Bill caters to various sections

Insurance: Proposals seek to increase penetration benefits to agents

The rise in the cap on foreign direct investment in the insurance sector is just one aspect of the Insurance Laws (Amendment) Bill, 2008, approved by the Cabinet on Thursday. The Bill also seeks to bring more customer-friendly measures and growth to the industry. This, insurance companies say, would lead to a revival of the industry.

The Bill proposes the minimum capital requirement for health insurance be Rs 50 crore, against Rs 100 crore for general insurance companies. This, according to industry players, would help more players enter the industry, thus offering more choices to customers. Amarnath Ananthanarayanan, managing director and chief executive of Bharti AXA General Insurance, said, “This move is a welcome indication to allow more players into the health segment.”

G Srinivasan, chairman and managing director of United India Assurance, said the move might increase penetration of health insurance in the country, as it would lead to the entry of more players. He added health insurance, as a percentage of gross domestic product, was very low, and this proposal would lead to a rise in the number.
 

What the insurance Bill provisions mean:

No policy would be called in question on ground of misstatement after three years 

• This would mean firms cannot call into question any policy after the 3-year deadline for any act of omission or commission committed by consumer. A positive change for consumers

Motor Vehicle Insurance and Compensation Legislation being proposed for obligatory underwriting of third-party risk

• Maximum liability for third-party claims to be limited and time deadline for filing third-party claims to be clarified. Positive change for insurers

Ceilings on commissions for agents prescribed in the Insurance Act done away with, to come under regulations by Irda

• Would mean fair remuneration to agents, that could lead to increase in premiums for consumer

Minimum capital requirement for health insurance set at Rs 50 crore against Rs 00 crore for general insurance companies 

• Would enable more firms to enter health space with less capital 

Irda empowered to take action against agents to protect policyholders interests

• Policyholders can complain to the authority against mis-selling by agent, as some of them sell products that help them earn high commission

The Bill also proposes a separate Motor Vehicle Insurance and Compensation Legislation for obligatory underwriting of third-party risks. To reduce the burden of third-party risks, general insurance companies have demanded this legislation for long. Earlier this year, the third-party motor pool, which led to the profits of insurance companies being squeezed, was dismantled and replaced by a declined risk pool. Srinivasan said the proposed legislation’s provisions for motor insurance were much-needed. “Limiting the maximum liability and putting a time limit for filing claims is essential to help loss-making motor portfolios of companies,” he said.

The legislation caters to agents as well. It proposes ceilings on commissions for agents prescribed in the Insurance Act be done away with, and these come under the regulation of the Insurance Regulatory and Development Authority (Irda). Though there is concern increasing commissions may lead to a rise in premiums, insurance firms say the move is essential to lure people to join the agency network. P Nandagopal, managing director and chief executive of IndiaFirst Life Insurance, said putting the onus of deciding agent commissions on Irda would ensure fair remuneration.

Ananthanarayanan said, “If the agent commissions are attractive, it would encourage individuals in villages to work as agents and help set up the infrastructure necessary for insurance penetration.”

The Bill also proposes no policy be questioned on grounds of mis-statement, after three years. Industry players say this is a customer-friendly move and would dissuade companies from refusing claims on grounds of unintentional errors by policyholders while stating facts. Vinod Sahgal, managing director of Bajaj Capital Insurance Brokers, said this was a good move, as it would prohibit insurers from repudiating claims after three years on the grounds of innocent acts of omission and commission by the insured.

Companies in the sector feel 49 per cent FDI, along with the other provisions, would help revive growth in the insurance industry. In the past few years, growth has been the biggest challenge for India’s insurance industry; private insurers have seen a decline in business. They are now urging the finance ministry, as well as Irda, to help put the sector back on a high-growth path.