India: Boon Of New Amended Insurance Laws

Last Updated: 29 June 2015
Article by Shivanand Singh

Most Read Contributor in India, September 2016

The new Insurance Bill, 2015 passed on dated 12.03.2015 by the parliament is aimed to foster varieties of multilateral advantages for the Indian economy and basically the Insurance sector. This Bill is a manifestation of a logical step to re-energies the Insurance sector as well as the economy of India. It will lay its positive effects from the view of social, institutional and international impacts.

Out of its various impacts one of the very vital aspects is that the hike in the FDI limit in Indian Insurance Company up to 49% from present 26 %, will bring major economic reforms and economy Changes in country. It will cause its effect on other sectors as well and will lead to good impacts overall. Keeping aside its meager pros & cons, remarkable advantages of this new Bill can be summarized as below.

One of the vital aspects of the new Bill is the technology of facilitating the issuance of the electronic policies. It will help in improving the claims payout. This electronic issuance and dematerializing of policies will cause data sharing between companies very easier and reliable, and it will ultimately help in fast detection of any cases of fraud. According to the prevailing provision, the Insurance companies takes a longer time for verifying the payable claims and the due diligence of the insurance companies for scrutinizing the payable claims, which ultimately leads to delay in processing and delay in paying the claims of the customers. So after this new technology of issuing the electronic policies, the companies will be able to share data, causing the instances of committing fraud in the motor insurance etc, and consequently the delays in the payments; be reduced drastically and it will ultimately boost up the growth of the business of the Insurance companies and also boost up the confidence of the people towards the insurance.

In order to prevent the miss-selling, the new bill prohibits paying any agent commission, in excess of what is prescribed in the regulation. Inducement by the insurance companies to the agents like giving rewards, gifts, foreign trips, etc are curtailed which is in the interest of the unconscious investors. By the effect of that the chances of giving unsuited policies to the customers by the agents will reduce.

Having been the second largest populated country with population more than 125 Crores, India has the requirement of Insurance, more than any other country in the world. It indicates towards the scope of more Insurance Inputs in the country. This sector will not only see the increase of FDI up to 49% from 26% but also help the domestic players sell stakes to foreign partners. The industry which was suffering from capital crunch for quite some time will now find some boon by this move.

a) One benefit from this increased FDI up to 49% will be that the Insurance companies will get the level playing field. It is pertinent to note that 70 % of the life insurance market in India is controlled by the State owned Life Corporation of India.

b) The extra capital inflow of 49 % FDI can be used to fund the infrastructure need of the country which is very necessary and one of the vital part of the development. This capital inflow is expected to go from 10,000 crore to 40000 crores in the near coming future. This considerable hike in the FDI limit will bring remarkable relief to these firms and Industries, as the Private sector Insurance companies has been suffering from reasonable losses.

c) Among the other advantages of this new amendment Bill are the new Job opportunities. This new Bill is definitely going to create new Joint ventures and new entrants are also expected to join the sector. It will promote customer centric product and service innovations with an enhancement to technology, deepening market penetration besides improving distribution efficiencies. The new Bill will help in expanding the scope of insurance intermediaries to include insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors and such other entities, as may be notified by the authority from time to time.

d) This Bill will support the development and enhancement of the Health Insurance industry with an Infusion of Capital and the ability to operate as a separate line of business. This Bill is also favorable to the Pension sector. The pension fund regulatory development bill (PFRDA) links the FDI limit in the pension sector to the Insurance sector. If the pension Bill is passed in the Parliament then the foreign direct investment in the pension funds can also rise to 49%. So this measure is going to help beyond life Insurance to cover other aspects like health and Crop besides providing more funds for development of infrastructure.

e) The common men will become the good beneficiary from this new Insurance amendment Bill. By the effect of this thee is more probability of increasing more employees/agents in the Insurance sector and it can lead to the good competitive environment as well as the good competitive quotes, improved services and ultimately it will also lead to somewhat better Claim settlement ratio. So all these will go to benefit the common men. Further, more and more interests and involvement of the people in the Insurance sector will make an attractive market in the insurance sector due to which a continuous increase in the FDI in the coming times can be definitely anticipated. IRDA will also get more power in order to impose penalty over the wrong doers. Further, properties in India can now be insured with a foreign insurer with prior permission of IRDAI, whereas the same could be earlier done after the permission of the Central Government.

Grievance Redressal authority: The bill also introduces the provision for establishing an independent grievance redressal authority which will have the powers of civil court and the authorities will be consisted of judicial and technical members. So this provision of 'grievance redressal authority' will be a much better alternative solution than the existing scheme for the purpose i.e. of ' Ombudsman', because the ombudsman was an insufficient solution to tackle the large number of complaints against the companies.


As we know that every coin has its two sides and pros and cons are there with everything and every aspects, this new Insurance Bill amendment is also said to witness its repercussions. For example, it is a hot money and may put Inversion as well as economy at risk, mainly to Institutional Investors which is permitted in this new Insurance Bill. It is also pertinent to note that the employees of the LIC (life insurance Corporation) have shown their protest against the new Bill and they are unsecure about their future. While commenting on this issue, Minister of State for Finance, Mr. Jayant Sinha, rightly stated that Premium will not flow out of the country but will remain within the country and the interests of Policy holders will be protected by the IRDA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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