INSURANCE AGENCY AS A CAREER

CHAPTER 2

AGENT:- An agent is one who acts on behalf of another.

PRINCIPAL :- He is the person on whose behalf the agent acts.

For e.g.,

Principal Agent

Client Lawyer

Country Ambassador

• In the court, the lawyer acts as an agent for his client who is the principal.

• An ambassador in a foreign country acts as an agent for his country (Principal).

THE INDIAN CONTRACTS ACT

(Section 182)Defines “Agent” as…

• Agent is a person employed to do any act for another or to represent another in dealing with a third person

i.e., He is a middle man who acts or represents another person (Principal) while dealing with

a third party.

THE INDIAN CONTRACTS ACT

(Section 182)

Defines “Principal” as…

• Principal is the person for whom such act is done or who is so represented.

Insurance Company (Principal)

Insurance Agent (Middle person)

Prospect / Policy Holder (3rd Party)

In this case, the insurance company is the principal who will enter into a contract with the third party i.e. prospect & the insurance agent acts as a middle person who

represents the Insurance Company (Principal)

THE INSURANCE ACT ( Section 42)

Defines An insurance agent is one who is

licensed under Section 42 of the Act and is paid commission for soliciting or procuring insurance business , including business relating to continuance , renewal or revival of policies of insurance.

In other words

• A person who has authorized license and can bring business for which commission is paid is an Insurance Agent.

• The business brought need not be new business. It can be business for renewal or revival also.

“qui facit alium facit perse”

The above legal maxim means  He who acts through others acts to

himself ie.,

The principal is bound by what the agent does.

WHICH MEANS

The Principal is totally bound and can be

held liable for any act done by the agent.

AUTHORITY OF AN AGENT:

The principal is liable for all the acts done by the agent. However he can restrict his liability by specifying the extent of authority granted to the agent.

Authority of the Principal

It can be……EXPRESSED

OrIMPLIED

AUTHORITY OF AN AGENT

• Expressed authority is stated by words, spoken or written.

• Implied authority is to be inferred from the circumstances of the case.

Implied Authority

Eg. LIC does not authorize agents to collect premia (except first premium along with the proposal) from the policy holder. However, if he collects the amount, remits to the insurer & gets the receipts delivered to the policy holder implied authority can be inferred.

WHO CAN

EMPLOY AN AGENT?

The Contracts Act (Section 183)

According to Section 183 of the Contracts

Act Any person • who is a major &• who is of sound mind.

WHO CAN

BECOME AN AGENT?

• Individuals

• Collectives like companies , firms, banks, cooperative societies etc

CORPORATE INSURANCE EXECUTIVE

In case of collectives a CORPORATE INSURANCE EXECUTIVE/s is / are appointed who will be required to obtain licenses Others who work for the corporate agent will be called Specified Persons and they will be required to obtain certificates.

Which means…..

• In case of collectives like companies, firms, banks a person will be appointed who will hold a license and the others who work along with him will have to obtain certificates.

WHAT IS THE

PROCEDURE FOR BECOMING

AN AGENT ?

PROCEDURE FOR BECOMING AN AGENT

The Insurance Act, 1938 (Section 42) states that an insurance agent must possess a license issued by IRDA.

The IRDA has authorized designated persons in each insurance company to issue licenses on behalf of IRDA.

LICENSE

• The licence allows the person to act as agent for life insurer, for a general insurer or as a composite insurance agent working for a life insurer as well as a general insurer.

• No agent is allowed to work for more than one life insurer or more than one general insurer

• The licence issued by IRDA will be valid for 3 years

• Fees is Rs 250/- for individuals as well as corporate agents

• The fees for the certification of the specified person is Rs 500/-

QUALIFICATIONS TO GET A LICENSE

The individual or corporate insurance executive• must be at least 18 years old.• have passed at least 12th standard or

equivalent examination if he is to be appointed in a place with a population of 5000 or more or 10th standard otherwise.

QUALIFICATIONS TO GET A LICENSE (Contd)

• Have undergone training for at least 100 hours in life or general insurance business.

• In case of composite insurance agent 150 hours training is must.

• Must have passed the pre-recruitment examination conducted by the Insurance Institute of India or any other examination body recognized by the IRDA.

DISQUALIFICATIONSA person is debarred from holding a license or an

issued license is subject to cancellation if• He is a minor• Has been found to be of unsound mind by a

court of competent jurisdiction.• Has been found guilty of criminal breach of

trust, misappropriation, cheating, forgery or abetment or attempt to commit any such

offence.

DISQUALIFICATIONS (CONTD...)

• Found guilty of or knowingly participating in or conniving at any fraud , dishonesty or misrepresentation against an insurer or an insured.

• Not possessing the requisite qualifications and specified training.

• Not passed examinations as specified by the Regulations.• Found violating the code of conduct as

specified by the Regulations

RENEWAL OF LICENSEApplications for renewal have to made at least 30 days

before the expiry of the license

Renewal Period Amount( Rs.)At least 30 days before

the expiry of license250

Before the date of expiry of license but not made at least 30 days in advance

350

After the date of expiry of license

Normally be refused

Prior to renewal of license the Agent should have completed

• 25 hours practical training in life or general insurance business.

• 50 hours practical training in life and general insurance business in case of composite insurance agent.

RENUMERATION OF AGENT

An agent works on commission basis. A stated percentage of the premium collected through his agency is paid as commission.

Section 40 A(1) if the Insurance Act states that commission

• shall be 35% of the first year’s premium• 71/2% of the second and third year’s renewal

premium• 5% of subsequent renewal premium.

Exceptions

• During the first ten years of insurer’s business , 40% may be paid instead of 35% of first year’s premium.

• 6% commission can be paid on the renewal premium even beyond the third year.

• Commission rates are less • under term assurance plan• for shorter duration policies• under single premium plans• under pension/annuity plans

AGENCY AS A PROFESSION

• An agent is expected to obtain life insurance business and contribute to the revenues of the insurer.

• He should report on relevant features that affect the risk .

• Having met the prospect , he would be aware of the nature and characteristic of risk . He is therefore, called the primary underwriter.

Agent - Primary Underwriter

• He is expected to disclose all the relevant facts that would affect the risk. Since he is the person who has seen and observed the prospect, he is aware of the nature & the risk. Hence he is obliged to report all the true facts about the prospect.

AGENCY AS A PROFESSION

Agent has the dual responsibility of being true to the interests of both the parties .

• He is obliged to reveal all the important terms and conditions of the policy to the prospect even if they are restrictive and unpleasant. He is also obliged to report to the insurer all the true facts about the prospect .

THANK YOU

M. J. MALIKS.B.A.

836 B.O.AHMEDABAD D.O.

09879094925lic.malik@gmail.com