Major Highlights of the Insurance Laws (Amendment) Bill, 2015 Passed by Parliament

The Insurance Laws (Amendment) Bill, 2015 was passed by the Parliament. The passage of the Bill paved the way for major reform related amendments in the following acts : –

• Insurance Act, 1938
• The General Insurance Business (Nationalization) Act, 1972
• The Insurance Regulatory and Development Authority (IRDA) Act, 1999.

I have prepared this post with inputs from PIB. Have a look at the major highlights of the changes that the amendment will bring.

1. . The Insurance Laws (Amendment) Act 2015 to  will replace the Insurance Laws (Amendment) Ordinance, 2014.

2. The amendment Act will remove archaic and redundant provisions in the legislations and incorporate certain provisions to provide Insurance Regulatory and Development Authority of India (IRDAI) with the flexibility to discharge its functions more effectively and efficiently.

3. Provides for enhancement of the foreign investment cap in an Indian Insurance Company from 26% to an explicitly composite limit of 49% with the safeguard of Indian ownership and control. The enactment of the bill will also raise the foreign investment cap in the pension sector since it was linked to the ceiling in the insurance sector at the time of the passage of the Pension Fund Regulatory and Development Authority bill in 2013.

4. Capital Availability: It will enable capital raising through new and innovative instruments under the regulatory supervision of IRDAI. Greater availability of capital for the capital intensive insurance sector would lead to greater distribution reach to under / un-served areas, more innovative product formulations to meet diverse insurance needs of citizens, efficient service delivery through improved distribution technology and enhanced customer service standards. . It would also boost infrastructure funding since only an insurance corpus can fund long-gestation public works projects.

Four public sector general insurance companies had to be 100 % government owned as per The General Insurance Business (Nationalisation) Act, 1972 (GIBNA, 1972). They are now allowed to raise capital. This is due to the need for expansion of the business in the rural and social sectors, meeting the solvency margin for this purpose and achieving enhanced competitiveness. But government equity will not be less than 51% at any point of time.

5. Consumer Welfare: It will enable the interests of consumers to be better served through provisions like those

• Enabling high penalties on intermediaries / insurance companies for misconduct, mis-selling and misrepresentation by agents / insurance companies
• Disallowing multilevel marketing of insurance products in order to curtail the practice of mis-selling.

This could act as a deterrent against the rampant mis-selling menace which has resulted in many policyholders being duped into buying unsuitable products.

6. Empowerment of IRDAI: The Act will entrust responsibility of appointing insurance agents to insurers and provides for IRDAI to regulate their eligibility, qualifications and other aspects. It enables agents to work more broadly across companies in various business categories. The safeguard being that conflict of interest would not be allowed by IRDAI through suitable regulations.

IRDAI is empowered to regulate key aspects of Insurance Company operations in areas like solvency, investments, expenses and commissions and to formulate regulations for payment of commission and control of management expenses.

It empowers the Authority to regulate the functions, code of conduct, etc., of surveyors and loss assessors. It also expands the scope of insurance intermediaries to include insurance brokers, re- insurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors and such other entities.

Further, properties in India can now be insured with a foreign insurer with prior permission of IRDAI, which was earlier to be done with the approval of the Central Government.

7. Health Insurance: The amendment Act defines ‘health insurance business’ inclusive of travel and personal accident cover and discourages non-serious players by retaining capital requirements for health insurers at the level of Rs. 100 Crore, thereby paving the way for promotion of health insurance as a separate vertical.

8. Promoting Reinsurance Business in India: The amended law enables foreign re-insurers to set up branches in India and defines ‘re-insurance’ to mean “the insurance of part of one insurer’s risk by another insurer who accepts the risk for a mutually acceptable premium”. It excludes the possibility of 100% ceding of risk to a re-insurer, which could lead to companies acting as front companies for other insurers. Entry of reinsurance companies into the Indian market will bring in knowledge and expertise together with underwriting capacities. Must be wondering what re-insurance is ? Re-insurance means that multiple insurance companies share risk by purchasing insurance policies from other insurers to limit the total loss the original insurer would experience in case of a disaster. By spreading risk, an individual insurance company can take on clients whose coverage would be too great of a burden for the single insurance company to handle alone.

9. Strengthening of Industry Councils: The Life Insurance Council and General Insurance Council have now been made self-regulating bodies by empowering them to frame bye-laws for elections, meetings and levy and collect fees etc from its members. Inclusion of representatives of self-help groups and insurance cooperative societies in insurance councils has also been enabled to broad base the representation on these Councils.

10. Robust Appellate Process: Appeals against the orders of IRDAI are to be preferred to SAT as the amended Law provides for any insurer or insurance intermediary aggrieved by any order made by IRDAI to prefer an appeal to the Securities Appellate Tribunal (SAT).

Thus, the amendments are in tune with the evolving insurance sector scenario and regulatory practices across the globe. The amendments will enable IRDAI to create an operational framework for greater innovation, competition and transparency, to meet the insurance needs of citizens in a more complete and subscriber friendly manner. The amendments are expected to enable the sector to achieve its full growth potential and contribute towards the overall growth of the economy and job creation.