REFORMS IN INSURANCE REGULATION - AN OVERVIEW

LAWS RELATING TO THE INSURANCE INDUSTRY

Insurance Act, 1938

IRDA Act, 1999

LIC Act, 1956 GIBNA Act, 1972 Marine Insurance Act, 1963 Public Liability Insurance Act, 1991 Motor Vehicles Act, 1988 Indian Contract Act, 1872

Companies Act, 1956

Subordinate Legislation

Liberalization & opening of the Insurance Sector Need to identify provisions that require amendments due to fast changing economic scenario. 190th Report of the Law Commission of India Report of the K.P.Narasimhan Committee

190th Report of the Law Commission

Repudiation of the Life insurance policy Assignment and Transfer Nomination Penalties, Adjudication & Appeals Grievance Redressal Mechanism Merger of IRDA Act, 1999 with the Insurance Act, 1938

Report of the K.P.Narasimhan Committee

Provisions relating to investments Shareholders funds & policyholders funds

Sufficiency of assets
Insurance surveyors Tariff Advisory Committee

Repudiation of life insurance policies

Principle of uberrima fides Good faith forbids the other party , by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact and believing the contrary. Risk run is really different from risk understood and intended to be run at the time of the agreement.

Sec. 45 of the Insurance Act, 1938 - Policy not to be called in question on ground of misstatement after 2 years unless the statement was on a material matter or suppressed facts which it was material to disclose and It was fraudulently made and the policyholder knew at the time of making it that the statement is false or that it suppressed facts which it was material to disclose.

(a)

(b) (c)

At any time upto 2 years, repudiation can be done if material facts in the proposal form are false.
Only if all the 3 conditions are satisfied conjointly can the insurer repudiate a claim after 2 years as held by the Honble SC in Mithoolal Nayak Vs. LIC (AIR 1962 SC814)

(a)

(b)
(c)

LIC Vs. G.M.Chennabasamma (1991 1SCC 357)

LIC Vs. Asha Goel (2001 2SCC 160)


1) 2) 3)

Law commissions recommendations

No repudiation on any ground after five years. No unilateral repudiation Refund of premium in case of repudiation on the ground of misstatement or suppression of a material fact but not on the ground of the fraud.

What is a material fact? Misstatement or suppression of a fact that has a direct bearing on the risk undertaken Onus is on the insurer

No repudiation where the insured can prove that the suppression or misstatement was true to the best of his knowledge and belief or no deliberate intention to suppress.

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 (a) (b)

No unilateral repudiation Notice to the insured or legal heirs etc. the grounds and materials to be disclosed Repudiation on grounds of :

Fraud policyholder gets nothing Misstatement or suppression material to life expectancy (short of fraud) premium to be paid

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Assignment & Transfer

Sec. 38 of the Insurance Act, 1938 Absolute & Conditional assignments to be distinguished Absolute assignment where all rights and interests is transferred to the assignee Conditional assignment - creates an immediate vested interest in the assignee but which is liable to be divested on the happening of event specified to be extended to the personal lines of non-life business Partial assignments to be permitted restricting further assignments Disclosure of reasons & antecedents of assignee, terms of assignment Insurer to get credentials of assignee verified at the cost of the insured

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Nomination

Sec. 39 of the Insurance Act, 1938 Distinction between a beneficial nominee and a collector nominee Option to be given to the policyholder to specify Nominee to receive the claim amount when death takes place after maturity but before actual payment Nominee is the hand that receive the payment. Sec. 39 cannot alter the succession law.
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Penalties & Appeals

Penalties u/s.102 105C be enhanced and made deterrent. Adjudicating penalties Appeals to lie to special Tribunal with further appeal to the Supreme Court. KPN Appeal to SAT instead of IAT

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Grievance Redressal Mechanism

Mandatory in-house mechanism Party to approach GRA first from the decision of the in-house mechanism GRA to replace ombudsman Pending disputes before consumer forum to be transferred to the proposed GRA Jurisdiction of Civil Courts ousted on matters relating to GRA GRA to be multi-member body Appeal to IAT on the decision of GRA

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KPN Committee on GRAs

The existing system of consumer courts offers cheap and easy access

Appeals to IAT is also costly and time consuming as against the existing appeal provisions against the orders of District Forum
Ombudsman has the merit of bringing finality to the disputes

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Provisions relating to Investments

No need to have separate sections for investment of life & non-life Approved investments may be shifted to the regulations Controlled Investible Funds in place of the Controlled Fund Investment in derivates only for the purpose of hedging Not more than five percent of the controlled investible funds in the companies belonging to the promoters group Directors or officers who knowingly contravene the provisions to make good the loss

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Provisions relating to Capital

Equity Share Capital by a foreign company not to exceed such percentage of the paid-up capital as GOI may prescribe Different classes of insurers need different limits of capital

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Solvency Margin & Deposits

Controlled level of solvency Abolition of deposits Formula based linkage between minimum capital and minimum solvency margin

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Actuary, Surveyors & Loss Assessors

Amalgamations to be based on report of independent actuary Amndt. of Sec. 64UM for issuance of license to surveyors and loss assessors on the same grounds of qualifications and disqualifications as per Sec. 42(1) & (2). Licensing of Surveyors to be abolished Law to prescribe minimum qualifications to work as surveyor In-house surveyors to have the same qualifications Notification of limits for the different classes of business to be made by IRDA as against the present limit of rupees twenty thousand and above Promotion of Institute of Surveyors

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Tariff Advisory Committee & Insurance Councils

TAC to be renamed as Technical Advisory Committee Determination of rates, terms and advantages to be entrusted to Gen. Ins. Council Gen. Ins. Council to be SRO TAC to be brought under Gen. Ins. Council

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