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India’s insurance sector is set to get a facelift, with the insurance Bill likely to propose a host of changes. The Bill is scheduled to be tabled in the winter session of Parliament.
While the key amendment to the Insurance Act of 1938 is to increase the foreign direct investment (FDI) limit from 26 per cent to 49 per cent, it is likely to propose senior positions in insurance companies be held by Indians. It will also propose incentivising distributors to sell products.
The Bill was referred to a parliamentary select committee headed by the Bharatiya Janata Party’s Chandan Mitra, which has held talks with public and private insurers. It is expected the panel will give its final version of a scrutiny report on the Bill in four-five weeks.
Sources said insurers, both life and general, had made representations before the committee at a meeting on September 26.
Sources said the Bill proposed Indian management control of insurance companies. It is unclear whether the Indians will also account for the majority of the boards of these companies. Commission structures are also expected to be revised. As of now, the first-year commission stands at 15 per cent for five-year policies, with a fall in subsequent years.
Sources said the insurers were finding it difficult to retain agents. In the past three-four years, about 700,000 insurance agents had quit due to remuneration issues. Experts said the new Bill would have a more uniform commission structure. It is expected the Bill will propose seven-eight per cent commission for the first and second years; in subsequent years, the commission will be one-three per cent.
The new Bill will also emphasise health insurance. Insurers said health insurers and companies offering health products would have to bring this business under a separate section, headed by a senior team.
Sources said the parliamentary committee hadn’t taken a decision on allowing banks to act as insurance brokers. Currently, banks act as corporate agents; they can sell products of a life, a non-life and a standalone health insurer each.
It is likely the grievance-redressal mechanism will be focused on, with more stringent penalties for mis-selling. Insurance companies said penalties were already higher compared to five years ago.
A SEA CHANGE
CLAIMS REPUDIATION
- Old: According to section 45 of the Insurance Act, 1938, no life insurance policy can be called into question on grounds of mis-statement or wrong disclosure after two years of the policy coming into force. However, if the insurer is able to prove the claim was fraudulent, it need not be passed
- New: Section 45 in the new Bill says no claim can be repudiated after three years of the policy coming into force, even if a fraud is detected
- Old: Foreign companies can hold up to 26% stake in an insurance company
- New: Foreign companies can hold up to 49% stake in the company (FDI, FII and stake held by NRIs)
- Old: Differed from year to year. First-year commission was the highest, but it fell in the second and third years
- New: Standard commission might be allowed for first and second years to boost agent income and persistency
- Old: No mention of Indian management control
- New: The new Bill mentions management control by Indians
- Old: Talked little about technology
- New: Will have detailed norms for electronic insurance and usage of technology in insurance
