Insurance reforms: What it means for policyholders

After opening up multi-brand retail to foreign direct investment (FDI) , the Cabinet on Thursday approved a Bill seeking to increase in the FDI cap in insurance from 26 per cent to 49 per cent.

The insurance regulator has backed the move. The announcement has been welcomed by the industry, which has been struggling to raise capital for a while.

"The FDI increase to 49 per cent is essential for this capital-intensive industry that requires long-term investments. It will encourage more participation of foreign partners in insurance firms and lead to product development and innovation," says T R Ramachandran, CEO and MD, Aviva India.

The four public sector general insurance companies - National Insurance, New India Assurance, Oriental Insurance and United India Insurance - along with General Insurance Corporation, the reinsurer, will also be permitted to raise capital from the market. However, the government's holding will not fall below 51 per cent.

The Bill also proposes to reduce the capital requirement for health insurance companies to Rs 50 crore. At present, it is Rs 100 crore for general insurance companies that sell health policies.

The aim is to lower entry barriers and increase health insurance penetration.

FOR POLICYHOLDERS...
The recommendations of the Standing Committee on Finance on the Insurance Laws (Amendment) Bill 2008 that the Cabinet also approved on Thursday will affect policyholders directly.

Rejection of Policies: Insurance companies would not be allowed to repudiate any policy on any ground, including misstatement of facts, after three years of the start of the policy.

Expansion of Agent Network: Insurance companies will be allowed to appoint agents only if they have the mandated qualifications and pass examinations specified by the regulator. However, to protect customers, the regulator will still be authorised to take action against misconduct.

Curtail Mis-selling: To monitor the performance and activities of agents, Irda will specify the commission structure and 'Code of Conduct' for them.

Agents will have to pay stiff penalties for mis-selling, rebating and marketing of products through multi-level marketing schemes. The fines for misconduct by insurance companies and intermediaries will be specified.

Better Evaluation of Claims: To improve the functioning of surveyors and bring transparency, the qualification requirements for surveyors will be made more stringent. The amendments seek to do away with the existing statutory prescriptions pertaining to licensing insurance surveyors and loss assessors.