Rajya Sabha passes key Insurance Bill: Here's how it impacts policyholders

The Insurance Laws (Amendment) Bill, 2015, passed by Parliament yesterday would be more remembered and hailed for the hike in the foreign direct investment limit in the Indian insurance companies from the present 26% to 49% although in knowledgeable quarters there is some disquiet over including portfolio investment as well in this ceiling.

Portfolio investments are desultory by nature. They come and go. They are evanescent. Tracking them would be difficult. Direct investment is what matters and amenable to easy control and regulation.

In fact, the pitch for the heightened FDI limit has all along been made only with a view to finding capital for the cash strapped insurers in India. How on earth is an Indian insurance company going to benefit from portfolio investment given the fact that the resultant money is not going to flow into its coffers? Be that as it may.

The Bill has brought in several salutary changes especially keeping in mind the interests of the insured. Agents and intermediaries have been reined in. Fear of god has been put into them with a penalty of Rs 1 crore staring them in the face for mis-selling, the bane of the insurance industry not only in India but also in the more enlightened western world, including the US.

There is a ban on multilevel marketing schemes that lure the public into acting as agents with commission adding up merrily for the originator from each subsequent wannabe agent down the pyramid.

Moreover, agents and intermediaries have been banned from donning the robes of agency of more than one company for a given segment of business. Thus I cannot be simultaneously the life insurance agent of both LIC and HDFC Life though I can be simultaneously be the agent of LIC and HDFC’s general insurance business.

It seems even this limited leeway is not warranted because conflict of interest might rear its head in the above example if the agent in question is doing a roaring business as HDFC’s general insurance business’s agent while being only marginally committed to LIC. He might be tempted to work on the sly against the interest of LIC in order to cosy up to HDFC, the principal income provider, much to the detriment of both the insured and LIC.

Unauthorized agents, i.e. the ones not coming under the discipline of IRDA, would have to cough up Rs 10 lakh as penalty for their misadventure and charlatan role.

Another pro-customer change is no insurer can repudiate his liability after three years of commencement of the risk. This, if anything, is slightly generous to the insurer. There is no reason why the insurer should be given such a long rope.

In fact, he should not be allowed to repudiate even during the first three years with the rider that should the insured have made any untrue or misleading declaration, that would entitle the insurer to repudiate the contract anytime. Nevertheless it is a good beginning.