1. Insurance: Clean bill of health

Insurance: Clean bill of health

The Insurance Bill not only provides for higher FDI, but also adds layers of protective cover for policyholders

Updated: March 17, 2015 12:51 AM
Insurance Bill, insurance bill india, insurance bill news, parliament insurance bill

The hike in the FDI limit will increase the confidence of foreign insurance companies looking to tap the Indian market, provide a major boost to the capital-strapped domestic insurance industry and also benefit policyholders. (Illustration: Shyam)

After a wait of seven years, Parliament passed the Insurance Laws (Amendment) Bill to raise the foreign direct investment (FDI) limit in the sector from 26% to 49%. The government had earlier issued an ordinance in December to raise the FDI cap in the sector. The hike in the FDI limit will increase the confidence of foreign insurance companies looking to tap the Indian market, provide a major boost to the capital-strapped domestic insurance industry and also benefit policyholders.

Here are how this insurance Bill affects you, as a policyholder:

More on the platter

The new rules add to options available to a customer. Higher FDI would mean more foreign companies investing in this sector, which would result in wider choice and better products. In the coming year, you would get more customised plans to choose from, as the competition would further intensify in this sector. Historically, increased competition between companies has resulted in better services for consumers.

Reduce delays

The Bill has removed two types of nominees — beneficiary and the collector. Earlier, this was the bone of contention for many claims, leading to litigation and delays. The Bill ensures that the beneficiary gets full legal rights over the insurance proceeds in the event of the policyholder’s death. This clause, apart from reducing delays, also lets the policyholder create an inheritance, thus giving an added reason to invest in insurance.

Not just the agent, but the company too is responsible

Earlier, it was just the agent who was held responsible for mis-selling. This, obviously, caused a lot of discontent among the policyholders who felt cheated by the agent and the insurance company also acted in a disconcerting way. The Bill now brings relief to the policyholder by making insurance companies responsible for mis-selling. Companies can’t reject a claim because it was mis-sold by their agent. This clause will curtail mis-selling and uphold the cause of the policyholders.

Insurance companies can’t reject a claim

This is a big move towards protecting policyholder’s rights. Insurance companies will have first three years to detect a fraud and, after that, they can’t reject a claim. The earlier time-frame was five years. The base rule is clear — companies must thoroughly check and issue policy to a person who meets the criteria and not cry foul at a later stage. Usually, it is the naive policyholder who gets unnecessarily caught in this web.

This clause will help such policyholders.

Allows partial assignment of your policies

The new Bill allows you to partially assign your life insurance policies to banks or lenders. This is a departure from the present law, which only allowed for total assignment of insurance policies, i.e., the entire interest needs to be assigned. Earlier, if you took a loan of, say, R20 lakh against your life insurance policy worth R30 lakh, the whole policy had to be assigned to the lender.

The new norms further allow you to transfer your life insurance policy to another person. However, to ensure ethical use of such an allowance and prevent people from trading in insurance policies, the Bill also empowers the insurers to reject an assignment request if the person fails to present a genuine reason for such a transfer.

More safety for your money

The Bill ensures stronger and stricter norms around asset management of different businesses in an insurance company. As per the new norms, all insurers would now need to maintain assets of each business separately and distinct from other assets of the insurer. To explain by way of an example, a general insurer would need to keep and maintain assets of its fire and health insurance businesses separately. There cannot be mixed pool for both businesses. This protects the policyholder from an unforeseen eventuality where the insurer might incur a big loss in one line of business.

Insurance goes e-way

The insurance Bill brings more transparency to the working of the sector by asking the companies to maintain all records online. These records should be publically available to policyholders through company’s website. This Bill, overall, has kept your rights as a policyholder central and taken cogent steps to protect them.

Empowering policyholders
* The Insurance Laws (Amendment) Bill raises the foreign direct investment limit in the sector from 26% to 49%
* It does away with the concept of two types of nominees — beneficiary and the collector, thus removing a major stumbling block towards getting claims
* The Bill ensures the beneficiary gets full legal rights over the insurance proceeds in the event of the policyholder’s death
* It makes insurance companies responsible for mis-selling. Companies can’t reject a claim because it was mis-sold by their agent
* Insurance companies can’t reject a claim. They will have first three years to detect a fraud and, after that, they can’t reject a claim. The earlier
time-frame was five years
*  The new Bill allows you to partially assign your life insurance policies to banks or lenders. This is a departure from the present law, which only allowed for total assignment of insurance policies, i.e., the entire interest needs to be assigned. Earlier, if you took a loan of, say, R20 lakh against your life insurance policy worth R30 lakh, the whole policy had to be assigned to the lender.

By Yashish Dahiya

The writer is CEO & Co-founder, PolicyBazaar.com

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