Apart from hiking the foreign direct investment (FDI) cap for the sector, the new insurance law puts in place increased safeguards for consumers through provisions which also hold the company responsible for any mis-selling of products.
Higher penalties of up to Rs 25 crore for violations by agents and insurance companies have been introduced in the Act as a deterrent for mis-selling.
"The amendments to the laws will enable the interests of consumers to be better served through provisions like those enabling penalties on intermediaries and insurance companies for misconduct," a senior finance ministry official said.
It also disallows multi-level marketing of insurance products in order to curtail the practice of mis-selling, the official added.
The amended law has several provisions for levying higher penalties ranging from Rs 1 crore to Rs 25 crore for violations, including mis-selling and misrepresentation by agents and insurance companies.
SB Mathur, secretary general, Life Insurance Council, told Mail Today that the new law is good for consumers as it also holds insurance companies liable for the mis-selling of products.
Earlier, insurance companies usually took the plea that the policy was a contract between the insurance agent and the individual in cases of mis-selling.
Now, they will not be able to pass the buck to agents.
In the new law, the period during which an insurance company can repudiate policy on any ground, including misstatement of facts, will be confined to three years from the commencement of the policy and no policy would be called in question on any ground after three years.
In the earlier proposal, this was five years. However, Mathur pointed out that in the existing Act, the period during which an insurance company can repudiate a policy is only two years. So, although it has been reduced to three years from the earlier proposal of five years, the period has been increased compared with the law which it will replace.
Mathur also pointed out that the new Act does give enough allowance for honest mistakes that can be made at the time of filling policy forms. In country where a vast chunk of the population is not sufficiently literate, some genuine errors can occur while providing information, he added. On the positive side, the amendments also provide for an easier process for payment to the nominee of the policy holder as the insurer would be discharged of its legal liabilities once the payment is made to the nominee. It is also now obligatory in the new law for companies to underwrite third-party motor vehicle insurance as per Irda regulations.
>> Earlier, insurance companies usually took the plea that the policy was a contract between the insurance agent and the individual in cases of mis-selling
>> Now, they will not be able to pass the buck to agents and have to ensure that they are fair to the customer
>> The period during which an insurance firm can repudiate policy on any ground will be confined to three years from the commencement of the policy
>> No policy would be called in question on any ground after three years. In the earlier proposal, this was five years
(Courtesy: Mail Today)