“Impact of Insurance Bill”
Insurance sector in India has seen instrumental change since the last two decades when there was only one player namely Life Insurance Cooperation (LIC) before it was opened up for the private and foreign players. Currently, there are 28 players in the non life insurance business and 24 players in life insurance thus infusing the competition in the sector. The Insurance Regulatory and Development Authority (IRDA), headquartered at Hyderabad, being the regulatory authority of the insurance sector in India is the sole authority which frames regulations for the sector, ranging from registration of insurance players to protection of policy holders’ interest, thus aiming to regulate and promote the growth of the insurance sector.
The Insurance Laws (Amendment) Bill, 2015, which intended to increase the FDI limit in the insurance sector from 26% to 49% apart from introducing several other changes, got the nod of the parliament on March 12, 2015 after much deliberations. The bill is expected to provide a major fillip to growth of the sector. Some major changes introduced by the bill are as under –
Apart from increasing the foreign holding, the bill also provided various other avenues and flexibility in raising the capital for the cash strapped sector. The current insurance penetration is just 3.9% in India. The capital infusion would not only increase the penetration of insurance which is need of hour, but would also augment the product diversification.
In order to curb the miss-selling, heavy penalties have been imposed on intermediaries and insurance companies for misconduct. The penalty is increased to up to INR1.0 crore for the insurance companies and up to INR10,000 for agents depending upon the nature of violation. This would work as a deterrent to the companies and agents for any miss-selling. Further, if the policy is older than three years, no life insurance policy can now be rejected by the insurer on any ground. This will motivate insurers to strengthen their underwriting standards and increase faith amongst consumers and protect the policyholder's interest. Ban is also imposed on multilevel marketing schemes.
Commission and Pay Outs
The bill confers the power to determine the quantum of commission, pay outs and other expenses to the IRDA. From now onwards, IRDA would try to bring more transparency in the sector for the benefit of the end consumers. Meanwhile, agents and intermediaries have been banned from more than one company.
Empowering IRDA to frame operations related rules and regulations would provide it with the opportunity to adapt quickly with the changing environment while securing best interest of the policyholders.IRDAI is now 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.
Changes in Health Insurance Sector
Under the revised regulations, minimum capital investment in health insurance sector 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 segments in India.
Thus the new amendments in the Insurance sector aims to bring a holistic improvement in the sector by augmenting competition, infusing capital, introducing product diversification as well as safeguarding the interests of the final consumer. In this way, insurance business can increase its depth and penetration in conformity to the developed world.