By Rajiv Kulkarni, IGNOU.
The Indian Insurance Act, 2014 is another major revolutionary step towards the reforms introduced in recent times by the new government. It was observed that the earlier acts related with insurance sector were insufficient for the protection of the common Consumer and were incompetent for further growth of the high potential industry. It is found that many complaints regarding irregularities in transaction and settlement were registered by the competent authority. Yet the disposal rate of such complaints was very slow; now the disputes regarding the claim and commitment can be solved promptly, after adoption of this ordinance as an act. India’s insurance market is growing rapidly, even though penetration of industry is very low as compared to many developed countries. Remarkable growth opportunities are provided in this ordinance to the industry to cover the large amount of population. Thus this act is ready to deliver the best opportunities to consumers and service providers alike.
The Ordinance is aimed at amending the Insurance Act, 1938, the General Insurance Business (Nationalization) Act, 1972 and the Insurance Regulatory and Development Authority Act, 1999 to remove archaic and redundant provisions in the Insurance Laws, empower IRDA to enable more effective regulation The best of this ordinance is the empowerment of IRDA. More regulating power and rights are provided by this law.
- Main Amendment in other Acts:The Ordinance amends the definitions of “intermediary” or “insurance intermediary” in the IRDA Act, 1999 to include corporate agents, third party administrators, and other such entities, as may be notified by the Authority.
- The Ordinance adds a provision in the General Insurance Business (Nationalization) Act, 1972 to allow General Insurance Companies to raise equity capital for increasing their business in rural and social sectors, to meet the solvency margin or other purposes. This is provided so that the shareholding of the Central Government is more than fifty one percent.
- Definitions: The Ordinance amends the definition of an Indian insurance company to include the health insurance business. Health insurance business has been defined as that which provides for sickness, medical, surgical, and hospital benefits, including in-patient and out-patient travel cover and personal accident cover. The Ordinance amends the definition of an “actuary”, and adds definitions of “regulations”, “re-insurance”, and “Securities Appellate Tribunal”.
EMPOWERMENT AND RIGHTS OF IRDA
- The Act allows IRDA to cancel the registration of an insurer if its foreign partner has been debarred by law or practice of its country to carry on the insurance business. In the Ordinance: (I) IRDA may withhold, but not cancel, such a registration for a joint venture, (ii) the provision includes any foreign re-insurance company with a branch established in India, and (iii) failure to deposit the annual fee may also result in the cancellation of the certificate of registration.
- The Act gives IRDA the power to issue licenses to insurance agents, without a restriction on the number of insurers. The Ordinance says that an insurance agent can act as an agent to one life insurer, one general insurer, one health insurer and one of each of the other mono-line insurers.
- According to the Act, the government can appoint an officer to ensure compliance of capital requirements by a general or life insurer. This decision can be appealed in the High Court. The Ordinance states that the appointment can be made by IRDA, and that this decision can be appealed in the Securities Appellate Tribunal.
- The Ordinance increases the penalties for certain offenses, such as paying or receiving compensation for procuring insurance business.
CONSUMER FRIENDLY APPROACH
- For the safety of a Policy Holder the Bill provides rights of transfer or assignment of an insurance policy, wholly or in part, whether with or without consideration to third parties by the policy holders. The validity of such transfer would be always be open to challenges; to overcome this, many regulating provisions are made in this ordinance.
- Emphasis is given on more transparency of schemes.
- A draft is made for remedy for the right of consumer protection.
- Companies are advised to prepare consumer awareness education programs.
- It is encouraged to form better and effective complaint disposal system.
- Health insurance is considered as a separate vertical.
INDUSTRY FRIENDLY APPROACH
- “[1]The content of the Ordinance allows insurance companies to raise capital through new and innovative instruments, which would help capital intensive insurance industry to garner resources for business growth,”
- The definition of an Indian insurance company in the Act includes companies having Foreign Direct Investment of up to 26% of paid up equity capital. The Ordinance: (I) raises this cap to 49%, (ii) makes the cap inclusive of foreign portfolio investments, and (iii) states that the companies should be Indian owned and controlled, control meaning the right to appoint a majority of the directors or control the management or policy decisions of the company.
- In addition to defining a health insurance business, the Ordinance states that a company engaged exclusively in the health insurance business cannot register unless it has a paid up equity capital of Rs hundred crore. Additionally, a provision has been introduced stating that an insurer has to have net owned funds of at least rupees five thousand crore in order to register the insurance company.
CONCLUSION
It will enhance the foreign equity investment cap in an Indian Insurance Company from 26 to 49% and will ensure safeguard of Indian ownership and control .This step is seen as a game changer for the revival and growth of the industry. This will also enable the companies to introduce various new schemes, and thus providing more options to the consumers.
Towards the end, the content of the Ordinance is aimed at[2] allowing insurance companies to raise capital through new and innovative instruments, which would help capital intensive insurance industry to garner resources for business growth; we can conclude that this bill will give the desired momentum to the growth of the insurance sector. The important newly added verticals will provide the desired hike in FDI, which in turn will increase the cash flow in the sector. The other important aspect of the Bill is the health insurance business which is in growing phase in India. [3]As 70% of the medical expenses are still borne by individuals, health insurance business has huge potential. The new Bill seeks to put in place compliances for the companies willing to venture into this growing sector.
[1] Economic Times 27/12/2014 Arun Jately Finance Minister GOI.
[2] SSC ONLINE 7,January 2015
[3] PSA LEGAL Issue XVI | January 2014