The Union Cabinet today approved necessary official amendments in the Insurance Laws (Amendment), Bill 2008, pending in the Rajya Sabha, with such drafting and consequential changes, if any, in consultation with the Legislative Department.
These amendments are aimed at removing archaic and redundant provisions in the legislations and incorporating certain provisions to provide Insurance Regulatory Development Authority (IRDA) with flexibility to discharge its functions effectively and efficiently. The overall objective is to further deepen the reform process which is already underway in the insurance sector.
The official amendments will be moved in the Insurance Laws (Amendment) Bill, 2008 pending in the Rajya Sabha.
Based on the recommendations of the Standing Committee on Finance, the Cabinet has approved amendments containing the following :
1. The foreign equity cap is proposed to be kept at 49 per cent as provided in the Insurance Laws (Amendment) Bill, 2008 as against the 26 percent. This is done in order to meet the growing capital requirement of insurance companies.
2. Foreign reinsurers will be permitted to open branches only for reinsurance business in India and the provisions of Section 27E, which prohibits an insurer to invest directly or indirectly outside India the funds of policyholder, would apply to such branches.
3. The definition of "Foreign Company" for the purpose of Insurance and reinsurance would mean :a company or body established under a law of any country outside India and includes Lloyd`s established under the Lloyd`s Act, 1871 (United Kingdom).
4. In order to encourage health insurance in India, the capital requirement for a health insurance company is now proposed at Rs.50 crores (instead of Rs.100 crores for General Insurance companies) with a view to reduce the entry barrier to a sector which is a priority sector in the insurance space.
5. The definition of `health insurance business` has been revised to clearly stipulate that health insurance policies would cover sickness benefits on account of domestic as well as international travel.
6. In the case of any insurer having a joint venture with a person having its principal place of business domiciled outside India, the Authority may withhold its registration, if it is satisfied that in the country in which such person has been debarred by law or practice of that country to carry on insurance business.
7. Regarding the obligatory underwriting of third party risk on Motor Vehicles, a separate Motor Vehicle Insurance and Compensation Legislation is being proposed by the Government and the concerns of the Standing Committee regarding the obligatory third party insurance on motor vehicles will be taken care of.
8. With a view to serve the interest of the policy holders better, the period during which a policy can be repudiated on any ground, including misstatement of facts etc. has been confined to three years from the commencement of the policy and thus no policy would be called in question on ground of misstatement after three years.
9. The Public Sector General Insurance Companies and GIC will be permitted to raise capital from the market to meet future capital requirements, provided that the Government`s shareholding would not be allowed to come below 51 per cent at any point of time.
10. The appointment of agents is proposed to be done by insurance companies subject to the agents meeting the qualifications, passing of examinations etc. as specified by IRDA. While the licensing of agents be no longer with IRDA, the Authority is empowered to take action against agents under Section 42(4) of the Insurance Act, 1938 which is essentially to protect the policy-holders interests. This provision will help expansion of agents` network throughout the country and better management and control of insurance companies over them. This will ultimately lead to better insurance penetration.
11. Mechanism for appeal in case of orders of IRDA against intermediaries has been defined by proposing to amend clause (8) of section 33 of the Insurance Act 1938 to provide for any insurer or intermediary or insurance intermediary aggrieved by any order made under this section to prefer an appeal to the Securities Appellate Tribunal.
12. Register of claims and policies to be maintained by insurers in any form including electronic.
13. To specify fine on intermediaries and insurance companies for misconduct of intermediaries and to make appropriate provision in the legislation to effectively deter multilevel marketing of insurance products in the interest of policyholders, and to curtail the practice of mis-selling.
14. In order to improve the functioning of surveyors and bring in greater transparency, certain modifications are made to provide for regulations on qualifications regarding appointment of surveyors and to strengthen the Institute of Indian Insurance Surveyors and Loss Assessors (IIISLA). The amendments proposed in the Bill seek to do away with the existing statutory prescriptions pertaining to licensing insurance surveyors and loss assessors etc. and leave these issues to be addressed by way of regulations.
15. Further, although the Standing Committee suggested retaining licensing of agents and their commission structure in the Insurance Act 1938, however, keeping in view the interest of the policyholders and to effectively monitor the performance and activities of the agents, the commission structure and the Code of conduct for agents is to be specified by regulations by the IRDA and accordingly, ceilings on commission in the Act have been done away with and the insurance companies along with the agents are made liable for any violation of the regulations and stiff penalties have been provided for mis-selling, rebating and marketing of products through multi level marketing schemes.
The Insurance Laws (Amendment) Bill, 2008, with a view to amend the Insurance Act 1938, the General Insurance Business (Nationalisation) Act, 1972 and the Insurance Regulatory and Development Authority Act, 1999 was introduced in the Rajya Sabha on the 22nd December, 2008. The Bill as introduced and referred to the Standing Committee on Finance for examination and report. The Standing Committee submitted its report to Parliament on 13lh December. 2011. There are a total of 111 clauses in the Insurance Laws (Amendment) Bill, 2008.