The Bill to amend the Insurance Act, containing 110 amendments, has now been referred to the Standing Committee. While many of the amendments are quite minor in nature, some may result in far reaching changes, not always for the good, for the insurance industry. A few of these changes considered important are discussed here.
Agency commission
Sec. 44 of the Insurance Act deals with “Prohibition of cessation of payment of commission to agents.’ An agent may voluntarily discontinue his agency or resign from one company and start working for another.
As per sub-Sec. (1), he cannot be denied payment of commission on renewal premiums received under policies procured by him, provided certain conditions are satisfied. Sub-Sec. (2) deals with payment of renewal commission to heirs of the agent in case of his death. The Bill seeks to delete the entire Section, thus removing at one stroke the protection, in the form of hereditary commission, to the family of the deceased agent. What is the justification for such a highly arbitrary and unfair step? No reason has been given.
As per Sec. 40(1) of the insurance Act, commission on premiums received under a policy can be paid only to an insurance agent. As per Sec. 40(2A), this commission can be paid only to the agent who procured that policy. The second provision was introduced, even before 1956, to prevent many of the undesirable practices prevailing in the insurance industry. It is now proposed to delete this provision. So, if an agent leaves a company or if the agency is terminated, the renewal commission under the policies procured by him can be paid to any other agent. This can result in large scale, legalised corruption. What is the need for this amendment? Again, no reasons are given.
The above two amendments, of far reaching nature, should have been introduced only after extensive consultations with agency organisations and after fully analysing the implications. This does not however appear to have been done.
Death claims
Under Sec. 45, a policy cannot be called in question by the insurer after two years from the date of issue, on the ground that a statement made in the proposal for insurance is inaccurate or false, unless the insurer can prove "intention to commit a fraud". This is being changed as "Policy cannot be called in question on any ground whatsoever after five years from “date of issue of policy, date of the commencement of risk, date of revival or date of rider, whichever is later”. This can adversely affect the interests of claimants in case of death claims. Further, to state that a policy cannot be called in question after five years on any ground, that is, even if fraud is evident, may tantamount to blanket condoning of fraud, which may be bad in law.
Foreign insurers
Sec. 63 deals with information to be filed by foreign insurers planning to procure insurance business in India and Sec. 64 stipulates the annual returns to be filed by them. These two sections are now proposed to be deleted, perhaps under the assumption that, as per Sec. 2C, only an Indian insurance company can operate in India. However, while amending Sec. 2C, the provision that only an Indian insurance company can carry on insurance business has been dropped and a new provision, "a non-private insurance company incorporated in any country outside India can carry on any business of insurance in any special economic zone" has been included.
This would mean that any foreign insurer can freely operate in special economic zones and need not file any periodic returns with IRDA. Is such a sweeping liberalisation good for the country? It is also not clear as to whether, after the amendment to Sec. 2C, non-Indian insurance companies will be permitted to operate in India in future.
Control on cost
Ceilings on management expenses (including commission) were imposed on the insurance industry from January 1, 1951 (Sec. 40B). These were, roughly, 85 per cent of first year premium and 15 per cent of renewal premium. These ceilings are proposed to be removed since many of the private insurers are finding it difficult to adhere to them. On the contrary, with the high level of computerisation available, the ceilings should have been lowered. Some companies argue that operational costs have increased because of solvency margin requirements, forgetting that contributions to solvency margin reserve do not form part of operational cost.
It can be seen from the above examples that the proposed amendments will adversely affect policyholders, agents and also the health of the insurance industry. It is hoped that the Standing Committee will send back the Bill, with the directive to hold extensive discussions with all the stakeholders before finalisation.
