A recent amendment bill passed by the Rajya Sabha has brought several changes to the insurance sector of the Indian economy. The so-called insurance bill was passed by the upper house of the parliament on 12 March, 2015. The bill has brought changes in the Insurance Act, 1938, the General Insurance Business (Nationalisation) Act, 1972 and the Insurance Development and Authority Act, 1992.
The insurance amendment bill is going to offer several benefits to both the policyholders and the Indian economy and the overall insurance sector. The government has allowed up to 49% of FDI(Foreign Direct Investment) in the insurance sector which was only 26% earlier. It will allow higher inflow of foreign money in the Indian economy. Over the next few years, investment of about INR 200 billion is expected to come to the insurance sector after the clearance of the insurance bill.
Apart from that the bill will also provide several benefits to the policy holders. Some of the those benefits are:
No policy claim can be rejected after 3 years: The insurance companies cannot reject any claim on any ground after the period of 3 years. No policy can be repudiated even on the ground of misstatement of facts after 3 years.
Heavy penalties to reduce mis-selling in the insurance sector: According to a section of the new amendment, all the insurers will be responsible for all the obligations and acts of their agents and will have to pay heavy penalties in the case of any violation of code of conduct. Also a fine of INR 5 lakh will be charged if agents offer kickbacks to the buyer of the policy which is a very common practice in insurance market.
Maintenance of electrical records: The amendment also proposes that the insurance companies should maintain a proper electrical record of all the policies and claims in order to increase transparency.
Bigger and deserving agent force: Earlier the licensing of agents was done by IRDA but the amendment proposes that the appointment of the agents should be done by the insurance company subjected to the agents meeting the qualification or passing some examination, etc. this will result in forming deserving agent force in the sector.
This new amendment is expected to improve the quality of insurance practices in India and will help in growing the sector by drawing more and more investments by the international investors.