The Insurance Act defines the Indian Insurance Company as the insurer being a corporation- which is formed and registered under the Companies Act, 2013; whose sole purpose is to continue life insurance business or general insurance business or reinsurance business; and in which collective assets of equity shares by an overseas company, either by itself or through its subsidiary corporations or its nominees, do not go beyond 26% of the paid-up equity capital of such Indian insurance corporation.
The following are the relevant points which an auditor should keep in mind at the time of conducting the audit of an Indian Insurance Company.
Premium Received
The auditor should check that whether the insurance premium received by the Insurance Company from the policyholder is set aside in a separate bank account. Also, such a separate bank account should not be used for financing day to day expenditure.
A cover note is a temporary document that is issued before the issuance of the final policy. The auditor must check that those cover notes should be serially numbered.
The figures for Insurance premium received appearing in the premium register should tally with the figures appearing in the books.
The premium which is not yet received but relates to the year in question should also be accounted for i.e. books should be maintained on an accrual basis.
Claims
Due importance should be given by the auditor to the claims which are higher in value as compared to others.
The auditor should verify whether the provision has been made for all the unsettled claims and should keep in mind that the amount of provision does not exceed the insured amount.
In the case of co-insurance, the agreement should be carefully examined and it should be verified that claim is only paid for the company’s share in co-insurance.
The claim paid by the company should be sanctioned by the appropriate authority.
Operating Expenses
The auditor should check expenses exceeding 5 lakhs or 1 percent of premium should be separately disclosed.
Commission
The commission is paid as a certain percentage of the premium brought in by the agent. The correctness of the same should be checked by the auditor.
TDS should be deducted wherever it is due.
Entries should be checked in the books, whether accounting made on an accrual basis.
Investments
Investments by the insurance company should be made in approved securities. However, investments in other than approved securities can be made but they should not exceed 25 % of the total investments and should be made only after the approval of the board of directors.
Investment should not be done in the shares and debentures of other investment or insurance company exceeding 10% of own assets or more than 2 % of the subscribed capital of such investment or insurance company.
Investment cannot be made in the capital of a private company or the funds of its policyholders outside India.
Cash & Bank Balances
The bank account of the company should be operated by authorized personnel only. The auditor should check the proper controls in place.
To reconcile the difference in the books and the balance with the bank, BRS should be prepared.
Formulation of various committees
The auditor should check whether the company has constituted all the required committees which are required to be constituted namely Risk Management Committee, Policyholders Protection Committee, Audit Committee Investment Committee, Corporate Social Responsibility Committee and Profits Committee, Nomination and Remuneration Committee.
Relevant Laws Applicable
The Auditor should have knowledge of relevant law and acts which apply to the Insurance companies. The following acts contain the provisions which are relevant during the audit of the insurance companies: The Insurance Act 1938, The Companies Act 2013, The Life Insurance Corporation Act 1956, The Insurance Rules 1939, and The Income Tax Act 1961.
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