Finally, the Insurance Laws (Amendment) Bill, 2015, which enables enhancement of FDI (Foreign Direct Investment) limit from the current level of 26% to 49% in domestic insurance sector, was passed by both houses of parliament. This will pave the way for faster reforms in Indian insurance space as functionaries of both the present and previous central government claim.
Industry watchers did support this view and termed it as a definite boost to reform process for capital starved Indian insurance industry. The left parties in parliament did oppose the bill for known reasons. This Bill will replace the Insurance Laws (Amendment) Ordinance, 2014 that was brought to amend the Insurance Act, 1938, the General Insurance Business (Nationalisation) Act, 1972 and the Insurance Regulatory and Development Authority (IRDA) Act, 1999.
Moving the bill, the minister of state for finance, Jayant Sinha asserted, "Insurance is a capital-intensive industry. The insurance companies need to provide for future claims. If we provide legislative assurance and stability, foreign capital will come in which will help in expanding the insurance coverage in the country." Sinha also assured the members by saying, 'the definition of management and control will be aligned with the definition in the companies act to avoid any ambiguity.'
Undeniably, this bill has a number of provisions that can ensure a better health for our economy in general, for all present and future players in insurance space and also for the policy holders; if at all the provisions of the bill are executed on the ground both in letter and spirit.
As indicated, the higher FDI cap will guarantee inflow of foreign funds that can kick start the insurance sector that can in turn set in much needed changes to address some core issues including finding ways for boosting infrastructure funding.
Moreover, the bill further empowers the Insurance Regulatory and Development Authority (IRDA) including taking appropriate decision as regards putting in place a well-defined structure for agency commission that may go a long way in retaining as well as attracting suitable and dedicated manpower at the ground level – a must for reaching out to prospective customers and delivering satisfactory service for a long period. The bill also proposes to allow foreign reinsurance companies to set up wholly-owned branches in India which ensures increase in capacity of the reinsurance sector.
By incorporating the punishment clause in the bill for holding the insurance companies for any wrong doing by their agents, the bill tries to curb incidence of mis-selling which will ultimately protect the interest of the policy holder and instill confidence to be part of insurance activity.
Notwithstanding the various features that are incorporated in the bill, the end beneficiary, the policy holders of Life, Non-Life and/or Health Insurance of our country will complement all those related with the formulation and passage of this bill only if the following concerns are taken care of in right earnest.
Here the role of IRDA, Government and the Insurance Companies assumes greater significance. Why? It is because of the existing ground realities.
There is no denying the fact that there has been an improvement in the Indian insurance scene after liberalization in this sector post-2000, which paved the way for entry of dozens of private players in this high potential market, but it is equally true and disturbing that even after 14 long years in the intervening period, the large insurable population of this country, which comprises of the huge population of poor and disadvantaged section of society, though in dire need of life insurance policies, are still destined to live without even a life insurance cover. This has been a hard truth despite having mammoth organizations like the LIC (Life Insurance Corporation) and GIC (General Insurance Corporation) which have been operating for decades under the Government umbrella.
On top of this, the insurance awareness and education about the need for purchasing various insurance products and availing different services based on one's needs and financial affordability, more particularly in rural and semi-urban areas of this vast country couldn't find a priority place in the growth road map of insurance business so far. Selection and training of agents and advisors at the base level still remains a major grey area. Cumulatively, all these factors do contribute greatly towards dismally low insurance penetration in such a huge potential market.
Some other aspects mainly of life insurance business such as persistency ratio and servicing of orphan policies have also been a major cause of concern and so has been the death claim settlement ratio, which must be given due emphasis while monitoring and then rating the overall business performance of any insurance player in this evolving market. Similar parameters can be set to judge the performance of Non-life and Health Insurance Companies.
All said and done, implementation and execution has been and will be the key to success of any policy/decision including the present one. Only then, the basic expectation and aspirations of both existing and prospective policy holders of all kinds of insurance products and services will be realised. And only then, we can make the dream of financial inclusion a reality in true sense of the term, the much talked about Jan-Dhan Yojna, notwithstanding.
Milan K. Sinha is a freelance writer. He has worked in Banking and Insurance sector for three decades following three years of active writing in various newspapers and magazines. Presently he is engaged in stress management, wellness and awareness activities besides freelance writing.