Seven years after it was first introduced in Parliament, the Insurance Bill has finally been approved amidst much deliberation and opposition. This has been a landmark event for the insurance industry. The bill is expected to provide a major fillip to growth of the sector. I expect the passage of the bill to lead to a progressive regulatory framework and also provide much needed capital for infrastructure development.
A lot has been spoken about the Insurance Laws (Amendment) Bill over the last few months. While the overarching theme of the Bill is to empower the regulator, one of the most keenly tracked propositions is the increase in composite foreign ownership cap to 49 per cent from the existing 26Per cent. The revised regulations also positively impact the end policyholders in various ways. I have discussed some of these below.
Flexibility to insurers for raising capital
The amended law provides insurers flexibility to raise capital through new and innovative instruments apart from increase in foreign equity. While the detailed rules are awaited from IRDAI, availability of capital would aid in expanding the distribution and reach of the sector towards under penetrated geographies, enhance product innovation to be able to cater to the diversified needs of the end consumers and improvise customer experience with better technology, higher service levels and increased responsiveness. In this context, the new Bill paves the way for increasing the insurance penetration from the current meager figure of 3.9 per cent and enables a larger population to reap benefits of insurance which is undoubtedly the need of the hour.
Focus on safeguarding customer interests
The revised regulations are intended to safeguard the interests of consumers. Significant quantum of penalties have been imposed on both intermediaries and insurance companies for misconduct and disallowing multilevel marketing of insurance products in order to curb mis-selling. The penalties have been increased to up to Rs 10,000 for agents and up to Rs 1 crore for the insurance company depending upon the nature of violation to ensure greater responsibility and ownership.
Further, no life insurance policy can now be rejected by the insurer after 3 years on any ground, whatsoever. Earlier claims could have been repudiated anytime on ground of fraud and within two years due to mis-statement. This will motivate insurers to strengthen their underwriting standards and increase faith amongst consumers and protect the policyholder's interest. While in the short run this may entail some incremental costs for the insurers, this move will clearly have a long term positive impact on the sector in the form of better underwriting practices and increased trust.
The amendments also provide to simplify the payout process towards the policy holder's nominee, as going forward the insurer would be considered to be discharged of its legal liabilities post the payment is made to the nominee.
Commission and other payouts
Under the revised Act, the power has been transferred to the IRDAI to determine the quantum of commission payouts as well as other expenses. Regulator would hence work towards moving towards more transparent product regime to benefit the end consumers. Policy buyers can now expect greater transparency in the plans and that will lead to ease of buying insurance.
Incremental power to IRDAI
As highlighted, the underlying theme of the amendments is to empower the regulator (IRDAI) to frame rules and regulations pertaining to various operational initiatives. This move will provide the regulator opportunity to adapt quickly with the changing environment while securing best interest of the policyholders. IRDAI is empowered to regulate key aspects of operations including solvency, investments, expenses and commissions etc. It also empowers the Authority to regulate the functions, code of conduct, etc., of surveyors and loss assessors.
Booster Shot to Health Insurance
Under the revised regulations, minimum capital investment has been increased to Rs 100 crore, to ensure that only serious players are present in the sector. The amendment Act has also expanded the definition of health insurance business by including travel and personal accident cover. This would result in further growth of the health sector, which is one of the most under insured segment in India.
Thus, the overall amendments mark an important step towards growth of the insurance sector in line with global standards with an objective to create a supporting operational ecosystem for greater innovation, healthy competition and increased transparency, thereby catering to the changing needs of policyholders in the friendliest manner. The evolution of the regulatory regime is also targeted to nurture the sector for further development, along with the growing larger economy and improving demographics of the country, while contributing towards the overall growth and job creation.
