IRDA passes order on requirement of engagement of in-house insurance surveyors and loss assessors

While disposing of the representations from the Indian Institute of Insurance Surveyors and Loss Assessors (“IIISLA”), the IRDA has passed an order dated August 5, 2010 on various aspects relating to the appointment of insurance surveyors and loss assessors (“SLA”). The order has been passed pursuant to an order of the Madurai bench of the Madras High Court, wherein the Hon’ble High Court had directed the IRDA to decide on the representations of the IIISLA on merits.

The salient aspects of the order are as follows:

a) Alleged violation of Section 64UM of the Insurance Act, 1938

IIISLA had alleged in its representation that the insurance companies are violating the mandate set out in Section 64UM(2) of the Insurance Act, 1938 (“Insurance Act”) by conducting loss assessment and surveys through in-house insurance surveyors and loss-assessors. IIISLA contended that under the Insurance Act, all claims in excess of Rs. 20,000 require assessment from an ‘independent’ SLA, as opposed to those who are employees of the insurance company.

Mr. J. Hari Narayan, Chairman IRDA rendering his order on behalf of the IRDA held that there is no bar on the insurance companies to engage in-house SLAs for assessing claims equal to or in excess of Rs. 20,000, as long as they are licensed as such by the IRDA. Insurance companies are free to engage non-licensed persons for assessing losses in case the claim is less than Rs. 20,000.

He also rejected the contention of IIISLA that the assessment of in-house SLA will be biased, and observed that the salary of an in-house SLA and the remuneration of an external SLA are both borne by the insurance company only. Since, there are sufficient safeguards in place, it is far-fetched to assume that the rights of the insured will be adversely affected by engagement of in-house SLAs.

b) Allegations on the insurance companies entering into contracts with unlicensed firms for outsourcing survey works

IIISLA had alleged that insurance companies have been engaging firms that are not licensed to carry on SLA activity. It was further alleged that these firms have, in turn, been engaging licensed SLAs. This practice, in IIISLA’s contention is not in compliance with the provisions of the Insurance Act.

Without passing any judgment on legality of actual instances, IRDA held that the loss assessment and surveys in claims of Rs. 20,000 and above should be done directly by licensed SLAs or firms that are licensed as SLA. Accordingly, insurance companies have been directed to deal directly with the licensed SLAs.

c) Removal of restrictions in the three departments and upgradation of the categories

It was contended by IIISLA that IRDA had in-principle agreed to, remove the restriction of three departments (fire, marine, engineering, motor etc.) for independent SLAs who were in practice prior to categorization, and to upgrade the limits assigned in relation to the maximum loss that can be assessed under a certain category.

The IRDA’s order acknowledges the need to provide for a mechanism for improving professional skills and qualifications by means of training and examination. In this regard, IRDA has suggested the introduction of three-tier membership to IIISLA, consisting of Licentiate, Associate and Fellow members. IRDA will be issuing suitable directions to the IIISLA to take steps in this regard.

d) Compulsory membership of IIISLA

IIISLA had sought introduction of the concept of compulsory membership to IIISLA for all SLA. IRDA will examine the feasibility of this suggestion and introduce suitable amendments in the regulations and memorandum and articles of association of the IIISLA.