv) The insurer should act according to codes and conduct prescribed by
a. The IRDA
b. The councils that have been established by Insurance Act 1938
c. The recognized professional body or association of which the
agent or intermediary is a member.
Proposal for Insurance:

1. In all cases except for marine insurance, a proposal for grant of a
cover must be evidenced by a written document.
2. Forms and documents used in the grant cover may be made
available in languages recognized under Constitution of India.
3. The prospect is to be guided by the provisions of Section 45 of the
act.
4. The insurer shall draw the attention of the proposer to the benefit of
nomination and encourage the prospect to avail the facility.
5. Proposals must be processes by the insurers with speed and
efficiency and all decisions shall be communicated by it within not
more than 15 days.
Intext Question 2
Within how many days should a proposal be processed by the insurer?
a. 15 c. 60
b. 30 d. 10
Post-sale stage of insurance policy

Issue of policy bond: policy bond is a legal document setting out the
terms and conditions of the contract. The risk coverage commences after
acceptance of proposal and the conditions and privileges of the policy
are mentioned in the policy bond. It is the duty of the insurer to ensure
that the contents of the policy documents are easy to understand.
Free look period: The free look period option of life insurance plan
allows the customer to cancel the policy after purchasing it if he
disagrees with or is not comfortable with its terms and conditions. the
option has to be exercised within 15 days of receipt of the policy. The
term of life insurance is usually 10-15 years, a long investment period, so
it is important for the prospective buyer to figure out whether the plan
suits his needs.
The objective of offering a free look period is to make process of buying
insurance transparent, easy and fulfilling for the customer.
Requirements for cancellation of policy in free look period: the

customer is required to send the original documents of insurance policy
and an application for its cancellation. If the customer cancels an
insurance policy within 15 days (the free look period), the company
refunds the premium paid after the following deductions:
a. Cost pertaining to medical tests
b. Stamp duty
c. The risk premium in case the customer is provided cover in free-look
period
Intext Question 3
Free look option has to be exercised within how many days?
a. 10 c. 15
b. 20 d. 30
Grievance redressal procedure

a. Authority designated by the Insurer: in the event the policyholder is
having a grievance by any of the decisions taken by the insurer in
the area of settlement of claims or disputes related to lack of service,
he may approach the Grievance Redressal Authority of the Insurer.
b. Insurance Ombudsman- the central government has framed rules
known as “Redressal of Public Grievances Rules, 1998” and created
an authority called “insurance ombudsman” to resolve all complaints

relating to settlement of claim on part of insurance companies.
Supply of copies of proposal and medical reports

Every insurer carrying on life insurance business is under an obligation
to supply to the policyholder certified copies of the questions put to them
and his answers contained in his proposal for insurers and in the medical
report supplied in connection therewith.
Notice to be given of the options on the lapsing of the policy

Every insurer is required to give notice to the policyholder within three
months from the date on which premium were payable but not paid,
informing him of the options available unless these are set forth in the
policy.
Policyholders’ Servicing
An insurer must respond within 10 days of the receipt of any
communication from its policyholder in all matters, such as:
 Recording change of address
 Noting a new nomination or change of nomination under a policy
 For noting an assignment on the policy
 Providing information on the current status of a policy for matters
such as accrued bonus, surrender value and entitlement to loan
 Processing papers and disbursal of loan on security of policy
 Issuance of duplicate policy
 Issuance of endorsement for noting a change of interest or sum
assured or perils insured, financial interest of a bank and other
interests
 Guidance on procedure for registering a claim and early settlement
thereof
Intext Question 4
_________ was created by the Government of India for quick disposal of
grievances of the insured customers.
a. Grievance Redressal c. Insurance Council
Authority d. Special Insurance Courts
b. Insurance Ombudsman
Claim Settlement (life insurance policy)

 The insurer upon receiving a claim, shall process the claim without
delay. Any queries or requirement of documents shall be raised all at
once, within a period of 15 days.
 A claim under life insurance shall be paid within 30 days from the
date of receipt of all relevant documents and clarifications.
 Where a claim is ready for payment but cannot be paid due to any
reason, the insurer shall hold the amount and such amount shall
earn interest at the rate applicable to a savings bank account.
 Where there is delay on the part of insurer in processing a claim, the
company shall pay interest on the claim amount at a rate which is
2% above the bank rate prevalent at the beginning of the financial
year in which the claim is reviewed by it.
Claim Settlement (general insurance policy)

 On receipt of a communication from claimant regarding a claim, the
insurer shall respond immediately and give clear indication to the
claimant on the procedures to be followed.
 The surveyor shall communicate his findings to the insurer within 30
days of his appointment with a copy of the report given to the
claimant, if desired.
 If an insurer finds the report incomplete in any respect, submission of
an additional report on certain specific issues may be required. The
additional report must be submitted within 3 weeks of receipt of
communication from the insurer.
 The insurer on receipt of survey reports, shall offer a settlement of
the claim to the insured within 30 days. Upon acceptance of an offer
of settlement by the insured, the payment of the amount due shall be
made within 7 days. In case there is a delay in payment, the insurer
shall be liable to pay interest of rate 2% higher than bank rate
prevalent at the beginning of the financial year.
Key Feature Document

Key feature document is made to ensure fair treatment to policyholders.
The ultimate aim of Key Feature Document is whether or not the target
customer is able to comprehend its main features and is able to take a
decision as to whether the product suits him/her. A Key Feature
Document should have the following features;
 Should be developed in a clear format with and easy to understand.
 Should have simple language.
 Should be supported by examples relating to cover/benefits involved.

 Should explicitly bring out the risks and obligations involved.
 Should neither be too long or too short.
 Should be easy to read and be attractive for the customer to peruse.
 Title of the document should be prominent, should be atleast 14 sixe
font (of Times New Roman). Should also be available in local
languages.
Intext Question 5
What is the penal interest that the insurance company has to give to the
claimant in case of delay in payment of claim?
a. 1% above the prevailing c. 4% above the prevailing
bank rate bank rate
b. 2% above the prevailing d. 5% above the prevailing
bank rate bank rate

Question 1
Which of the following fall in the pre-sale stage of the insurance policy?
a. Issuance of policy bond c. Claim settlement
b. Proposal of insurance d. None of these
Question 2
What is the ceiling limit for the premium for all riders put together?
a. 30% of the premium of the c. 10% of the premium of the
basic product basic product
b. 15% of the premium of the d. None of these
basic product
Question 3
_______ is a legal document setting out the terms and conditions of the
contract.
a. Proposal form c. Cover note
b. Prospectus d. Policy bond
Questions 4 Which rules have been framed by the Central Government

in 1988 to resolve all complaints related to settlement of complaints?
a. Redressal of Public c. Policyholders’ servicing
Grievance Rules d. None of these
b. Insurance Council
Question 5
Who should be appointed for assessing the loss/claim?
a. Insurer c. Insured
b. Surveyor d. None of these
Question Bank
1. __________ is of particular interest to the small, isolated and
defenceless individual policyholders pitted against the large,
powerful insurance companies.
a) IRDA (Protection of c) IRDA (Protection of
Policyholders Interests) Policyholder Interests)
Regulation, 2000 Regulation, 2002
b) IRDA (Protection of d) IRDA (Protection of
Policyholders Interests) Policyholder Interests)
Regulations, 1999 Regulation, 2001
2. The IRDA (Protection of Policyholders Interests) Regulations, 2002

prescribe-
a) Duties and obligations of c) Both a & b
insurers, pre & post sales d) Neither a nor b
b) Duties and obligations of
intermediaries, pre & post
sales
3. Insurance Contract whether in form of a policy or a cover note or a

certificate of insurance or any other form prevalent in the insurance
industry to evidence the existence of insurance contract is called-
a) Material c) Proposal Form
b) Cover d) Prospectus
4. A document to be filled in by the proposer for insurance, for

furnishing all material information required by the insurer in respect
of a risk, in order to enable the insurer to decide whether to accept or
to decline, determine the rates and conditions of a cover to be
granted is called
a) Cover c) Prospectus
b) Material d) Proposal Form
5. _______________ shall mean and include all important, essential

and relevant information in the context of underwriting the risk to be
covered by the insurer.
a) Proposal Form c) Material
b) Prospectus d) Cover
6. Document issued by the insurer or on its behalf to the prospective

buyers if insurance and includes a brochure or leaflet serving the
purpose is called-
a) Material c) Cover
b) Prospectus d) Proposal Form
7. In which stage is insurance canvassed by the intermediaries to the

prospective customer and is also informed about the different
constituents of an Insurance Policy.
a) Pre-Sale c) During the sale
b) Post-Sale d) None of the above
8. Issue of policy bond, providing various policy services and finally

ends with settlement of claim refers to_________ stage of an
insurance policy
a) Pre-Sale c) Post-Sale
b) During the sale d) None of the above
9. There should be utmost non transparency at the time of sale and

promotion so that the policyholder is made to feel confident that he
or she is being given complete information regarding the product.
a) False b) True
10. The prospectus of any insurance company should state-

i) The scope of benefits, the extent of insurance cover, explain the
warranties in an explicit manner
ii) Exceptions and conditions for insurance cover and whether the
product is participating or none participating
iii) Riders should be complete spelt, all material information should
be provider
iv) In the process of sale the insurer shall act according the codes
specified by the governing bodies.
a) i, ii & iv c) i, ii & iii
b) iii, iv and i d) All of the above
11. In all cases, except in _________ a proposal for grant of cover,

wither for life insurance business or for general business must be
evidenced by a written document.
a) Mortgage Insurance c) Marine Insurance
b) Misc. Insurance
d) Motor Insurance
12. The forms and documents used in case of an insurance contract

can be made available in languages recognized under the
constitution of India.
a) False b) True
13. When a proposal form is not used the insure shall record the
information obtained orally or in writing, and confirm it within a period
of_______ thereof with the proposer and incorporate it in the policy
document.
a) 1 month c) 15 days
b) 3 months d) 6 months
14. Proposals shall be processed by the insure with sped and efficiency
and all decisions thereof shall be communicated by it in writing within
a reasonable period___________
a) Not exceeding 1 month from c) Exceeding 1 month from
receipt of proposals by the receipt of proposals by the
insurer insurer
b) Exceeding 15 days from d) Not exceeding 15 days from
receipt of proposals by the receipt of proposals by the
insurer insurer
15. ________________ is a legal document setting out terms and

conditions of the contract.
a) Cover c) Policy Bond
b) Proposal Form d) Material
16. The risk coverage in an insurance policy commences-

a) After acceptance of c) Before acceptance of
proposal by the insurer proposal by the insurer
b) After acceptance of d) None of the above
proposal by the insured
17. It is the duty of the insurer to-

i) Ensure that the content of the policy documents are easy to
understand and the language of the same is simple
ii) See that it should be easy to read and most of all be attractive for
the consumer to pursue
iii) It would clearly bring out the risks involved for the policyholder
and the obligations or commitments required of him/her
a) i & ii c) i & iii
b) ii & iii d) All of these
18. The______________ option of a life insurance plan allows the

customer to cancel the policy after purchasing it if he disagrees with
or its not comfortable with its terms and conditions within 15 days of
the receipt of the policy
a) Look period c) Free Period
b) Free look period d) Trial Period
19. If a person cancels an insurance policy during the free look period,
the insurance company refunds the premium paid after the following
deductions-
a) Cost of pertaining to c) Risk premium in case the
medical tests; if any customer is not provided
b) Stamp Duty cover in the free look period
d) Only a & b
20. In unit linked insurance plans, any increase or decrease in the net
asset value of the plan during the free look period is passed on to
the_____
a) Broker c) Agent
b) Customer d) Intermediary
21. While forwarding the life insurance policy, the insure shall inform the
insured by the letter forwarding the policy that he has a free look
period in which he can reject the policy, in that case the premium will
be refunded subject to the deductions mentioned in the same.
a) True b) False
22. In the event the policyholder is aggrieved by any of the decisions

taken by the insurer in the area of settlement of claims or disputed
related to deficiency of service, he/she may approach the_________
of the insurer-
a) Complaint Redressal c) Grievance Section
Authority d) Grievance Redressal
b) Complaint Section Authority
23. The central Government has framed rules known

as_________________ and created an authority called Insurance
Ombudsman to resolve all complaints relating to settlement of claim
on the part of insurance companies.
a) Redressal of Public c) Redressal of Public
Grievances Rules 1999 Grievances Rules 1998
b) Redressal of Public d) Redressal of Public
Grievances Rules 19997 Grievances Rules 2000
24. For any business entity,_____ constitutes the most important

elements.
a) Goods c) Creditors
b) Debtors d) Customer
25. Longer a policy stays in the books of an insurer,_______ is the level

of profit that will be generated for the insurer.
a) Smaller c) Larger
b) Thinner d) All of the above
26. Having satisfied policyholders effects in-

a) Increment in possibility of c) It will also increase profits of
getting repeat business the company
from present policyholders d) All of the above
b) Present will refer to their
friends and relatives
27. Every life insurer is under obligation to supply the policyholder

certified copies of questions put to him and the answers contained in
the proposal for insurer and medical report supplied in connection
therewith.
a) True b) False
28. Every life insurer is required to give notice to its

policyholder_________ from the date on which the last premium was
payable but not paid informing him the options available.
a) Before Expiry of 1 month c) Before expiry of 2 months
b) Before expiry of 3 months d) After expiry of months
29. Q It is mentioned in the provisions of the section laid down that every
life insurer is required to serve notice to its policyholders about the
expiry of its policy.
a) True b) False
30. The free look period option gives an opportunity to customers to:-
a) Go through fine print of a d) Study the conditions and
policy exclusion
b) Study the charges in detail e) Decide whether he wants to
c) Study the proposed return go for a long commitment
offered with the plan
f) All above
31. The term of life insurance cover is usually:-

a) 10-15 years d) 15-20 years
b) 5-10 years e) 20-25 years
c) 1-5 years
32. To avail the free look period the customers must return the policy
to:-
a) Customer Service c) Head Office
Department d) Regional Office
b) Local Branch e) a & b done
33. The free look period can be availed only if the policy is returned
within:-
a) 5 days from payment of c) 15 days from receipt of
premium policy document.
b) 15 days from filling of d) 15 days from receipt of
proposal form. cover note/receipt
e) None of the above.
34. A customer must return the policy to:-

a) Insurance Co. d) Corporate Agent
b) Agent e) None of above
c) Broker
35. Which of the following charges may be deducted by Insurer for

refunding the premium in case of policy is being cancelled under free
look period:-
a) Cost of Medical test d) Agents Commission
b) Stamp Duty e) a, b, c above
c) Risk premium in free look
period.
36. In unit linked Insurance, any increase or decrease in the Net asset
value of the plan during the free look period is passed on to the:-
a) Customer d) Broker
b) Insurer e) None of above
c) Agent
37. A life insurance policy must state:-

a) Name of plan, terms, c) Bonus payable under the
conditions policy
b) Whether participating in d) Benefits payable under the
profits or not policy
e) All above
38. A life insurance policy shall state:-

a) Details of rider’s attached to allowed and details relating
the policy to premium
b) Date of commencement of e) Age at entry and whether
risk the same is admitted
c) Date of maturity f) All above
d) Mode of premium,
periodicity, grace period
39. A life insurance policy shall state:-

a) Provisions of policy in d) Any special clause or
respect of surrender, non- condition attached to the
forfeiture, revival policy
b) Contingency excluded from e) Document required to be
the scope of cover submitted at the time of
c) Provisions for nominators, claim.
assignments, loan under the f) All above
policy.
40. In case of return of ULIP Policy the insurer is entitled to re-purchase

the units on the date of cancellation:-
a) Statement is correct b) Statement is incorrect
41. A general insurance policy shall clearly state:-

a) Name, address, subject c) Sum assured & period of
matter of Insurance insurance
b) Location along with full d) Perils covered and excluded
description of prosperity e) Any franchise or deductible
f) All above
42. A general insurance policy shall clearly state:-

a) Premium payable d) Any special condition
b) Policy terms, conditions & attached to the policy
warranties e) Details of rider’s attached to
c) Action to be taken by the the policy
insured upon occurrence of f) All above
a contingency
43. Consumer in case of any complaint may approach which authority

for redressal:-
a) Authority designated by c) IRDA
insurer d) All above
b) Insurance Ombudsman e) a, b above
44. Redressal of public grievance rules, 1998 created an authority

called:-
a) Consumer forum d) Ombudsman
b) IRDA grievance cell e) None of the above
c) Insurance ombudsman
45. For any business entity______ constitutes the most important

demat:-
a) Customer d) Employees
b) Agent e) All above
c) Broker
46. Longer the policies stays on the books, larger is the level of profit
that will be generated for the insurance company:-
47. Satisfied policy holders increases the possibility of getting:-

a) Repeat Business d) New Business
b) Referrals e) All above
c) Increased Goodwill
48. Every insurer carrying on life insurance business is under an

obligation to supply to the policy holders:-
a) Certified copies of questions c) Copy of medical report
put to him d) All above
b) His answer’s thereto e) None above
contained in his proposal for
insurers
49. Every insurer carrying on life insurance business is required to give

notice to the holders before expiry of________ months:-
a) 1 d) 4
b) 2 e) 5
c) 3
50. In how many days on insurer shall response to the query of insured
in respect of policy holders servicing:-
a) 5 days d) 30 days
b) 10 days e) 45 days
c) 15 days
51. What areas of communication can policy holder’s communicate with

the insurers in respect of policy holder’s servicing:-
a) Recording change of d) Providing information on the
address current status of a policy
b) Noting a new nomination or indicating mother’s….
change of nomination under Accrued bonus, surrender
a policy value and entitlement to a
c) Noting an assignment on loan
the policy e) All above
52. A life insurance policy shall state the primary documents which are
normally required to be submitted by a claimant in support of a claim
53. What areas of communication can policy holders communicate with

the insurer in respect of policy holder’s servicing”:-
a) Processing paper’s and perils insured, financial
disbursal of a loan on interest of bank and other
security of a policy interests.
b) Issuance of duplicate policy d) Guidance on the procedure
c) Issuance of an for registering a claim and
endorsement under the early settlement thereof
policy noting a change of e) All above
interest or sum assured or
54. Which is true in respect of settlement of claim by life insurer?

a) Insurance company must c) A life insurance policy must
process the claim without be paid within 30 days from
any delay receipt of all papers
b) Any queries about claim d) If investigation is required in
must be raised at once a claim it must be initiated
within a period a 15 days of and completed within 6
receipt of claim months.
e) All above
55. Which is incorrect in respect of payment of life insurance claim?

a) When the claim ready for c) In case of delay in payment
payment but cannot be paid of claim the insurer shall
due to any reasons the pay interest @ 2% above
insurer must pay interest on the bank rate prevalent at
the amount after expiry of 0 the beginning of the
days financial year in which claim
b) The interest shall be is reviewed by it.
equivalent to savings bank d) The rate of interest should
account rate be 6%
e) None of above
56. The insured shall give the notice of loss within

a) Immediately d) In 15 days
b) A soon as possible e) b and c above
c) Within such time as may be
extended by the insurer
57. Within how much hours the insurer must appoint a surveyor
a) 24 hours d) 54 hours
b) 36 hours e) 72 hours
c) 40 hours
58. Within how much days surveyor must submit its report to the insurer
c) 45 days
59. How much time may be allowed to the surveyors to submit its report
I the matter is complicated and full particulars are not received from
the insureds
a) 1 month d) 5 month
b) 2 month e) 6 month
c) 3 month
60. Within how much days insurer may ask the surveyor to submit an
additional report in certain specific issues.
c) 45 days
61. Insurer may call for additional report of surveyor for how many
times.
a) 1 time d) 4 times
b) 2 times e) 5 times
c) 3 times
62. Within how much time the surveyor must submit its additional report
to the insurer
a) 15 days d) 3 weeks
b) 1 week e) 4 weeks
c) 2 weeks
63. Within how much days insurer must settle the claim or reject the
claim from the date of final/additional report received from the
surveyor
c) 45 days
64. Within how much days insurer must offer to the insured to settle the
claim from the date of final additional report received from the
surveyor
c) 45 days
65. Upon acceptance of offer of settlement from the insured the insurer
must pay the claims within
c) 45 days
66. In case of delay in payment of general insurance claim what interest

must be paid by insurer above the prevalent bank rate
a) 1% d) 4%
b) 2% e) 5%
c) 3%
67. What of the following are designated as grievance redressal officers

at LIC
a) Branch level – Branch c) Zonal Manager – Regional
manager Manager
b) Divisional Level – Divisional d) Central Level – ED
Manager CRM/Chief CRM
e) All above
68. For P & GS Policies who are designated as grievance redressal

officers at LIC
a) Zonal Level – Regional c) Zonal manager – Regional
Manager – Pension & Manager
Group Schemes d) Central level – ED
b) Central Level – Chief CRM/Chief CRM
pension and Group e) a and b above
schemes
69. the grievance redressal officers are available at

a) 10 - 5pm d) 2.30 - 4.00pm
b) 1.30 - 2.30 e) 2.30 - 5.00pm
c) 2.30 - 4.30pm
70. Which is true in respect of claims review committee of LIC?

a) LIC settles large no of before claims review
claims each year committee at Zonal and
b) Only claims with fraudulent central office
intentions are rejected d) Claims review committee
c) In case of rejection of consists of retired high
claims claimant is given the court/district judge
opportunity to represent e) All above
71. LIC has established_________ councils in 109 divisional centers.

a) policy councils e) Claimant councils
b) Policy holder councils f) None above
c) Claims councils
72. LIC has established_____ committee at central office with eminent

consumer activist’s along with chairman and managing Directors of
the corporation to look into consumer affairs.
a) Claims d) Customer
b) Consumer affairs e) None above
c) Consumer
73. LIC has adopted a_______ charter through which it reiterates its
commitment to the customers
a) Consumer d) Policyholders
b) Customer e) None above
c) Citizens
Answer key
Q. Ans Q. Ans Q. Ans Q. Ans Q. Ans Q. Ans Q. Ans
No No No No No No No
1 c 11 c 21 a 31 a 41 f 51 e 61 a
2 c 12 b 22 d 32 e 42 f 52 a 62 d
3 b 13 c 23 c 33 c 43 e 53 e 63 b
4 d 14 d 24 d 34 a 44 c 54 e 64 b
5 c 15 c 25 c 35 e 45 a 55 d 65 a
6 b 16 a 26 d 36 a 46 a 56 e 66 b
7 a 17 d 27 a 37 e 47 e 57 e 67 e
8 c 18 b 28 b 38 f 48 d 58 b 68 e
9 a 19 d 29 b 39 f 49 c 59 e 69 c
10 d 20 b 30 f 40 a 50 b 60 a 70 b
71 b 72 b 73 c
Chapter 7
DISPUTE RESOLUTION MECHANISM
The insured can resolve a dispute under Consumer Protection Act

(COPA) or by approaching the Insurance Ombudsman under ‘Redressal
of Public Grievances Rules, 1988’.
Consumer Protection Act (COPA), 1986

Objective: The main objective of this act is to provide simple, speedy
and inexpensive redressal to consumer grievance and to establish
Consumer Councils and other authorities.
Important features of the Act:

i) It covers all goods and services.
ii) It covers all the sectors i.e. private, public and co-operative
iii) Remedy available is simple, speedy and inexpensive.
Structure of Consumer Protection Act, 1986

1. District Forum:
Composition: President- District Judge and two other members
Jurisdiction: value of services and compensation claimed does
not exceed Rs 20 lakhs.
2. State commission:
Composition: President- High Court judge, members not less
than 2, 1 lady member
Jurisdiction: Complaints of Value claimed if exceeds Rs 20
lakhs but not Rs 1 Crore
3. National Commission:
Composition: President- Supreme Court judge, members not
less than 4, 1 lady member
Jurisdiction: Original complaint where the value of services and
compensation exceeds Rs 1 crore.
Appeals
Before the State Commission (Section 15)
 Against the order of the District Forum within a period of 30 days
 Subject to deposit of 50% of the amount awarded or Rs 25,000
whichever is less
Before the National Commission (Section 19)

 Against the order of the State Commission within a period of 30 days
whichever is less
Before the Supreme Court (Section 23)

 Against the order of the National Commission within a period of 30
days
whichever is less
Limitations
The District Forum, the State Commission or the National Commission
shall not admit a complaint unless it is filed within two years from the
date on which the cause of action has arisen.
Penalties
When a person against whom a complaint is made or the complainant
fails to comply with the order of District Forum, the State and National
Commission, such a person may be imprisoned for a term minimum one
month to maximum three years or with fine minimum Rs 2,000 to
maximum Rs 10,000, or both.
Intext Question 1
As per the Consumer Protection Act, 1986 the person who buys goods
for a consideration or avails any services for consideration is called
_______.
a. A client
b. A dealer
c. A consumer
d. An intermediary
Resolving disputes by approaching the Ombudsman under

the ‘Redressal of Public Grievance Rules, 1998’
Redressal of Public Grievance Rules, 1998 aims at resolving complaints
relating to the settlement of disputes with insurance companies on
personal lines of insurance, in a cost effective, efficient and impartial
manner.
Ombudsman: the governing body shall appoint one or more persons as

ombudsman whose functions basically are redressal of grievances from
the policyholders of both life and general insurance business.
Nature of Complaints:
 Any partial or total repudiation of claims by the insurance companies.
 Any dispute with regard to premium paid or payable in terms of
policy.
 Any dispute on the legal construction of the policy wordings in case
such dispute relates to claims.
 Delay in settlement of claims.
 Non-issuance of any insurance document to customers after receipt
of premium.
Pre-requisite conditions of complaints

 Complaints must be made by individual on ‘personal lines’
 Complaints must be lodged within 1 year of the events
 Total relief must be within Rs 20 lakhs
 Subject matter of the complaint must not be presented earlier before
the court/consumer forum.
Intext Question 2
Which of the following is not a type of complaint that falls under the
purview of the Insurance Ombudsman?
a. Partial or total repudiation of claims by an insurer
b. Dispute in regard to premium paid or payable in terms of policy
c. Non-issuance of any insurance document to customers after receipt
of premium
d. Remuneration paid by the life insurer to Insurance Agent

Question 1
As per the MWP Act, who among the following are consumers for an
insurance policy?
a. The policyholder himself c. Beneficiary of the policy
b. Nominee of the policy d. All of these
Question 2
As per the Consumer Protection Act 1986, the jurisdiction of a District
Commission extends up to value of services and compensation not
exceeding __________
a. Rs 10 lakhs c. Rs 50 lakhs
b. Rs 20 lakhs d. Rs 1 crore
Question 3
An appeal in front of the State Commission against a decision of the
District Forum must be within _____ days.
a. 15 c. 45
b. 30 d. 60
Question 4
The State Commission President should be _______.
a. District Judge c. Supreme Court Judge
b. High Court Judge d. IRDA Chairman
Question 5
The Insurance Ombudsman can entertain complaints against the
insurance company when the total amount of relief sought is less than
Rs _______.
a. 10 lakhs c. 1 crore
b. 20 lakhs d. 2 crore
Question Bank
1. A consumer protection act was passed in the year__________ by
the parliament
a. 1984 d. 1987
b. 1985 e. 1988
c. 1986
2. Which statement is correct?

a) Insurance services fall c) Insurance services come
within the purview of CP Act under only IRDA act
1986 d) CP act 1986 does not apply
b) Insurance services comes to insurance
under only insurance act e) None of above
1938
3. The consumer protection act was amended in the year

a) 2000 d) 2003
b) 2001 e) 2004
c) 2002
4. Which statement is incorrect in respect of Consumers Protection Act

1986?
a) Act covers all goods and d) The remedy in CP Act is
services simple, speedy and
b) It covers all sectors – public, inexpensive
private and cooperative e) Provisions of the act are in
c) It covers only private addition to other acts
sectors
5. Consumer Protection Act doesn’t apply to

a) Person purchasing goods c) Products purchased at
for commercial purpose discounted price
b) Services rendered free of d) Services rendered at
cost discounted price
e) a, b, Above
6. ___________ is defined as any person who buys goods for

consideration or avails any services for consideration
a) Custodian d) User
b) Customer e) Purchaser
c) Consumer
7. Insurance comes under category of

a) Goods c) Goods & services
b) Services d) None of above
8. ________________ in service means any fault, imperfection or

inadequacy in the quality, nature and manner of performance in
relation to any service
a) Sufficiency d) Speed
b) Decency e) None of above
c) Deficiency
9. What is the time limit for filing complaint under consumer protection
Act 1986?
a) 1 yr d) 4 yr
b) 2 yr e) 5 yr
c) 3 yr
10. Deficiency in service may relate to

a) Issuance of receipt d) Rejection of claims
b) Transfers of files e) All above
c) Delay in settlement of
claims
11. The structure of Consumer Protection Act includes

a) District forum c) National Commission
b) State Commission d) All above
12. The district forum has the powers to deal with the cases where the
value of services and compensation claim does not exceed_____
lakhs
a) 10 d) 40
b) 20 e) 50
c) 30
13. The state commission has the powers to deal with the cases where
the value of services and compensation claim is between
a) 10 lakhs to 1 crore d) 30 lakhs to 1 crore
b) 20 lakhs to 1 crore e) 40 lakhs to 1 crore
c) 25 lakhs to 1 crore
14. The National Commission has the power to deal with cases where
the value of services and compensation claim exceed
a) Above 50 lakhs d) Above 2 crore
b) Above 75 lakhs e) Above 3 crore
c) Above 1 crore
15. The district forum is headed by

a) District Judge d) Civil court judge
b) High court judge e) None of above
c) Supreme Court judge
16. The State Commission is headed by

a) Civil Court Judge d) District judge
b) High court judge e) None of above
c) Supreme Court judge
17. The National Commission is headed by

a) High Court judge d) District judge
b) Civil Court judge e) None of Above
c) Supreme court Judge
18. Appeal can be filled against the order of district, state national
Commission within________ days.
a) 30 d) 5
b) 40 e) 60
c) 45
19. Can appeal against district forum can be directly made to national
commission
a) Statement is correct b) Statement is Incorrect
20. For filling appeal against district forum, the appellant must deposit
50% of the amount awarded or______ whichever is less
a) 25000 d) 75000
b) 35000 e) 1,00,000
c) 50000
21. For filling appeal against National Commission the appellant must
deposit 50% of the amount awarded or____________ whichever is
less
a) 25000 d) 75000
b) 30000 e) 100000
c) 50000
22. When a person against whom a complaint is made or the

complainant fails to comply with the order of state, district, national
commission, the punishment would be
a) Imprisonment for minimum b) Fine minimum 2000 to
1 month to maximum 3 maximum 10000
years c) Both a, b
d) All above
23. Which section of the insurance act 1938 contains provisions for
redressal of public grievances?
a) Section 114 (0) d) Section 114 (3)
b) Section 114 (1) e) Section 114 (4)
c) Section 114 (2)
24. Redressal of Public grievance rule 1998 came into effect from
a) November 10, 1998 c) November 11, 1988
b) November 11, 1998 d) November 11, 1978
25. The public grievance rule apply for

a) All classes of business c) Commercial lines of
b) Personal lines of business business
d) All business except marine
26. __________________ may exempt an insurance company from

provisions of public grievance rule if the insurance company has
grievance redressal machinery
a) State Govt. d) TAC
b) IRDA e) None of above
c) Central Govt.
27. The governing body shall appoint one or more persons

as___________ whose functions basically are redressal of
grievances from the policy holders of both life insurance general
insurance business.
a) Judge d) Ombudsman
b) Grievance Officer e) None of above
c) Grievance Manager
28. Firms and organization cannot go to Ombudsman

29. Which claim comes under the purview of Ombudsman?

a) Any partial or total in so far as such disputes
repudiation of claims by an relate to claims
insurer d) Delay in settlement of
b) Any dispute is regard to claims
premium paid or payable in e) Non-issue of any insurance
terms of the policy document to customers
c) Any dispute on the legal after receipt of premium
construction of the policies f) All above
30. What are the ore-requisites for filling claim before ombudsman?
a) Complaints must relate to d) Complaints must be lodged
personal lines of business within 1 year from the date
b) Customer must first of no reply
approach insurance e) Total relief sought should be
company directly for below 20 lakhs
redressal f) Matter should not be
c) The insurer does not give pending in any court
any reply for at least 1 g) All above
month
31. Ombudsman will not entertain complaints above

c) 30 lakhs
32. If both party agree to mediation by Ombudsman, the ombudsman

shall pass the order within
a) 1 month d) 4 months
b) 2 months e) 5 months
c) 3 months
33. If the party does not agree to mediation the ombudsman shall pass
the award within
a) 1 month d) 4 months
b) 2 months e) 5 months
c) 3 months
34. Can insurance company prefer an appeal against the order of

ombudsman in other court of law?
a) The award by ombudsman b) They can appeal in higher
is final, they cannot appeal courts of law
35. Can policyholder, if not satisfied with the order of ombudsman seek
usual legal remedy against insurers
a) Yes, they can seek b) No, they can not
36. The law commission has recommended creation of

a) New ombudsman scheme d) Grievance disposal
b) Grievance redressal authorities
authorities e) None of above
c) Grievance removal
authorities
37. The grievance redressal authority deals with

a) Dispute between insured c) Dispute between insurer
and insurer and insurer
b) Dispute between insurer d) All above
and intermediaries
38. Grievance redressal authorities shall have no jurisdiction in cases

related to
a) Third party motor vehicle d) Commercial Insurance
b) Marine Insurance e) a, b above
c) Fire Insurance
39. GRA is the abbreviated form of

a) Grievance Redressal c) Grievance Removal
Authority Authority
b) Grievance Settlement d) Grievance Disposal
Authority Authority
40. IAT is the abbreviate for of

a) Insurance Appeals Tribunal c) Insurance Administrative
b) Insurance Appellate Tribunal
Tribunal d) Insurance Appellant
Tribunal
41. Appeal against order of grievance redressal authority can be made

to
a) Insurance Appellate c) Supreme Court
Tribunal d) Ombudsman
b) High Court e) None of above
42. The decision of Insurance Appellant Tribunal can be appealed before

a) Ombudsman d) Central Govt.
b) High Court e) IRDA
c) Supreme Court
43. IAT shall hear appeal against orders passed by

a) IRDA c) GRA
b) Investigating officers of d) All above
IRDA e) None above
44. Who can appeal to IAT?

a) Insurer d) Agents
b) Insured e) All above
c) Any intermediary
45. Every insurance company will set up an in-house

grievance___________ mechanism under the overall supervision of
IRDA
a) Disposal c) Solving
b) Redressal d) Removal
46. A policy holder must first approach

a) In-house mechanism of c) IAT
Insurer d) IRDA
b) GRA e) Ombudsman
47. The policy holder can approach GRA if no satisfactory reply is

received from the insurer within a period of________ days
c) 45 days
48. What is the time limit for filling complaint with GRA
a) Within a period of 60 days b) Expiry of 60 days after
from the date of receipt of making the claim whichever
decision of in-house si later
mechanism of insurer c) All of above
49. The GRA will replace the present system of_________

a) IRDA c) IAT
b) TAC d) None of above
b) Ombudsman
50. GRA shall hear complaints relating

a) Partial or total repudiation of d) Delay in settlement of
claims claims or non-issuance of
b) Dispute regarding premium documents
paid or payable e) Any other complaint
c) Dispute on legal f) All above
construction of policies
51. The power and jurisdiction of______ would include all powers and
functions of civil court and would involve adjudication of issued of
facts and law
a) Ombudsman d) IAT
b) IRDA e) GRA
c) TAC
52. If GRA is established all pending cases under Consumer Protection

act shall be transferred to GRA for disposal
53. In order to make claim before GRA no claim must be pending in

a) Civil Court c) Supreme court
b) High court d) Any legal forum
54. ADR is the abbreviated form of

a) Alternate Dispute Resolution
55. Who can make rules in respect of members of GRA?

a) IRDA d) Central Govt.
b) Ombudsman e) None of above
c) State Govt.
56. The president of members of GRA can be removed by an order or

a) IRDA d) Central Govt.
b) State Govt. e) Ombudsman
c) President

a) GRA shall consist of 1 or lawyer not less than 20
president and 2 technical years of experience
members d) For nomination of president
b) President and members consent must be taken from
shall hold office till the age chief justice of High Court
of 65 years e) For appointment of
c) President of GRA should be technical members approval
a retired judicial officer not of chief justice is not
below the rank of civil judge required
f) All above
58. IAT shall consist of

a) President (Retired High b) Two technical members
court judge) c) both above
59. The appointment of technical members to IAT shall be made in

consultation with Chief justice of
a) High Court b) Supreme Court
60. The names of proposed technical members of IAT shall be sent by

a) IRDA d) GRA
b) Insurance Council e) Central Govt.
c) Ombudsman
61. The president and members if IAT will hold office till the age
of______________ years
a) 60 d) 70
b) 65 e) 75
c) 68
62. The removal of president or technical member of IAT for proven

misbehaviour shall be done only after by an enquiry by judge of
Supreme Court and given suitable opportunity of being heard.
63. The principal bench of IAT shall be in

a) New Delhi c) Mumbai
b) Kolkata d) Chennai
64. Can there be more than 1 IAT in each state

a) Yes b) No
65. The expenses of GRA & IAT shall be borne

a) Insurance Companies c) Central Govt.
b) IRDA d) State Govt.
66. A further appeal against the order of IAT can made to

_______________ within _________ days
a) High Court, 60 c) Central Govt. 60
b) Supreme Court, 60 d) Supreme Court, 30
67. Adjudication fee may be levied for claim filled before GRA and IAT
Answer key
Q. No Ans Q. No Ans Q. No Ans Q. No Ans Q. No Ans
1 c 16 b 31 b 46 a 61 c
2 a 17 c 32 a 47 b 62 a
3 c 18 a 33 c 48 c 63 a
4 c 19 b 34 a 49 b 64 a
5 e 20 a 35 a 50 f 65 c
6 c 21 c 36 b 51 e 66 b
7 b 22 d 37 d 52 a 67 a
8 c 23 b 38 e 53 d
9 b 24 b 39 a 54 a
10 e 25 b 40 b 55 c
11 d 26 c 41 a 56 b
12 b 27 d 42 c 57 f
13 b 28 a 43 d 58 c
14 c 29 f 44 e 59 b
15 a 30 g 45 b 60 b
Chapter 8
FINANCIAL REGULATORY ASPECTS OF
SOLVENCY MARGIN AND INVESTMENTS
This chapter outlines how an insurance company sets aside funds for
claims that may arise in future and how the reserve fund money is
invested to earn maximum returns.
Different types of Reserves maintained by insurance

companies
Technical Reserves: the assets that an insurance company maintains to
meet future claims and losses. The technical reserves required can be
classified as follows:
 Reserves for unexpired risks
 Reserves for incurred but unreported claims
 Reserves for outstanding claims
 Fluctuation reserves
Under reserving is where an insurer may take in an over-optimistic view

of future claim payments. Initially it will boost profits and seem like the
underwriting strategy and pricing is correct, however over time there will
be difficulty in paying claims and the insurer will have to call upon
shareholders’ funds reducing its solvency.
Intext Question 1
Reserves for unexpired risks come under the heading of which of the
following?
a. Accounting reserves
b. Technical reserves
c. Unexpired reserves
d. Asset Liability reserves
Stakeholders
 Shareholders: the major interest of a shareholder is to see his
investment increase and the company stay viable, solvent and
attractive to the market. They will look for the company to be
adequately reserved to ensure its future prosperity.
 Government/Regulator: as a regulator, Government would like to

see careful reserving in order to
o Protect the customers from company failure
o Protect the insurance market from instability and the burden of
funding corporate failure
o Avoid future calls on the companies’ capital when solvency is
threatened.
As a collector of taxes, the Government would prefer that taxable
profit is not delayed or avoided by being placed in reserves.
 Underwriters:
o Underwriters study the pattern of reserves development to
understand the true cost of claims of business to determine the
appropriate pure risk premiums going forward.
o They will use these specific claim histories on cases which are
individually underwritten.
 Insurance Company Management: Reserving is also important to

company senior management as it
o Indicates the relative profitability of various parts of the portfolio
o Highlights trends
o Provides an early warning of future problems
Types of Technical Reserves

1. Premium reserves:
a. Unearned premium reserve: all policies do not renew at the
same time and do not end exactly the close of the financial year,
there will be some amount of premium that is “unearned” at the
time the accounts need to be finalised. The unexpired premium
reserve is therefore, held until expiry in an Unearned Premium
Reserve.
b. Unexpired premium reserve: If an insurer wrote premiums during
a year which, in retrospect, are considered to be inadequate
because of a soft market, a reserve may be set up for the
shortfall. This is called an Unexpired Risk Reserve.
2. Claims reserves
a. Outstanding claims reserve: this represents the money put aside
for paying claims on business that has been written, whether or
not these claims have been reported to the insurer. There are
two separate parts:
i) Open claims reserve, and

ii) BNR Reserve
b. Claims Equalisation Reserve: in years when claims experience
has been favourable, an amount is put into a reserve from where
it can be withdrawn in poor years.
c. Other Reserves: insurers create special reserves for a particular
class of business to be drawn upon in the event of disaster, such
as earthquake, flood etc.
Intext Question 2
IBNR means what?
a. Income before net reported c. Incurred but not reported
b. Incurred but not reviewed d. Investment before net result
Premium Investment strategies followed by insurance

companies
Insurers are given an amount of freedom in deciding where to invest their
cash without losing some form of monitoring. Insurers have specific
guidelines and controls or their investment business. The guidelines
should match the insurer’s liability constraints as well as the availability of
matching investments.
Modern Portfolio Theory (MPT): The concept behind MPT is that

assets in an investment portfolio should not be selected individually,
each on their own merits. Rather, it is important to consider how each
asset in the portfolio charges in price.
For a given amount of risk, MPT describes how to select a portfolio with
the highest possible expected return. Hence, MPT explains how to find
the best possible diversification strategy.
Asset-liability management: this strategy refers to the process, by which

an institution manages its balance sheet, in order to allow for alternative
interest rate and liquidity scenarios. Bank and other financial institutions
provide services, which expose them to various kinds of risks like credit
risk, interest risk, and liquidity risk. This is an approach that provides
institutions with protection that makes such risks acceptable.
Indian Regulations: Insurance premium structure is laid down under

IRDA (Investment) Regulation, 2004.
Intext Question 3
Insurers invest in fundamentally different way Asset Liability
Management and ____________.
a. Modern portfolio theory c. Multiple portfolio theory
b. Modern profit theory d. Multiple profit theory
Insurance Accounting
 General Accounting: Items such as Balance Sheet, Receipts and
Payments Account and profit and loss account etc. will be in line with
the Accounting Standards (AS) issued by ICAI to the extent
applicable to insurers carrying on general insurance business with 3
exceptions, which are:
o Cash Flow Statement to be prepared only under Direct Method
o Accounting for Investments is not applicable
o Segment Reporting applies to all insures
 Premium: Premium is the income over the contract period or the
period of risk. Premium reserve for unexpired risks has to be
created. Premium deficiency is recognised if the expected claim
costs and related expenses exceed the related reserve for unexpired
risks.
 Acquisition Costs: acquisition costs to be placed in the period in
which they are incurred.
 Claims: the ultimate cost of claims to an insurer comprises claims
under the policies and specific claims settlement costs.
 Investments: following are considered for determining value of
various investments
o Real estate- investment property
o Debt securities
o Equity securities and Derivative Instruments that are traded in
active markets
o Unlisted and other than actively traded Equity Securities and
Derivative Instruments
 Loans: Loans are to be measured at historical cost.
 Catastrophe reserve: Catastrophe Reserve has to be created in
accordance with the norms prescribed by the authority.
 Accounting Module: the important accounting functions in a general
insurance company are:
o Premium accounting
o Commission/brokerage accounting
o Claims accounting
o Accounting of expenses of management

o Co-insurance accounting
o Re-insurance accounting
o Investment accounting
o Accounting of foreign operations
Intext Question 4
General Accounting must be in line with which of the following?
a. Accounting Standard c. International Accounting
issued by the ICAI Standards
b. GAAP Standard Risk d. IRDA (Investment)
Regulations, 2000

Question 1
Mentioned below are some insurance company stakeholders. Find the
odd one out:
a. Underwriter c. Shareholder
b. Government/Regulator d. Policyholder
Question 2
If a policy is taken out on June 1st and the financial year starts on 1st
April, the unearned premium reserve is ________
a. 2/12ths c. 10/12ths
b. 3/12ths d. 9/12ths
Question 3
As per premium investment guidelines by IRDA, Investment in Central
Government Securities should not be less than __________
a. 20% companies can invest the
b. 15% premium collected the way
c. 10% they want to invest
d. There are no such
guidelines and insurance
Chapter 9
INTERNATIONAL TRENDS IN INSRUANCE
REGULATION
Specific laws are made to cover insurance companies, insurance

intermediaries and insurance contracts. The Government of India has
enacted Insurance Act, 1938 and modified it many times as per the
need. When the market was opened for private sector participation, the
IRDA act, 1999 was enacted to incorporate the revised needs of the
industry.
Insurance laws are, hence, country specific and market specific, aimed at
regulating the situations and practices prevailing in that particular market.
However, insurance regulations in all countries serve some purposes
that are common for all countries
Purposes of having regulations for insurance

The difference of insurance regulation from regulation of other branches
of finance is that the insurance contract generally allows general insurers
to keep the premium with them if there is no loss. Life insurers have
control over the insured’s money for long periods and have to pay their
contractual obligations when there is a death.
When a situation comes when the insurer has to fulfill his promise, the
policyholder may face problems in multiple ways. Insurers may go
bankrupt and may not exist to play the claim.
Insurers may wind up their business in a country and may not be able to
settle the claim when it arises. Insurer may give some reason to avoid
paying the claim and leave the policyholders in a difficult situation.
Insurers may make complicated policy wordings that the insured may not
understand, to avoid payment of claims.
The regulator creates a proper legal environment to ensure that the
policyholder is protected and when he comes to the insurer afar a loss,
his contractual rights are protected. Regulations are created to protect
the policyholder. Insurance regulators use controls like prescribing a high
capital base for issuing licenses so that only financially strong companies
can enter the insurance market.
Intext Question 1
As per the principle of indemnity, for acceptable claims, insurance
companies pay _________.
a. Compensation only for c. Actual loss amount even if
the loss amount the loss amount is more
b. The full policy amount than the policy amount
irrespective of the loss d. 50% of the loss amount
amount irrespective of the loss
amount
Areas of focus of regulations

Licensing
Management of funds: Regulators try to ensure that owners of the

insurance companies do not take away the public funds or utilize the
money for wrong purposes. Accounting norms, investment norms, audit
systems, inspections etc. are created for this purpose.
Maintaining financial solvency: Insurers are expected to do their

business cautiously and remain financially healthy and strong.
Regulations ensure that insurers do not take undue risks in their
business and all employees should do business as per the management
philosophy.
Standardization of Insurance Products: It is usually difficult for the

customers to evaluate an insurance policy at the time of purchasing
insurance. Often, many policy conditions are not comprehensible to the
common man. Insurance regulators professionally evaluate services to
ensure standardization of insurance products.
Pricing of insurance products: If insurance products are over-priced,

insured feels cheated. Under-pricing of insurance products can make
insurers weak and unable to pay claims. To ensure that insurance
products are priced on proper technical and business factors, effective
regulation is needed.
Creating a Level Playing Field: Norms are laid down for ensuring
policyholders’ protection and maintaining ethical standards.
Monitoring Reinsurance: Reinsurance contracts run into hug amounts

and have to work when an insurer gets a large claim. Regulations ensure
that foreign exchange is not unduly lost through insurance programs.
Intext Question 2
How can one assess if an insurance company will be able to meet the
claims or not?
a. Operating margins of the c. Solvency ratio
company d. Share capital of the
b. Profitability of the company company
Self-examination Questions
Question 1
How much is the minimum capital requirement for starting insurance
business in India?
a. Rs 25 Crore c. Rs 75 Crore
b. Rs 50 Crore d. Rs 100 Crore
Question 2
The international Association of Insurance Supervisors (IAIS) was
established in ________.
a. 1854 c. 1894
b. 1994 d. 1954
Question Bank- Set 1

1. Within how many days of appointment a Surveyor is required to submit
the report?
c) 15 days
2. What is the primary source of income of insurer?

a) Rent received d) Reinsurance ceded
b) Commission received e) Direct premium income
c) Investment income
3. Expand IBNR in relation to the losses under the policies;

a) Insurance Business Not c) Incurred But Not Recorded
Required d) Insured But Not Reported
b) Incurred But Not e) Insured But Not Recorded
4. Which of the following is key book of accounting system?

a) General Ledger d) Trial Balance
b) Cash Receipt Book e) Cash disbursement book
c) Register for Management
Expenses
5. Incurred claims amount is equal to-

a) Amount of claims intimated e) Amount of claims paid +
b) Amount of claims paid amount of provision at year end
c) Amount of claims paid + - O/S claims provision at the
amount of O/S claims provision beginning
at the year end
d) Amount of claims paid O/S
claims provision in the
beginning
6. An Insurance Company is required to obtain certificate of registration

from which of the following Authorities:
a) IRDA d) NSE
b) SEBI e) Government
c) BSE
7. The minimum paid up capital required for a general insurance

company is:
a) Rs.25 crore d) Rs.100 crore
b) Rs.50 crore e) Rs.200 crore
c) Rs.75 crore
8. Find odd man out.

a) Marine Insurance Act 1963 d) Public Liability Insurance Act
b) Motor Vehicle Act 1988 1991
c) Workmen’s (Employees) e) Company’s Act 1956
Compensation Act 1923
9. The limitation on Expenses of Management is prescribed as a

percentage on
a) Gross direct business written c) Sum insured
by the insurer d) Net premium
b) Gross direct business written e) Total claims paid
by the insured
10. Which is the correct expanded form of IRDA as used in insurance?

a) Insurance Regulations & d) Insurer Regulations and
Development Authority Developing Agency
b) Insurance Regulatory and e) Insurance Regulatory and
Development Authority Development Agency
c) Insured Regulation &
Development Authority
11. Select the expanded form of MACT as applicable in insurance.

a) Marine and Cargo Treaty c) Motor Accident Claims Total
b) Motor Accident Claims d) Motor vehicle Act, 1939
Tribunals e) Motor Vehicle Act, 1988
12. The evidence of the contract of carriage of goods between the ship
owner and the shipper, as an acknowledgement of the receipt of the
goods on board the vessel is known as
a) Bill of lading d) The Inland Steam Vessels
b) The Merchant Shipping Act Act
c) The Carriage of Goods by e) Carriage receipt
Sea Act, 1925
13. How much is the permanent total disability relief per person under
public liability insurance Act 1991?
a) Rs.21500 d) Rs.25000
b) Rs.37500 e) Rs.35000
c) Rs.50000
14. Which of the following authority has original jurisdiction to entertain

complaint under the Consumer Protection Act, when the value of
goods/services and compensation, if any claimed exceeds Rs.20 Lakhs
but does not exceed Rs.100 Lakhs
a) District forum d) Tariff Advisory Committee
b) State Commission e) IRDA
c) National Commission
15. One of the following is not among the functions of the IRDA
(Authority)
a) To regulate orderly growth of d) Prepare a code of conduct for
business the agents
b) Making payment of e) To exercise all powers of the
commission Controller of insurance
c) Issue a certificate of
registration
16. Which one of the following is not within ‘Code of Conduct’ for an
insurance agent?
a) Identification with the name of c) Disseminate required
the company to whom he/she is information on insurance
an insurance agent; products offered for sale
b) Disclosure of license on d) Disclose the scales of
demand commission
e) Procure business without
disclosing material information,
17. Who is a Composite Broker?

a) Life insurance broker business and the life insurance
b) General Insurance Broker business
c) Re-insurer broker e) Broker handling direct
d) Direct Business broker Business and re-insurance
handling both general insurance business
18. Which one of the following is not a function of a broker?

a) Assisting in negotiations of c) Obtain requisite information
claims from the client
b) Disclosure of material d) Induce prospect to submit
information wrong information
e) Provide consultancy service
19. Who can function as a TPAs?

a) Sole proprietor d) Companies registered under
b) Partnership firm Companies Act, 1956
c) HUF e) Individual
20. Which one of the following is not a function of a Surveyor?

a) Conducting inspection for a d) Ascertaining liability under
cause of loss the policy
b) Finding quantum of loss e) Remaining silent on a
c) Recommending percentage discrepancy, if any, in the policy
and quantum of depreciation wordings
21. Insurance of insured risk is known as

a) Co-insurance d) Double Insurance
b) Re-insurance e) Risk retention
c) Partial Insurance
22. In case of re-insurance treaties, there is no need to give details of

each risk that is re-insured and the settlement is usually done on _____
basis through the accounting settlement.
a) Annual d) 45 days
b) Half yearly e) Monthly
c) Quarterly
23. Within how many hours of intimation of loss by the insured to the
insurance company the surveyor should be appointed?
a) 24 d) 50
b) 12 e) 72
c) 48
24. Who cleared the micro insurance product under IRDA (Micro
Insurance) Regulations 2005?
a) IRDA d) Insurance Co. Itself
b) Central Govt. e) Central Bank
c) RBI
Answer key set 1

Q. No Ans Q. No. Ans
1 a 13 b
2 e 14 b
3 d 15 b
4 a 16 e
5 e 17 d
6 a 18 d
7 d 19 d
8 e 20 e
9 a 21 b
10 b 22 d
11 b 23 c
12 a 24 a
Question Bank- Set 2

1. The function of life insurance council is to-
a) Render advise to LIC in the c) Render advise o IRDA in the
matter of controlling matter of controlling
expenses of insurer in expenses of insurers in
respect of their life insurance respect of their life insurance
business in India business in India
b) Render advise to GIC in the d) Render advise to Insurance
matter of controlling Council in the matter of
expenses of insurers in controlling expenses of
respect of their life insurance insurer in respect of their life
business in India insurance business in India
2. Customers risk profile can be categorized into-

a) Medium Risk d) Low Risk
b) Moderate Risk e) High Risk and low risk
c) High Risk
3. In___________ stage, launderer introduces his illegal profits into the

financial system e.g. through purchase of art treasures and jewellery,
purchase of series of monetary instruments
a) Placement d) Final
b) Layering e) None of above
c) Integration
4. A license for becoming an individual agent may be granted to person

a) Minimum qualification certificate in 10th standard is
th
required is pas marks in 12 required
Standard c) He must undergo specified
b) If the application resides in a training
place with a population of d) He must be of sound mind
5000 and less, a pass e) All of these

a) GRA shall consist of 1 or lawyer not less than 20
president and 2 technical years of experience
members d) For nomination of president
b) President and members shall consent must be taken from
hold office till the age of 65 chief justice of High court
years e) For appointment of technical
c) President of GRA should be members approval of chief
a retired judicial officer not justice is not required
below the rank of civil judge f) All above
6. Consumer Protection Act doesn’t apply to

a) Person purchasing goods for c) Products purchased at
commercial purpose discounted price
b) Services rendered free of d) Services rendered at
cost discounted price
e) a, b, Above
7. It is the duty of the insurer to-

i. Ensure that the content of the policy documents are easy to
understand and the language of the same is simple
ii. See that it should be easy to read and most of all be attractive for
the consumer to pursue
iii. It would clearly bring out the risks involved for the policyholder and
the obligations or commitments required of him/her
a) i & ii c) i & iii
b) ii & iii d) All of the above
8. What is the court’s decision in case of payment of compensation by

the insurer in case of non receipt of premium?
a) First pay the third party and c) Only pay the Third party
then recover it from the d) Only recover it from the
proposer proposer
b) First recover it from the e) None of above
proposer and then pay the
third party
9. As per fundamental of life insurance, need for insurance is more in

a) Young Age d) As age advances
b) Middle Age e) None of above
c) Old Age
10. When the launderer engages in conversions or movement of the

funds to distance them from their source in a series of multiple and
complex transactions, often including cross jurisdictions, is known
as______
a) Integration c) Placement
b) Layering d) None of the above
11. Which statement is correct in respect of code of conduct?

a) Every broker shall abide by c) Every agent shall abide by
code of conduct of regulation code of conduct as specified
21 as specified in Schedule in regulation 8
3. d) Every intermediary shall
b) Every corporate agent shall follow common code of
abide by code of conduct as conduct
specified in regulation 9 e) a, b, c above
12. Every life insurer is required to give notice to its policyholder

______ from the date on which the last premium was payable but not
paid informing him the options available.
a) Before Expiry of 1 month c) Before Expiry of 2 months
b) Before Expiry of 3 months d) After expiry of 3 month
13. A policy holder made an assignment in his policy in favour of his

friend on 1st April 1937. Whether the rights and liabilities will be
applicable to policy holder as per Insurance Act
a) Yes, it will be applicable before the passing of
b) Yes, it will be partly insurance act
applicable d) Yes, it will be applicable
c) It will not be applicable since since policy is in force
the assignment was made
14. Rebate in premium/commission may be allowed in

a) New policy d) General Insurance
b) Old Policy e) None of above
c) Life Insurance
15. IAT is the abbreviated form of

a) Insurance Appeals Tribunal c) Insurance Administrative
b) Insurance Appellate Tribunal Tribunal
d) Insurance Appellant Tribunal

a) A micro insurance agent c) A micro insurance agent can
shall not distribute any other act for one life and one non-
product other than a micro life insurer
insurance product d) Micro insurance agent shall
b) Insurers must execute a employ specified persons
deed of agreement with the with prior approval of insurer
micro insurance agents e) All above
17. No insurer shall assume any risk in India in respect of any

insurance business
a) On which premium is not d) Within such time as may be
ordinarily payable outside prescribed or
India e) Until deposit of such amount
b) Unless and until the premium as may be prescribed is
payable is received by him made in advance in the
c) Or is guaranteed to be paid prescribed manner
by such person in such f) All above
manner and
18. What are the provisions regarding training of intermediaries

a) The principal officer of the c) Corporate agent must
broker firm must undergo complete 50 hours of agents
100 hours training and clear training
the exams conducted by NIA d) Exams for agents are
Pune. conducted by NIA Pune.
b) Agents must complete 50 e) a, b, c, Above
hours of practical training
19. For ULIP policy with term above 10 years net reduction in yield
at maturity should not be more than _________
a) 1% c) 2.2.5%
b) 1.25% d) 3.25%’
20. Which of the following disclosure norms must be followed by all

life insurers?
a) Give details of various funds d) Maximum limit up to which
offered with the details and the insurer can increase the
objectives of the funds charges
b) Specified maximum and e) The fundamental attributes
minimum percentage an risk profile of different
investment in different types types of investment that are
of funds offered under various funds
c) Give definition of all f) Provide full details related to
applicable charges investment to the policy
holders
g) All above
21. All insurer incorporated or domiciled in India shall be known as

members of the Insurance Association of India and all insurer
incorporated or domiciled elsewhere than in India shall be known
as______ of that Association.
a) Associate members c) Part-time Members
b) Fellow members d) Full-time members
22. Q MFL refers to-

a) Minimum Forceable Loss d) Maximum Future Loss
b) Minimum Future Loss e) None of above
c) Maximum Forecable Loss
23. When a nomination cannot be cancelled

a) When nomination is in favour c) When nomination is in favour
of assignee of minor
b) When nomination is in favour d) When nomination is done
of insurer with consideration
e) None of above
24. A consumer protection act was passed in the year

_____________ by the parliament
a) 1984 d) 1987
b) 1985 e) 1988
c) 1986
25. The GRA will replace the present system of _______

a) IRDA d) IAT
b) TAC e) None of above
c) Ombudsman
26. As per Life insurance Re-insurance regulation; all Life insurer’s

must-
a) Draw program of re- d) The re-insurer chosen by
insurance in respect of lives insurer must enjoy a credit
covered by him rating of minimum BBB of
b) The insurer must file the standard and poor or any
copy of re-insurance other equivalent agency
program duly certified by e) Insurer cannot enter into re-
appointed actuary with IRDA insurance arrangement with
at least 45 days before the promoter company
commencement of each f) No program of re-insurance
financial year shall be on original premium
c) Insurer must try to maximize basis
the retention within the g) All above
country
27. Which charge is levied at the time of receipt of premium?

a) Fund Management Charge d) Surrender charge
b) Switching charge e) Premium allocation charge
c) Mortality charge
28. In Unit linked policies the policyholder has the flexibility in-
a) Partial withdrawal’s d) Switching once the contract
b) Fund Selection is issued
c) Premium payments e) All above
29. The authorities of the Life & General Insurance council shall be
the Executive Committees constituted in the manner provided
in_____
a) Section 64F of the Insurance c) Section 64E of the Insurance
Act 1938 Act 1939
b) Section 64E of the Insurance d) Section 64E of the Insurance
Act 1938 Act 1999
30. Every_______-- shall 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.
a) Insurance Agent d) Corporate Broker
b) Insurance Broker e) None of above
c) Corporate Agent
31. The prospectus of any insurance company should state-

I. The scope of benefits, the extent of insurance cover, explain the
warranties in an explicit manner
II. Exceptions and conditions for insurance cover and whether the
product is participating or non participating
III. Riders should be complete spelt, all material information should be
provided
IV. In the process of sale the insurer shall act according the codes
specified by the governing bodies
a) i, ii & iv c) i, ii & iii
b) iii, iv and i d) All of the above
32. An assignee can make a valid nomination under the policy. Is it

correct?
a) Correct, since assignee is c) Incorrect, since nomination
the absolute owner of the can be made only by the
policy policy holder on his own life
b) Correct, since assignee has only
all the rights under the policy d) a, b, above
33. Which claim comes under the purview of Ombudsman

a) Any partial or total so far as such disputes relate
repudiation of claims by an to claims
insurer d) Delay in settlement of claims
b) Any dispute is regard to e) Non-issue of any insurance
premium paid or payable in document to customer after
terms of the policy receipt of premium
c) Any dispute on the legal f) All above
construction of the policies in
34. Insurance is a tool in the-

a) Management of Perils c) Management of Hazard
b) Management of risks d) All of the above
35. It is quite likely that the cheque posted could bounce and may
not be realizable by the insurer. In such case what is the status of the
policy-
a) The insurer cannot assume c) The insurer can assume the
the risk after the premium is risk unless the premium is
received by them received by them
b) The insurer cannot assume d) The insurer can assume the
the risk unless the premium risk after the premium is not
is received by them received by them
36. The Insurance Act, 1938 which became effective from________

primarily governs the conduct of insurance business in India.
a) July 1, 1940 c) July 1, 1999
b) July 1, 1938 d) July 1, 1939
37. The Insurance Regulatory and Development Authority (IRDA) is

a national agency of the Government of India, based
in______________
a) Hyderabad c) Bangalore
b) Secunderabad d) Chennai
38. The Duration of the Executive Committee of the Life and General
Insurance Council shall be for_____ years from the date of its first
meeting
a) Four c) One
b) Five d) Three
39. The ________________ may prescribe the circumstances

manners and conditions in which Executive committee of both the
councils may hold joint meetings for the purpose of dealing with any
matter of common interest to both committees.
a) Insurance Council d) IRDA
b) Central Govt. e) None Above
c) State Govt.
40. The life and general insurance councils have the right to form
sub-categories as may be required
a) True b) False
41. Stages of Money Laundering are-

a) Placement d) Only a & c
b) Layering e) All of the above
c) Integration
42. The part of creating a business friendly and stable financial

system is called-
a) Fighting Money Laundering c) Both a & b
b) Countering Financing of d) Neither a not b
Terrorism
43. FATF was established in ___________ the year 1989

a) London c) Paris
b) Bombay d) Washington
44. Life Insurers should not allow payments on insurance contracts

to third parties except in cases like-
a) Superannuation c) Payment to legal heirs in
accumulations case of death benefits
b) Gratuity accumulations d) All of the above
45. AML guidelines stipulate that the AML policy/program is required

to be approved by the-
a) Insurance Council d) IRDA
b) Executive Committee
c) Board
46. Q AML programs should be reviewed ____________

a) Monthly c) Quarterly
b) Annually d) Bi-monthly
47. India is a member of _________ and an observer in a FATF

a) APG d) MPG
b) EPG e) All of above
c) CPG
48. Among the below stated guidelines, which of them were issued
for ULIP’s?
a) IRDA/Act1/032/Dec 2005 c) IRDA/Act1/ULIP/055/2009-
Dated December 21, 2005 10 dated 24th September
and subsequent clarifications 2009
issued d) All of the above
b) 061/IRDA/ACTL/march-2008
dated 12th march, 2008
49. The guaranteed option in ULIP products

a) Comes free of charge d) The charge may be refunded
b) There is an explicit cost with the policy continues for
c) There may be an implied the full term
charge e) b, c above
50. Tip-up premium paid will be used to repay the ___________ and
remaining will be used as investment in the funds chosen by the
insured
a) Outstanding premium d) Outstanding liability
b) Outstanding loan e) None of above
c) Outstanding interest
51. In ULIP pension/annuity products, no partial withdrawal is

allowed during the ________ phase
a) Investment d) Accumulation
b) Building e) None of above
c) Storing
52. The rating of ULIP product are

a) Mandatory c) Partly mandatory
b) Non-Mandatory d) None of above
53. Which is true in respect of policy administration charge?

a) This charge cover’s c) This charge is levied at
expenses other then beginning of each policy
premium allocation and fund month, from the policy fund,
management charges by cancelling units of
b) This charge may be equivalent amount
expressed as fixed amount d) This charge can be flat or
or percentage of premium or may vary
percentage of sum assured e) All above
54. Which is incorrect in respect of composite intermediary?

a) A composite broker may act c) A composite insurance agent
for any number of life and may work for one life and
general insurers one non-life insurer.
b) A composite corporate agent d) A composite surveyor may
may act for one life insurer work for all insurance
and one non-life insurer companies
e) None of above
55. Capital required for agent and corporate agent is

a) 1 lakh d) 15 lakh
b) 5 lakh e) None of above
c) 10 lakh
56. The circular of IRDA dated 425. 08.2008 limits the payment of
commission to brokers on general insurance business with effect from
a) 1.1.2008 d) 11.1.2008
b) 1.10.2008 e) 11.10.2008
c) 1.7.2008
57. Which of the statements relating to qualification of an

intermediary is incorrect?
a) The principal officer of the the exam, as prescribed by
broker firm must possess IRDA
minimum qualification and d) In case of corporate agent
must have passed insurance every person soliciting the
brokers examination. insurance business must
b) The corporate insurance clear the IRDA exam.
executives of the corporate e) No such condition is
agent must undergo practical necessary as stated in point
training as prescribed. d.
c) The agent must undergo the
practical training and pass
58. What records must be maintained by insurance broker and

submitted to IRDA
a) Annual accounts every year
b) Half yearly un-audited financial statements containing details of
performance, financial position
c) The statements shall include declaration confirming the fulfilment of
requirements in accordance with provisions of regulation 10.
59. The risk under the policy shall commence after the payment of
premium in advance as per provisions of section
a) 64BB d) 64VB
b) 64VC e) 64VS
c) 64VV
60. In the case of risks for which premium can be ascertained in

advance, the risks may be assumed not earlier then the date on which
the premium has been paid. This is stated in which section of the
insurance act?
a) Section 64VB (3) c) Section 64 VB (1)
b) Section 64 VB (4) d) Section 64 VB (2)
61. The reinsurance regulation for general insurance business in

India is-
a) IRDA (General Insurance c) IRDA (General Insurance
Reinsurance Regulations) Reinsurance Regulations)
2000 2001
b) IRDA (General Insurance d) IRDA (General Insurance
Reinsurance Regulation)1999 Reinsurance Regulation)
1998
62. Until GIC Re was notified as national reinsurer, it was operating

as a holding/parent company___________ controlling their
reinsurance programmes-
a) National Insurance Co. Ltd. b) The New India Assurance
And United India Insurance Co. ltd. And Oriental
Co. Ltd. Insurance Company ltd.
c) Both a & b
d) Only b
63. The authority may require an insurer to justify it’s _______ policy
and may give some directions as considered necessary in order to
ensure that the Indian insurer is not merely fronting for a foreign
insurer
a) Re-insurance d) Distribution
b) Insurance e) None of above
c) Retention
64. Insurance companies may cede more than 10% of the re-
insurance business to as single re-insurer with a specific approval
from the
a) Appointed actuary d) GIC RE
b) Chief Financial Officer e) None of the above
c) Authority
65. The inward re-insurance business must be accepted preferably

in consultation with
a) Appointed actuary d) CEO
b) IRDA e) GIC Re
c) CFO
66. The Indian Re-insurer is-

a) New India Assurance Co. Ltd d) Munich Re
b) National Insurance Co Ltd. e) Swiss Re
c) GIC Re
67. A document to be filled in by the proposer for insurance, for

furnishing all material information required by the insurer in respect of
a risk, in order to enable the insurer to decide whether to accept or to
decline, determine the rates and conditions of a cover to be granted is
called-
a) Cover c) Prospectus
b) Material d) Proposal Form
68. __________ is of particular interest to the small, isolated and

defenceless individual policyholders pitted against the large, powerful
insurance companies.
a) IRDA (Protection of c) IRDA (Protection of
Policyholders Interests) Policyholders interests)
Regulation, 2000 Regulation, 2002
b) IRDA (Protection of d) IRDA (Protection of
Policyholders interests) Policyholders Interests)
Regulation 1999 Regulation, 2001
69. Longer a policy stays in the books of an insurer; _______ is the

level of profit that will be generated for the insurer.
a) Smaller c) Larger
b) Thinner d) All of the above
70. Who can become a micro insurance agent as per IRDA

regulations?
a) Non-Governmental c) Microfinance institutions
Organizations (NGO) (MFI)
b) Self help groups (SHG) d) Micro Insurance Institutions
e) a, b, c, Above
71. In group micro insurance the commission payable is

a) As decided by IRDA c) As decided by Insurer
b) Same as in individual d) As per agreement with agent
policies subject to the
maximum unit specified
72. Which is true in case of group micro insurance product?

a) Separate policy must be c) A separate certificate
issued t all policy holders covering details of individual
b) A single policy is issued policy holders I issued
including the details of the d) No certificate is required to
persons covered be issued
e) b, c Above
73. Under micro health insurance individual plans the minimum

amount of cover is_______ and maximum cover is______________
a) 5000, 30000 d) 10000, 30000
b) 5000, 50000 e) 10000, 50000
c) 5000, 40000
74. The group size under micro insurance policies should be at least
a) 15 d) 30
b) 20 e) 35
c) 25
75. In micro health insurance plans in non-life insurance the

maximum term of cover is_________
a) 1 year d) 4 years
b) 2 years e) 5 years
c) 3 years
76. When a transfer or assignment is made in favour of insurer, the

assignment shall not be complete unless
a) Notice is given to insurer by c) Notice is given to insurer in
phone or fax writing
b) Notice is given to insurer by d) A copy of said endorse, or
email deed
e) c, d, Above
77. A conditional assignment can be made

a) Cannot be made d) Can not be made under the
b) True, it can be made law
c) Void e) Can be made partly
78. In order to have a valid assignment

a) Assignor should be the c) Assignor should be the life
holder of the policy insured under the policy
b) The assignor may not be the d) Assignee must be the holder
life insured under the policy of the policy
e) a, b above
79. An absolute assignment transfers to the assignee all rights, title

and interest of the assignor in the policy. The policy vests in the
assignee absolutely and forms part of his/her estate on his/her death
a) Statement is correct b) State is incorrect
80. Which is true in respect of recommendation by law commission?

a) Policyholder will have to d) insurer has the option to
disclose reasons for the decline to register the
assignment assignment in case of any
b) Exact terms of assignment discrepancy
c) insurer must verify whether e) All above
the assignment is bonafide
81. If nominee is a minor the policy proceeds will be paid to

a) Legal Heir c) Appointee
b) Assignee d) Relatives
82. How nomination can be made

a) policy holder can make the d) it can be made any time
nomination during the policy period but
b) A policy holder must have before the maturity
the policy in his own name e) All above
c) The nomination can be made
at the time of taking the
policy
83. What are the recommendations of law commission in respect of

section 39?
a) Distinction must be made nominee will be collector
between beneficial nominee nominee or beneficial
and collector nominee nominee
b) Payment to nominee would e) Nominee which collects
not tantamount to full money on behalf of insurer is
discharge of insurer’s liability collector nominee and
under the policy nominee which is the
c) Option will be given to policy absolute owner is known as
holder to specify whether the beneficial nominee
84. In case of default under section 41 of Insurance Act the

punishment would be fine up to
a) Rs.250 d) Rs.1000
b) Rs.500 e) Rs.1500
c) Rs.750
85. An insurer can call for ______ at any time during the currency of
the policy
a) Proof of residence c) Proof of Insurance
b) Proof of age d) Proof of proposal
86. In case of refund of any premium credit must be made to

a) Agent of the policy holder d) By crossed or order cheque
b) Broker of the policy holder or by postal money order
c) Bankers of the policy holder e) None of above
87. In policies where premium is not ascertainable without reference

to head office risk may be accepted if the deposit is made by the
insured not less than
a) 1 per mile c) 2.5 per mile
b) 2 per mile d) 1.5 mile
Answer key set 2

Q. No Ans Q. No Ans Q. No Ans Q. No Ans Q. No Ans
1 c 21 a 41 e 61 a 81 c
2 e 22 c 42 c 62 c 82 e
3 a 23 e 43 c 63 a 83 a
4 e 24 c 44 c 64 d 84 b
5 f 25 c 45 d 65 e 85 a
6 b 26 b 46 a 66 c 86 a
7 d 27 a 47 a 67 d 87 c
8 a 28 e 48 d 68 c
9 b 29 a 49 e 69 c
10 b 30 a 50 a 70 e
11 e 31 c 51 d 71 c
12 a 32 c 52 c 72 e
13 c 33 a 53 e 73 a
14 e 34 b 54 a 74 b
15 b 35 a 55 e 75 a
16 e 36 b 56 b 76 c
17 b 37 a 57 e 77 b
18 e 38 d 58 b 78 d
19 c 39 b 59 d 79 a
20 g 40 a 60 c 80 e

Ic 14

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INSURANCE FOUNDATION CENTRE (R)

Search for Pre-Examination Key Ends Now

Condense Course for Insurance Professional Exam

Regulation of Insurance Business: Paper No. 14 of Insurance Institute of India

Regulation of Insurance Business

Chapter wise Scanning

Solved Objective Type Questions

Strictly as per syllabus of I.I.I, Mumbai

Edited and Compiled by

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 Give appropriate time to each question applying your commonsense and

 Attempt all questions as there is no provision of negative marking.

S. No. Chapter Page No.

This chapter deals with growth, development and nationalization of life

Development and growth of Insurance Industry in India

Following are the stages of development of life Insurance industry:

Following are the stages of development of non-life Insurance industry:

Nationalization of Insurance business in India

Reforms in Insurance Sector:

Insurance Association of India

Life Insurance Council

General Insurance Council

General Insurance Business (Nationalisation) Act, 1972

 Advising the acquiring companies in matters of controlling the

Provisions of the Act

Self exam questions

2. _________ in 1818 in Calcutta was first life insurance company to

3. _____ in Bombay in 1907 was the first general insurance company

Insurance is a tool of risk management. It is used to protect financial

An insurer is a company selling insurance; an insured is a person or

Insurance Regulatory and Development Authority (IRDA) was formed

knowledge or experience in life/general insurance or actuarial science

Purpose of forming IRDA

Duties, powers and functions of the IRDA

Regulations issued by IRDA

Motor Vehicles Act, 1988

The limits of liabilities required to be covered are also prescribed in the

Settlement through alternative forum

Hit and Run Accidents

Marine Insurance Act, 1963

The Carriage of Goods by Sea Act, 1925

The Bill of Lading Act, 1885

Indian Railways Act, 1989

The Carriers Act, 1865

Workmen’s Compensation Act, 1923

City_________ State_ Pin________

City_________ State_ Pin__________

4. In India ___ and _ are direct legislations for