The much awaited Insurance Law (Amendment) Bill finally got the Parliamentary nod last week. The bill was originally brought by the Congress-led UPA II government in 2008. But it had been pending in the Rajya Sabha since then due to stiff repulsion from the BJP, arguing the Bill could expose the economy to global vulnerability.
As the Parliament has finally approved the Bill is passed now, we need to know what it means to us. The Bill has not only about raising of FDI (Foreign Direct Investment) ceiling to 49 per cent in insurance from earlier limit of 26 per cent, but it also has several new things to benefit both the policyholders and the Indian insurance market. The investment drought Indian insurance sector is expecting about Rs. 200 billion inflow of foreign money in next few years.
In addition, the Bill will bring more changes in overall Indian insurance market. Some of them are-
Insurers to raise more capital: With passage of the new Bill, insurance company in India can seek more foreign inflows which would expand the distribution and reach of the insurance market to the rural and remote areas. It would enable insurance companies tailoring products for diversified needs of the customers. The more capital infusion in the market would also enable insurers provide better customer experience through enhanced technology and high quality customer service. With increase of FDI limit, the sector may see more players which will bring transparent and healthy competition; ultimately to benefit consumers. Finally, the meager insurance penetration in the country will get a boost.
Insurers cannot reject claims after 3 year: The new law says that after 3 years of policy inception, no insurance company can repudiate claims even if the policyholder has mis-represented the facts. But the onus is on the policyholder to prove that the mis-representation of facts was not done intentionally.
The insurer can challenge a policyholder for hiding or mis-representation of facts or fraud only within 3 years of the policy. In this regard, the insurance company must write to the policyholder or his nominee.
As per earlier law, the insurers were allowed to challenge the policyholders within 2 years from the inception of the policy. Even after 2 years of policy, the insurance companies could reject the claim; but the onus to prove policyholders fraud was on them.
In 2013-14, the private players rejected as many as 15 per cent of the claims filed with them.
Huge penalty to curb mis-selling: The new law has proposes a huge penalty for mis-selling of insurance products in order to safeguarding policyholders interests. The insurer will be responsible for any misconduct and acts of their agents. If the agent violates code of conduct, a penalty of Rs. 5 lac can be imposed.
Hiring of agents by insurers: Other amendment that will bring huge change in overall practices is with regard to hiring of insurance agents. Now the agents will be directly recruited by the insurance companies, and hence all the responsibility of agents’ activity will be on insurers.
No multi-level marketing: As of now, there were pyramid of agents who earned incentives based on their sales. According to the new act, such multi-level marketing is not allowed. It means all agents dealing with policyholders will be directly appointed by the insurers which may help curb mis-selling.
An agent cannot sell products of multiple insurers: The new act forbids an agent to sell products of more than one life insurer, or one general, or health insurer. It would eliminate conflict of interest.
Insurers to keep electronic records: The new amendment of law emphasises insurance companies to keep policies and claim records electronically to enhance transparency.
These are the reasons why the Insurance Laws (Amendment) Bill is said to be a key reform bill.