The new amendment in the insurance laws passed by the parliament last week offers immense benefits to the policyholder and the nominees in terms of protection. Upon analyzing the provisions it is clear that the successive government could have porvided better service to the policyholders. After a long delay and opposition, the vintage Insurance Act of 1938 has been amended to meet demands of today’s lifestyle. Furthermore, to encourage foreign direct investmnet (FDI), the government has revsied the foreign direct insurance to 49% from the previous 26%.
The Act has introduced a major change for the protection of the policyholders, by amending Section 38 for assignment policies, Section 39 for dealing with nominations, and Section 45 for limiting the rights of the insurers to call in and question for a possibility of fraud, according to a statement issued by Advocate D. Varadarajan, Supreme Court.
There is heavy penalty prescribed by the law against the insurer for misleading a policyholder.
An anonymous senior official said that the new law would protect the policyholder’s interest, more so, if the insurer is a loyalist to the insurance companies. Subsequently, if there is a claim made after 3 years post the commencement of risk or issuance or reinstatement of the policy, the insurance service provider loses the right to cancel the policy on the basis of false statements made in the insurance form. Further, if the insured outlived the ailment, he is still entitled to receive the claims. In the event of death of the insured, the parents and the family listed as nominees are entitled to receive the policy proceeds, and no other legal heir can make claims.
The new law recognizes the partial assignments under life insurance policies unlike previous situation. For instance, if a policyholder has borrowed Rs. 5 Lakhs for the treatment, against 8 lakhs life insurance, the lender can only claim the loaned amount (Rs. 5 Lakhs), and not the entire life insurace amount (Rs. 8 Lakhs), and the balance (Rs. 3 Lakhs) will go the nominee.
Previously, the nominee’s share of insurance amount would be cancelled. However, now the nominee receives policy benefits but he will be responsible to repay the balance loan amount. Further, the bill states that a reassigned policy will automatically be reinstated, if it had been cancelled previously.
The new law makes the companies liable for the acts of their agents in violating the code of conduct and has suggested a penalty exceeding Rs. 1crore. This law intends to fix the irresponsible behavior of the insurance agents under the principal-agent relationship. The law is focused on the uninsured population which stands at 500 million and are potential insurance buyers.
At this point of time life insurance penetration is only 3.9 percent, and it is expected to go above the 6% benchmark in the next five years.
The Secretary of the life insurance council Mr.V. Manickam expects the life insurance sector to grow at a rate of 15% annually. The entry of new insurance companies will force others to look at new markets, especially in the north-eastern states for new business opportunities including the rural areas.
The sector is expected to receive new capital infusion of Rs. 50,000 crore before 2020. Subsequently, a rise in the number of life insurance offices, and the branch offices from 10,000 to 30,000, and the number of employees from 2 to 5 Lakhs will be witnessed. He also added that the number of the agents selling life insurance policies will increase from the current number of around 2 to 4 million. Thus, the new amendment will bring practical difficulties for the insurers, which will be tested in the observation of the judicial bodies on different counts.
(Source: This article has been adapted from the article "New insurance law underwrites customer protection" that appeared on Mar 15, 2015 in timesofindia.indiatimes.com)