There is no logic in the demand to scrap the Insurance Act, 1938, and give total administrative power to the sectoral regulator to govern the insurance industry by regulations, industry experts say.
There are not many takers in the insurance industry for the city-based Shriram Group founder-chairman R.Thyagarajan's recent demand to scrap the Insurance Act and to give full powers to the Insurance Regulatory and Development Authority (IRDA).
"Time has come to consign the Insurance Act, 1938, to the dustbin as its provisions are constricting the regulator and the industry players. Ninety-five percent of the Insurance Act can be scrapped," Thyagarajan told reporters here Friday.
He said the law has outlived is utility.
When asked about this Tuesday, R.Ramakrishnan, a member of the Malhotra Committee on Insurance Reforms, told IANS: "World over sectoral laws are there to govern a business while the sectoral regulators govern the players within the broad framework laid by the sectoral law. Every country has a law governing the insurance sector within which the regulator operates."
"The Insurance Act, 1938, has been one of the finest pieces of legislation. It has been damaged to some extent by the amendments brought in by the IRDA. The deficiency in drafting, that has become the signature of the IRDA, has compounded the problem," he said.
Ramakrishnan headed the Reserve Bank of India (RBI) Advisory Group on Insurance to chalk out a road map for aligning Indian insurance industry's standards and practices with those of international best practices.
The insurance advisory group had found most of the domestic rules are in sync with international practices.
But Thyagarajan said the provisions relating to the cap on management expenses of an insurance company or the one that prohibits premium rebate by an agent to a policyholder and several other sections are not relevant now.
"The IRDA should be empowered and also be made accountable for the performance of the insurance sector as a whole," he said.
The Shriram Group has life and non-life insurance business in its fold apart from major interests in non-banking finance companies (NBFC), chit funds, infrastructure, energy and others.
"The Regulator today is already vested with the powers and I do not see anything wrong in government retaining its overriding powers on insurance sector regulations," a senior actuary told IANS, preferring anonymity.
He said unlike other products/services where a buyer gets 90 percent of the value for his money straight away, it is not the case with insurance. A policyholder has to wait and see whether he derives the benfits promised and so there is a case for strong regulation by the government.
"There cannot be any dispute on the proposition that the extant Insurance Act, 1938, has outlived its utility," Supreme Court advocate and an expert in insurance/company/completion laws D.Varadarajan told IANS.
"However, it is one thing to say that the said Act, despite tinkering in the form of amendments in piece-meal, does not measure up to the need of the hour, but another thing to say that the Act is constricting the Regulator," he said.
"Empowering any regulator by giving free reign without statutory controls, checks and balances in exercise of powers would not be conducive and in the fitness of things. Therefore, it is more conducive to have 'two power centres' with well defined roles, rather than rest content with one power centre, with shoot-at-sight powers," he remarked.
On Thyagarajan's demand to scrap the cap on management expenses, Ramakrishnan said: "People are also mixing up the ceiling on expenses and solvency margin and getting completely confused. For complying with solvency margin provisions, the shareholders need not bring any capital. If they learn to control the expenses, enough profit will emerge. A portion of this profit has to be set aside as reserves, and this reserve is called solvency margin."
"Cap on management expenses and the requirement of solvency margin cannot be mutually exclusive, and both should co-exist for meeting their respective needs and requirements," Varadarajan said.
He said there are many irritants and road blocks in the form of various regulatory interventions to the extent of micro-managing the insurance companies.
"It is time for the Regulator to indulge in self-introspection and evaluate as to how far its regulatory regimen has advanced the twin objectives of protection of interests of policyholders and orderly growth of insurance business. It is almost 15 years since the establishment of IRDA, and it would be naive to think that it is still on the learning curve, or for that matter, the insurance industry," Varadarajan said.
