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More distribution points for insurance policies, simpler products and more transparency on features, less dependence on insurance agents, flexibility in paying premiums through instalments and faster claim settlement are some features the new Insurance Act might offer policyholders, when it is passed. The government hopes it will in the coming session of Parliament.
If you thought the only amendment to the Insurance Act of 1938 was to increase the foreign direct investment limit from 26 per cent to 49 per cent, you are wrong. There is no doubt that allowing higher participation of foreign entities is perhaps the most important amendment. While this wouldn't have a direct bearing on individual policyholders, it will bring more credibility to the sector, says Abizer Diwanji, national head of financial services, EY India.
"With foreign participants playing a bigger role, there will be more variety in products and more professionalism in selling these. With more competition, mis-selling will reduce. This will benefit policyholders in the long run,'' he says.
According to Ashvin Parekh, of Ashvin Parekh Advisory Services, another significant reform the Bill proposes is in health insurance. "By recognising it as a standalone model and prescribing capital adequacy norms for standalone health insurance companies, the Bill will help in encouraging the health sector, which is much needed in India."
Simplifying the norms for expansion of re-insurance companies will also help penetration, Parekh adds.
However, in certain areas, such as mergers and acquisition, and with regard to listing of insurance companies, the Bill proposes to curb the regulator's powers, which might have a detrimental impact, he adds.
Apart from these, there are provisions on how insurance penetration can be improved, on capping of agents' commissions, consumer redressal and so on. A look here at some that can have an impact on an individual policyholder.
No claim can be repudiated after three years
The Bill seeks to amend Clause 45 of the Insurance Act. Currently, insurance companies cannot reject a life insurance claim after two years. But if it is proved that the claim is a fraud, then the company is not liable to pay. The Bill seeks to amend this clause to the effect that no claim can be repudiated (rejected) after three years of the policy issuance under any circumstances.
A report by Espirito Santo Securities says the government's' move could be driven by the need to protect customers but it could be a case of good intentions leading to unintended consequences.
"Implementation of this could lead to anti-selection and increase the cost of policy for good policyholders, as they will have to subsidise fraudulent practices. We expect term insurance policies to be the most impacted, as the pay-off in those could be as high as 1,000 times the annualised premiums. Regular policies with a savings component are not likely to be impacted, as the payoff is around 10x of annualised premiums,'' the report says.
Assignment and transfer of policies
One proposal in the Bill is that the policyholder can transfer or assign his life insurance policy, either wholly or partly, to a third party. It has to be signed by the person transferring the policy and attested by his agent; the terms and conditions of the transfer have to be clearly stated. However, the insurance company has the right to accept or decline such a transfer if it is convinced that this is not in the interest of the policyholder or in the public interest. The reason for rejection has to be conveyed to the policyholder within a month. The person to whom the policy is being transferred to will have all right over the policy once transferred and can obtain a loan under the policy or surrender the policy. Many foreign countries allow such practices.
More distribution points
The Bill seeks to have more channels for distribution, in addition to the existing ones such as agents and bancassurance. These could be the Citizen Service Centres or other government delivery centres such as Public Delivery Systems. This is expected to improve the reach in rural areas. Customers will have more points of sale to buy policies from.
Online distribution channels will bring more transparency and the focus will be on customer education. "The aim is to reduce the dependence on agents,'' said an official with a private insurance company.
Flexibility in premiums
The Bill proposes to give insurance companies the freedom to collect premiums in instalments for more products. Currently, general insurance companies can collect premiums in the form of instalments only in health insurance. But if they are given the freedom to collect premiums for products like motor and fire, this will help them in product diversification and also give flexibility to customers.
Grievance redressal
To strengthen redressal of policyholders' complaints, the Bill proposes an independent grievance redressal authority, with powers similar to a civil court. The authority should be composed of judicial and technical members. The current ombudsman scheme is held to be insufficient to tackle the large number of complaints against companies.
Electronic issuance of policies to help claims processing
The Bill also stresses on technology to increase electronic issuance of policies. This will help improve claims payout. Since electronic issuance and dematerialising of policies can facilitate data sharing between companies, any cases of fraud can be detected faster. "Today, if a customer has committed fraud in his motor insurance, the life insurance company has no way of knowing it. That is why companies take longer for due-diligence before paying the claims and this leads to delay in processing,'' says an official with a private life insurance company. Once companies are able to share data, such instances will reduce.
Agents' commissions, additional remuneration capped
As an added precaution to prevent mis-selling, the Bill proposes that insurance companies not pay any agent commission in excess of what is prescribed in the regulation. Currently there are cases where companies reward agents through gifts such as cars or foreign trips. In the absence of such incentives, there are less of chances that agents would try and push policies that are not suited for customers. Apart from this, the proposed cap on agents' commission structure is also likely to help prevent mis-selling.
