Business
New insurance law underwrites customer protection
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By Venkatachari JagannathanChennai, March 15
The long-delayed amendments
to the insurance laws that parliament passed last week have some good
features for protecting the interests of policyholders and their family
members, industry experts said.
Looking at the provisions,
successive central governments could have done a great service to
policyholders had they brought these amendments much earlier by keeping
out the contentious issue of hike in foreign direct insurance (FDI) to
49 percent from 26 percent, the experts added.
After much trouble
and tribulation, the much-awaited amendments to the vintage Insurance
Act, 1938, and other insurance-related laws have come into being with
parliament passing the Insurance Laws (Amendment) Act, 2015.
"The
act has also brought about substantial changes for protecting the
interests of policyholders by amending Section 38 (assignment of
policies), Section 39 (dealing with nominations) and Section 45
(limiting the rights of insurers to call in question on the grounds of
fraud and the like)," D. Varadarajan, a Supreme Court advocate and an
expert in insurance/company/competition laws, told IANS.
The new
law also prescribes heavy penalties against insurers for mis-selling and
other misdeeds which, in a way, would protect the policyholders.
A
senior industry official, preferring anonymity, told IANS: "The new law
protects the interests of policyholders who have been loyal to the life
insurance companies."
"As a result, if any claim is made under
life insurance policies three years after the issuance of
policy/commencement of risk/reinstatement of the policy, the insurance
company loses the right to cancel the policy proceeds on the grounds of
misstatements in the proposal form for insurance," he said.
He
said this is on the premise that the life assured has outlived his
ailment, if any, and therefore, even if there is a mis-statement in the
proposal form, it ceased to have any impact on the health/mortality of
the person whose life has been covered and therefore the claim is
payable.
The amended law gives special protection to parents, spouses and children who are listed as nominees in life insurance policies.
"These
nominees will be beneficially entitled to the policy proceeds and no
other legal heir can claim the policy benefits and dispute the claim
made by the family members. Earlier, any nominee acted as a trustee and
was accountable to the legal heirs of the life assured," the official
said.
Further, the law now recognises partial assignments under
life insurance policies as against the earlier situation of total
assignment.
For example, if a policyholder has borrowed say
Rs.500,000 and intends to pledge his Rs.800,000 life insurance policy,
he can assign to the lender only up to his borrowings and not the entire
policy amount.
The balance interest in the policy (Rs.300,000) rests with the nominees.
According to an industry official, assignment of rights in a life insurance policy will not impact nomination in certain cases.
Under
the old law, assignment of policy would cancel the nomination. However,
under the new law, a transfer of a policy in consideration of a loan
shall not cancel the nomination, but will affect the rights of the
nominee to the extent of the outstanding loan.
"Further the bill
also states that where the policy is re-assigned, the nomination which
was cancelled earlier will stand automatically reinstated," he
explained.
The new law makes the insurance companies liable for
the acts and omissions of their agents, including violation of the code
of conduct, and liable to a penalty which may extend to Rs.1 crore.
"This
is intended to fix responsibility on insurers for the misdeeds of its
agents - under the "Principal-Agent" relationship," Varadarajan said.
The new law also addresses India's uninsured population is around 500 million.
"Currently
the life insurance penetration is only 3.9 percent. We expect this to
go to six percent in five years time. We are projecting the life
insurance sector to grow by 15 percent per annum," V. Manickam,
secretary general of the Life Insurance Council, told IANS.
He
said the entry of new players would force companies to look at new
markets like the northeastern states for business and also rural areas.
"We
expect the sector to receive fresh capital infusion of around Rs.50,000
crore by 2020. The number of life insurance branch offices will go up
from 10,000 to 30,000. The number of employees will go up to around
500,000 from the current 200,000," he said.
Manickam said that
the number of agents selling life insurance policies will go up to four
million from the present levels of around two million.
"These
amendments would bring about many genuine practical difficulties for the
insurers, and the fallout of these provisions would be tested before
judicial and quasi judicial bodies on various counts, making the lawyers
laugh and litigants weep," Varadarajan remarked.
(Venkatachari Jagannathan can be contacted at [email protected])