Role of Chartered Accountnats in Insurance Survey

CA M. Lakshmanan

1. INTRODUCTION:

1.1        Besides the traditional fields of Statutory Audit, Internal Audit and Tax Audit there is vast scope for CAs in providing services such as Surveyors, Loss Assessors, Claim Assurors, Claim Negotiators etc.,

1.2         Amidst this golden phase of transition and sky-rocketing growth graph of insurance industry, only sky is the limit for all the enterprising accountants as the king-size pool of whole new opportunities beckon them. The insurance cake is getting bigger and better and Chartered Accountants can not only have it but eat it too.

1.3        Chartered Accountants can play a valuable role in developing the features of an insurance product. They possess adequate knowledge of the financial and technical aspects pertaining to the industry and can apply their skills to yield well-tailored products incorporating the desired features.

1.4    Section 12 of the Insurance Act, 1938 provides that the financial statements of every insurer are required to be audited annually by an auditor unless they are subject to audit under Indian Companies Act. Among the public sector insurance companies, Section 25 of the Life Insurance Corporation Act, 1956, dealing with ‘Audit’ is specific about appointment of auditors by the Corporation with the previous approval of the Central Government. The General Insurance Business (Nationalisation) Act has no specific mention and hence Section 619 of the Companies Act, 1956 which prescribes appointment of statutory auditors by CAG becomes applicable.

1.5        The Committee on Insurance has also developed a post-qualification course on Insurance and Risk Management (IRM) to arm the CAs with insurance industry specific knowledge.

1.6        Though there are various fields wherein the services of CAs are in demand in this paper the discussion is restricted to the topic ‘Chartered Accountant as Surveyor or Loss Assessor’, which is more relevant in the present context for CAs in practice.

2. STATUTORY REQUIREMENT & QUALIFICATION:

2.1  The section 64UM (2) of the Insurance Act 1938 provides that no claim in respect of a loss which has occurred in India and requiring to be paid or settled in India for an amount of Rs. 20,000/- or more in value on any policy of general insurance, unless otherwise directed by the Authority, be admitted for payment or settled by an insurer unless he has obtained a report, on the loss that has occurred from an approved Surveyor and Loss Assessor.

2.2  Among other qualifications the section 64UM (1) (D) (i) (c) specifies that licence to act as a Surveyor can be issued to an associate member or a fellow member of the Institute of Chartered Accountants of India.

2.3  Section 42 (4) of the Insurance Act 1938 enumerates the following as disqualifications:

a)      that the person is a minor.

b)      that he is found to be of unsound mind by a Court of competent jurisdiction;

c)      that he has been found guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit any such offence by a Court of competent jurisdiction:
[Provided that where at least five years have elapsed since the completion of the sentence imposed on any person in respect of any such offence, the Authority shall ordinarily declare in respect of such person that his conviction shall cease to operate as a disqualification under this clause;]

d)      that in the course of any judicial proceeding relating to any policy of insurance or the winding up of an insurance company or in the course of an investigation of the affairs of an insurer it has been found that he has been guilty of or has knowingly participated in or connived at any fraud, dishonesty or misrepresentation against an insurer or an insured.

e)      [that he does not posses the requisite qualifications and practical training for a period not exceeding twelve months, as may be specified by the regulations made by the Authority in this behalf;

f)        that he has not passed such examination as may be specified by the regulations made by the Authority in this behalf;

Provided that a person who had been issued a licence under sub-section (1) of this section or subsection (1) of section 64UM shall not be required to possess the requisite qualifications, practical training and pass such examination as required by clauses (e) and (f)

g)      that he violates the code of conduct as may be specified by the regulations made by the Authority.]

2.4.   As per the decision of the Council taken at its 196^th meeting held in December, 1998, a member of the Institute does not have to seek the specific permission of the Council to act as a surveyor and loss assessor as general permission has bee granted in this regard.

3. ELIGIBILITY & GRANT OF LICENCE:

3.1           Every person who is an individual and intending to act as a surveyor and loss assessor in respect of general insurance business shall apply to the Authority for grant of licence in FORM-IRDA-1-AF as given in the Schedule to these regulations.

3.2           The Authority shall, before granting licence, take into consideration all matters relating to the duties, responsibilities and functions of surveyor and loss assessor and satisfy itself that the applicant is a fit and proper person to be granted a licence. In particular and without prejudice to the foregoing, the Authority shall satisfy itself that the applicant, in addition to submitting the application complete in all respects:-

1. satisfies all the applicable requirements of section 64UM read with section 42D of the Act and rule 56A of the Insurance Rules, 1939;
2. possesses such additional technical qualifications as may be specified by the Authority from time to time.
3. has furnished evidence of payment of fees for grant of licence, depending upon the categorisation;
4. has undergone a period of practical training, not exceeding 12 months, as contained in Chapter VII of these regulations; and
5. furnishes such additional information as may be required by the Authority from time to time.

3.3           The Authority on being satisfied that the applicant is eligible for grant of license, shall grant the same in FORM-IRDA-2-LF as given in the Schedule to these regulations and send an intimation to the applicant together with an identity card mentioning the particular class or category of general insurance business namely, fire, marine cargo, marine hull, engineering, motor, miscellaneous and loss of profit for which the Authority has granted licence and the licence shall remain valid for a period of five years from the date of issue thereof, unless cancelled earlier.

3.4              A surveyor and loss assessor, whose licence has been cancelled or suspended for any reason, may submit an application for issuance of licence, after the expiry of three years from the date of such cancellation or suspension, and such an application shall be treated as a fresh case, and accordingly, the applicant shall satisfy all the requirements of sub-regulation (2).

3.5      A surveyor and loss assessor shall be subject to categorisation as specified in Chapter V of these regulations which is as follows:

DEPARTMENT	CATEGORY A	CATEGORY B	CATEGORY C
LOPFIRE(Flood, Cyclone, Earthquake) ENGINEERING MOTOR(Public, Private) MISCELLANEOUS (inclusive non-tariff) MARINE CARGO MARINE HULL	Above Rs. 50 LakhsAbove Rs. 20 LakhsAbove Rs. 7.5 Lakhs Above Rs. 2 Lakhs Above Rs. 7.5 Lakhs Above Rs.7.5 Lakhs Above Rs. 20 Lakhs	Upto Rs. 50 LakhsUpto Rs. 20 LakhsUpto Rs. 7.5 Lakhs Upto Rs. 2 Lakhs Upto Rs. 7.5 Lakhs Upto Rs.7.5 Lakhs Upto Rs. 10 Lakhs	NilUpto Rs. 5 LakhsUpto Rs. 2 Lakhs Upto Rs. 1 Lakh Upto Rs. 3 Lakhs Upto Rs. 3 Lakh Upto Rs. 50,000

NOTE:

1. Category A surveyor will be eligible for jobs falling under the financial limits of Category B. Similarly Category B surveyor will be eligible for jobs falling under the financial limits of Category C.
2. Category C surveyor shall not be eligible for the limits of Categories B and A. Similarly Category B surveyor shall not be eligible for the limits of category A surveyors.
3. Financial limits are based on the estimated value of the loss in the opinion of the insurer.

Licence issued, before the commencement of these regulations, by Controller of Insurance or his authorized representative shall be deemed to have been issued in accordance with these regulations.

4. EMPANELMENT:

4.1           After getting licence the surveyor cum loss assessor has to apply for empanelment with a copy of licence to all the Private & Public sector insurance companies. Though the panel of surveyors is maintained at the concerned Regional Offices application may be sent to the Divisional offices also.

4.2           Since the Chartered Accountants, in the normal course, are eligible to conduct survey for claims relating to policies issued under ‘Miscellaneous’ category (unless they have passed any technical examinations) they will be empanelled for MISCELLANEOUS polices only.

5. MISC. INSURANCE :

5.1        Broadly the Miscellaneous insurance can be classified into five categories based on the subject matter that is being covered under the policy.

1. Insurance of persons
2. Insurance of Property
3. Insurance of liability
4. Insurance of Interest
5. Package Policies (A combination of more than one of the above).

5.2. INSURANCE OF PERSONS:

These Policies have the following in common:

i.      These insurance are not strict Contracts of Indemnity and are called benefit policies.
ii.      Contribution and Subrogation do not apply, since these policies are not contracts of indemnity.
iii.      Compensation is payable according to a set scale of benefits.
iv.      Insurable Interest is a must. The claimant must be placed in such a position that he recovers the monetary loss suffered due to death or disability / sickness of the person insured.

A person has unlimited insurable interest in his own life, and that of his spouse. Otherwise, if a person has effected Insurance in respect of another person the exact pecuniary loss which is the extent of insurable interest only is recoverable.

Personal Accident Insurance, Mediclaim Insurance, Overseas Mediclaim Insurance, Student Safety Insurance are some of the examples of Insurance of Persons.

5.3. INSURANCE OF PROPERTY:

The subject matter of insurance is the policy holder’s own property or that for which he is responsible e.g. goods held in trust / as bailee, etc., as in Burglary and “All Risks” insurance.

1. These insurances are essentially Contracts of Indemnity.
2. Subrogation and Contribution apply.
3. The limit of insurers’ liability is the sum insured as stated in the policy.

• Ownership (e.g. owner, joint owner, executor, trustee, mortgage or, mortgagor)
• Lawful possession (e.g. bailee, hotel proprietors for guests effects carriers & pawn brokers)
• Contract (e.g. Tenancy; lease).

1. Settlement of claim may be made by means of cash payments or by reinstatement, repair or replacement, at the option of the insurer.
2. As these policies are contracts of Indemnity depreciation or appreciation must be taken into account in any loss settlement. Allowance for appreciation is of course, subject to the limits of the sum insured under the contract.

5.4        INSURANCE OF LIABILITY:

Civil Liability Arises out of

–         Law of Torts.

–         Statutes

–         Law of contracts.

Liabilities arising out of law of torts & statutes are covered under the liability policies. Tort liability is based on negligence. Liability Insurance indemnifies the Insured towards injury / damage caused to Third party life and property. The types of policies underwritten are public Liability, product liability, employers’ liability and professional indemnity etc. The special features of liability policies are:

1. Claims Made basis:- The policy is on claims made basis. This means that the accident giving rise to the claim shall occur during the period of insurance and further that the claim shall be first made against the insured during the policy period.
2. Retroactive Date:- This is the date of commencement of the first ‘claim made’ liability policy. This remains unaltered so long as the policy is renewed without a break and there has been no substantial material alteration of risk.
3. Period of Insurance:- This is the period commencing from the retroactive date and terminating on the expiry date of the policy.
4. Policy Period:- This is the period commencing from midnight on the inception date and terminating at midnight on the expiry date of the policy.

OCCURRENCE BASIS:– The injury or damage which gives rise to claim must occur during the policy period. This is known as occurrence basis. A Claim can arise against the insured even after the policy has expired.

5.5        INSURANCE OF INTEREST:-

Insurance like Fidelity Guarantee or Court Bonds, Customs Bonds etc., fall under this Group.

The quantum of loss under a Fidelity Guarantee (F.G) is computed from the employer’s books of account. This is payable subject to the limit of Sum Insured. Subrogation principle holds good.

Contribution:- Under Fidelity Guarantee contribution is not limited to contribution as between insurers, because sometimes private suretyship is also arranged. In such circumstances, the private surety may be brought into contribution with the Insurance Company,

As there may be a considerable gap between the act of defalcation and its discovery, the coverage under the policy must be clearly defined in this respect. Once a discovery is made in respect of a person (employee) the cover ceases to be operative for further lapses on the part of the same person.

5.6        Package Policies:-
The necessity to have individual polices for different risks has given birth to the Package policies where different risks are granted to the Insured under a single policy. This is a sort of an umbrella cover e.g. shopkeepers, householders, COMPACT policies.

5.7     Though variety of policies are issued under this category discussion in this paper is restricted to claims relating to Burglary Insurance, Money-in Transit Insurance, Bankers’ Indemnity Insurance Policy and the like because of the practical application in the present day context.

6. SURVEY AND REPORTING:

6.1.  At first the surveyor has to obtain an appointment letter from the Insurance Company with a copy of Policy under which the incident has been reported. He has to thoroughly go through the policy from top to bottom and attached clauses which are normally in fine print and in particular he has to ascertain the following before his visit.

1. the name and address of the insured
2. period of insurance
3. insured amount
4. nature of claim
5. conditions as specified in the policy
6. Exceptions / Exclusions

6.2       At the spot he has to conduct enquiry and collect all material evidences and documents in support of the claim to be preferred and every document obtained is to be properly attested either by the insured or his authorised person. The surveyor is also required to fix his signature in all the important documents which are vital in finalising the claim, so as to prevent manipulations later.

6.3       After collecting the available records the surveyor is expected to record his presence by giving an ack. for the materials collected and hand over a letter requesting for further materials required in this behalf with proper ack. from the insured.

6.4      After collecting all material evidences he has to decide whether the claim is admissible as per the terms and conditions of the policy and if so he has to assess the value of loss incurred and the amount to be compensated. While doing so he has to take into consideration the salvage, the recoveries made / to  be made, average clause etc.,

6.5              Finally while preparing the report the surveyor should be very careful to include all aspects of the claim such as nature of claim, admissibility of claim, nature & assessment of loss incurred, assessment of claim to be paid etc., In general the findings are to  be grouped in the following headings in the SURVEY REPORT:

1. Introduction
2. Insurance Details
3. Details of the Insured and Insure Items.
4. Details of the Incident
5. Details of Investigation
6. Details of Survey
7. Observation
8. Opinion
9. Assessment of Loss
10. Adjustment of Loss
11. Conclusion

The Survey Fees and allowances are as prescribed by IRDA which are very reasonable.

7. CONCLUSION:

Though it is not possible to cover all the aspects of insurance industry with particular reference for a CA to become and act as an ‘Insurance Surveyor cum Loss Assessor’, this write up will definitely  give a birds eye view of the new area for the younger generation to venture in and excel.