The government has announced significant changes in The Insurance (Amendment) Bill 2022. There has been a demand to provide a composite license to insurers for a long time. The composite license will allow insurers to take business of general and health insurance via a single entity.
“The proposed amendments primarily focus on enhancing the financial security of the policyholders, promoting the policyholders’ interests, improving returns to the policyholders, and facilitating the entry of more players in the insurance market, leading to economic growth and employment generation,” the ministry said while seeking comments from all stakeholders.
The amendment bill has introduced the concept of captive insurer, which shall be a general insurance company undertaking any or all subclasses there under, exclusively for its holding/ subsidiary/ associate companies. Captives have the potential to play an important role in being the development catalyst for the insurance sector.
Changes in Insurance Act
The age criteria for retirement for IRDA Chairman and Whole Time Director have been increased from 62 to 65.
From now-onwards insurance companies can work as capital reinsurance companies. The insurance company is responsible for their entire business.
Earlier, it was mandatory for companies to maintain a minimum Rs. 100 crore paid up equity capital to work as a health or life insurance company and Rs. 200 crore for a company to work as a reinsurance company. But the minimum capping has been removed. The government’s plan to bring down the net owned funds to Rs.500 crore from the existing Rs 5,000 crore for a reinsurer. IDRA can decide minimum capital as per the interest of the company to work in the sector. It will be beneficial for the industry as a whole and provide the avenue for smaller players to enter the industry.
Insurance companies can now sell other financial products/services such as mutual fund schemes, and extend the loan. This change opens a new door for business.
The rules related to share in insurance company will change. At present, a company’s share in an insurance company is 5%. In addition to this 5%, if the company wants to increase the share by 1%, they will not have to take a fresh approval of the IRDA. But the company will have to take approval from IRDA while acquiring another 5% share.
In 2023, the technological transformation will continue to play a vital role in the insurance industry. The industry needs to adept digital solutions to collectively work towards improving penetration of insurance in the country as per the customer’s requirements. However, the insurer should mantain a balance between digital adoption and human intervention to help the customer simplify the entire customer experience from searching to purchasing and claim settlement to customer services.
However not all in the industry are in favor of the proposed amendments.
India has only 28 insurance companies whereas; Singapore has more than 100 insurance companies. It depicts that, in India, insurance coverage is lesser than in Singapore. It is also noted that hardly 3.5% of the population in India are securing themselves under insurance, and 96% people are not taking insurance. Those who have availed insurance are not properly covered under insurance means they are underinsured.
Furthermore, the amendment looks after the standardization of hospital rates as many corporate hospitals charge exorbitant rates. There will be new guidelines for hospital rates, and third party agents have to work within the standard rate limits.
There will be tightening rules for those agents and insurance companies who mislead customers or provide false information. If any insurance companies do not take action on such agents, the insurance company will be penalized. Earlier, the government has made provision that the insurance agent has to use vernacular language comprehensively to the customer to make him/her understand terms and conditions of insurance policy, advantage and disadvantage of policies in written form on which insurance agent and customer has to sign it with date and time. Moreover, the insurance company should in a docket of customer documents. But it is neither followed by insurance companies nor agents. In future, this misinformation will lead to conflict in claim settlement.
According to experts, in the corporate insurance segment, there is claim settlement conflict in 70 cases out of 100 cases. It also happens due to underinsurance. There is also an issue of difference between valuation of property while taking insurance and valuation when it damages due to unforeseen situations.
There is need of robust system to manage fraud in the insurance sector to reduce the tendency to mislead and sell insurance by banks as corporate agents, insurance companies and insurance agents.
Buying insurance online or digitally has made the entire process hassle-free and easy for customers. Most insurers provide online free insurance quotes, and you can even purchase different types of insurance directly online. However, the drawback is when it comes to claim settlement; no one is there to help you. It is also one of the extensive issues which need to tackle.
The bottom line is that being a customer you need to check whether you are taking enough insurance coverage or not, the terms and conditions you have read and understand carefully and you are not misled by insurance agent, insurance company, bank or digital platform.