What’s in Insurance Laws (Amendment) Bill, 2015?

Insurance Laws (Amendment) Bill, 2015 amend the Insurance Act, 1938 and the General Insurance Business (Nationalisation) Act 1972 and the Insurance Regulatory and Development Authority Act, 1999. It provides for raising FDI cap in insurance sector from 26% to 49%.

1- The foreign equity cap in insurance sector is increased to 49 per cent as against the current 26 percent.

2- Foreign reinsurers will be permitted to open branches only for reinsurance business in India and the provisions of Section 27E, which prohibits an insurer to invest directly or indirectly outside India the funds of policyholder, would apply to such branches. The definition of “Foreign Company” for the purpose of insurance and reinsurance would mean: a company or body established under a law of any country outside India and includes Lloyd’s established under the Lloyd’s Act, 1871 (United Kingdom).

3- The capital requirement for a health insurance company is now reduced to Rs.50 crores.

4- The definition of ‘health insurance business’ has been revised to clearly stipulate that health insurance policies would cover sickness benefits on account of domestic as well as international travel.

5- Insurance companies will not be allowed to repudiate claims after three policy years. The Bill has amended Section 45 to state that no policy can be repudiated for any reason after three years of commencement of risk/date of reinstatement/date of issuance.

6- The PSU General Insurance Companies and GIC will be permitted to raise capital from the market to meet future capital requirements, provided that the Government’s shareholding would not be allowed to come below 51 per cent at any point of time.

7- The appointment of agents is to be done by insurance companies subject to the agents meeting the qualifications, passing of examinations etc. as specified by IRDA.

8- The insurers will be held responsible for mis-selling by agents.

9- Reinsurance: The IRDA currently does not regulate reinsurers. The new policy does not specify capital requirement for these companies to open branches in the country; the only prescription is that parent reinsurance companies should have net worth of Rs 5,000 crore.

After the amendment, the IRDA will formulate norms to regulate companies that open branches in the country. India already allows up to 26% foreign investment in reinsurance companies.

Benefits of Increased FDI in Insurance

1- The increased FDI limit will provide flexibility for insurer to raise the capital.
2- Customers will also benefit as more capital will translate into delivery of better products and services to them. More companies are likely to enter in to the insurance sector as well. This will lead to higher competition and insurance premiums may get cheaper for customers.
3- The investment will also be channelled towards product innovations and increase market penetration.
4- The bill provides for imprisonment of up to 10 years for selling policies without registration with the regulator IRDA.
5- The legislation will also allow PSU general insurers to raise funds from the capital market and provides for increased penalty to deter multilevel marketing of insurance products.
6- The law provides that 15 % of the premium should be invested in building infrastructure
7- Currently, out of the 24 life insurance companies in India, 22 have foreign partners and many of them would be looking at more foreign funds, analysts said. General insures would also benefit from foreign capital; among 28 firms in the sector, 18 already have foreign partners.