Mis-selling insurance policies to attract penalty of up to Rs 25 crore

The Insurance Laws (Amendment) Bill, 2015 provides for a penalty of up to Rs 25 crore for mis-selling or misrepresentation of policies by agents or insurance companies to customers.

Dubbed as a major economic reform, the Insurance Bill was passed by the Lok Sabha earlier in March, and by the Rajya Sabha on Thursday.

In a statement highlighting key aspects of the amended law, the Finance Ministry said consumer interest will be better served through provisions like those enabling penalties on intermediaries/insurance companies for misconduct.

It also disallows multi-level marketing of insurance products in order to curtail the practice of mis-selling.

"The amended Law has several provisions for levying higher penalties ranging from up to Rs 1 crore to Rs 25 crore for various violations including mis-selling and misrepresentation by agents/insurance companies," said the statement.

The statement added that with a "view to serving the interest of the policy holders better", the period during which a policy can be repudiated on any ground will be confined to three years from the commencement of the policy and no policy would be called in question on any ground after three years.

"The amendments provide for an easier process for payment to the nominee of the policy holder, as the insurer would be discharged of its legal liabilities once the payment is made to the nominee," it added.

It is now obligatory under the amended insurance law for companies to underwrite third-party motor vehicle insurance as per regulations put in place by Insurance Regulatory and Development Authority (Irda). Rural and social sector obligations for insurers are retained in the amended laws.

Insurance sector regulator, Irda has been empowered to regulate key aspects of insurance company operations in areas like solvency, investments, expenses and commissions.

In addition to the provisions for enhanced foreign equity to 49 per cent from 26 per cent, the amended law will enable capital raising through new and innovative instruments under the regulatory supervision of Irda.

The four public sector general insurance companies are now allowed to raise capital, keeping in view the need for expansion of the business subject to the government equity not being less than 51 per cent at any point of time.

The amended law also enables Lloyds of UK and its members to operate in India through setting up of branches for the purpose of reinsurance business or as investors in an Indian Insurance Company within the 49 per cent cap.

With the passage of the amended law, government expects that foreign capital to the tune of Rs 25,000 crore would flow into the insurance sector.