MARKET PLAYERS AND THEIR ROLES :
There are many market players in insurance industries i.e.
(a) Agents,
(b) Brokers,
(c) Surveyors & Loss Assessors,
(d) Health Third Party Administrators,
The role of various players of insurance market is being discussed hereby:
Insurance Agent
Section 2(10) of the Insurance Act, 1938, defines an Insurance Agent as an insurance agent licensed under Section 42 of the said Act and who received or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance.
Fist going in detail about the role of an insurance agent, we will discuss the standing of Insurance agent
Principal-Agent Relationship- Legal Implications and Status
Sections 182 to 238 of the Indian Contract Act, 1872 govern the relationship between a Principal and an Agent. An insurance agency contract is also governed by the principles enshrined therein. An Agent (“Insurance Agent”) is a person employed to do any act for another or to represent another in dealings with third persons. The function of an agent is to bring his principal into contractual relations with third persons. A Principal (“Insurer”) is a person for whom the above act is done or who is so represented.
There are two important rules of agency:
1. Whatever a person can do personally, he can do through an agent
2. He who does an act through another does it by himself
In this regard, it is pertinent to note the provisions of Section 237 of the Indian Contract Act, 1872 on the extent to which the acts of the Agent bind the Principal. Where an Agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent’s authority.
Further Section 238 of the Indian Contract Act, 1872 states that misrepresentation or frauds committed by the agent acting in the course of business for their principals, have the same effect on agreements made by such agents as if such misrepresentation or frauds had been made or committed by the principals. But misrepresentation or frauds committed by agents in matters which do not fall within their authority do not affect the principals.
For example, if an insurance agent misrepresents to the customer while selling an insurance product, the policy contract (agreement between insurer and policyholder) may become voidable at the option of the Policyholder.
An agent, who acts within the scope of authority conferred by his or her principal, binds the principal in the obligations he or she creates against third parties. There are essentially three kinds of authority recognized in law, viz., actual authority (express or implied), apparent authority and ratified authority.
Actual authority denotes the authority conferred on an agent by the Principal. It may be express or implied. Implied authority, as opposed to an express authority which is clearly given to the agent, is the authority which the agent has by virtue or being reasonably necessary to carry out his express authority, which might be incidental or ancillary to the express authority.
Apparent authority or the ostensible authority exists where the Principal’s word or conduct would lead a reasonable person in the third party’s position to believe that the agent was authorised to act, even if the principal and the purported agent had never discussed such a relationship. This is also called as “agency by estoppel” or the “doctrine of holding out”.
Acts of the Agent constitute the acts of the Principal (Insurance company) if the said Agent acts within the scope of authority granted by the Principal. Further the principle of estoppel is also applicable. Here it is a mentionable fact that relationship between Brokers to an Insurance company is on a “principal to principal” basis. Since Broker represents a customer, acts of a Broker does not bind an insurer.