The much-awaited Insurance Law (Amendment) Bill finally got the Parliamentary nod last week. The new insurance 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 percent in insurance from an earlier limit of 26 percent, 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 to the overall Indian insurance market. Some of them are-
Insurers to raise more capital: With the passage of the new Bill, the 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 to tailor products for the diversified needs of the customers. More capital infusion in the market would also enable insurers to provide a better customer experience through enhanced technology and high-quality customer service. With the increase in the FDI limit, the sector may see more players which will bring transparent and healthy competition; ultimately benefiting consumers. Finally, the meager insurance penetration in the country will get a boost.
Insurers cannot reject claims after 3 years: The new law says that after 3 years of policy inception, no insurance company can repudiate claims even if the policyholder has misrepresented the facts. But the onus is on the policyholder to prove that the misrepresentation of facts was not done intentionally.
The insurer can challenge a policyholder for hiding or misrepresentation 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 the policy, the insurance companies could reject the claim; but the onus to prove policyholder’s fraud was on them.
In 2013-14, the private players rejected as many as 15 percent of the claims filed with them.
Huge penalty to curb mis-selling: The new law has proposed a huge penalty for miss-selling of insurance products in order to safeguard policyholders’ interests. The insurer will be responsible for any misconduct and acts of their agents. If the agent violates the code of conduct, a penalty of Rs. 5 lac can be imposed.
The hiring of agents by insurers: Another amendment that will bring a huge change in overall practices is with regard to the hiring of insurance agents. Now the agents will be directly recruited by the insurance companies, and hence all the responsibility of the agent’s activity will be on insurers.
No multi-level marketing: As of now, there were a 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 emphasizes insurance companies to keep policies and claim records electronically to enhance transparency.
Insurance Bill Amendment, Was hoping for a long time
The demand for an increase in FDI limit was started from UPA-led government, look, a demand always in the eyes of the people, especially if the demand is not fulfilled on time. It was carried forward to the NDA government, and the NDA government without wasting time made necessary changes in FDI, somewhere the central government was considering it as its first priority and perhaps this is the reason why the government did not appear unconcerned about increasing the limit of FDI. From 26% to 49%, the NDA government knows that after increasing the FDI limit there will be cash flow in India.
Well, everyone was hoping that in the upcoming days the FDI limit will increase, and the NDA government is a business-pro government. So, it’s necessary that the FDI limit will definitely increase, and to improve the economy of India, it was necessary that money should come from outside the country.
49% was not enough
In the year 2015, the NDA government did changes in the FDI limit and directly increase from 26% to 49%. Well, it’s a big difference, but at this time no one knows that it’s really a big difference and if the limit continues in this way, then soon the Indian government will have to make a new act to save Indian companies. After 6 years of increasing the limit of FDI from 26% to 49%, it seems like these numbers are not enough, and in the year 2021 Indian government one more time increase the FDI limit. The Indian government, increase the FDI limits from 49% to 74%, and this is really a markable point in FDI history. This time, the increasing percent difference is quite more, from 26% to 74% the Indian government has given a lot of concession in FDI.
These are the reasons why the Insurance Laws (Amendment) Bill is said to be a key reform bill.