Re.: Insurance Bill – Details of the amended provisions
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Lok Sabha have approved and passed the Insurance laws amendment bill.
Subsequently Rajya Sabha have also given its consent.
The amended Life Insurance Act have come into stay.
What are the important features which will have a bearing on Life Insurance Agents. Let us analyze.
1) Section 40A of the Insurance Act, 1938 which capped agents commission on Insurance products
does not find mentioned in the new bill. In other words, the fixation of commission is left to the
decision and discretion of IRDA of India, which will provide guidelines to Life Insurance Companies.
2) Claim rejection:
The revised insurance laws allow the insurer to challenge a policy holder for mis-representation of facts
or fraud only in the first three years of the policy.
In such cases, If there is misrepresentation or omission of facts or fraud, the insurance company can
challenge the claim.
The onus is on the policy holder or nominee to prove that statement or suppression of the fact was not
done deliberately.
If the policy holder is not alive, the obligation falls on the shoulders of the nominee.
Earlier the Insurance Companies were allowed to challenge the policy holder in the first two years of the
policy term on the grounds of fraud.
After the first two years, the insurer could still dispute the claim. But in order to do so, the
insurer had to prove that the policy holder had deliberately had committed the fraud.
However the new bill is very clear in this respect.
A policy can’t be disputed after expiry of three years on any grounds.
After three years, the policy holders are assured that the Insurance Company will never
reject claim, once the complete three years on the policy.
Conti….
-2-
Please note, that in the year 2013-14, some of the private players had repudiated as many as 15% of
the claim lodged with them.
3) An amendment that makes the difference to the policy holder with regards to the hiring
of agents.
Hereafter the agents will be appointed by the Insurance Companies directly and Insurer will be held
liable all action of the agent.
If an agent commits a fraud and the policy holders suffers, hereafter it is equally the responsibility
of the Insurance Companies to provide relief to the policy holder.
IRDA has been given power to enforce stiffer penalty on Insurance Companies, if the regulator finds out
that there had been violation of regulation in the appointment of agents, it can penalize the agent
with a fine upto Rs.10,000/- , the insurance company can be liable to pay a penalty upto 1
Crore.
Multi level marketing, which as affected the interest of several policy holders is totally
forbidden by the new law.
The new law forbids such multilevel marketing. This is a positive development.
Every agent who deals with the policy holders is directly employed by the insurance
company.
4) The Bill also holds that any agent who offers an inducement to the policy holder (rebate) directly or
indirectly to take or renew an insurance policy will be penalized to the extend of Rs.10 Lacs.
Earlier the penality was just Rs.500/- under section 41(2).
5) An Agent can work with one life insurance company, one general, one health insurance company.
Each agent will be authorized to sell products of one Insurer.
6) Scrapping of Commission Ceiling:
The insurance act of 1938 specified a limits on the commission that could be paid to the agents under
section 40a, the act specifies that in the life insurance business, the commission paid should not exceed
40% of the 1st years premium and 5% of the renewal premium in the traditional insurance products.
In the new bill this section have been removed.
There is no official cap on commission to agents on traditional products.
The commission structure has to be decided by IRDA.
7) However the unit linked policies will continue to have a cap on net reduction in yield of a maximum
of 2.25%.
These all are the important and salient features which affect the policy holders as well as
the agents.
vinay mohanty
******
Lok Sabha have approved and passed the Insurance laws amendment bill.
Subsequently Rajya Sabha have also given its consent.
The amended Life Insurance Act have come into stay.
What are the important features which will have a bearing on Life Insurance Agents. Let us analyze.
1) Section 40A of the Insurance Act, 1938 which capped agents commission on Insurance products
does not find mentioned in the new bill. In other words, the fixation of commission is left to the
decision and discretion of IRDA of India, which will provide guidelines to Life Insurance Companies.
2) Claim rejection:
The revised insurance laws allow the insurer to challenge a policy holder for mis-representation of facts
or fraud only in the first three years of the policy.
In such cases, If there is misrepresentation or omission of facts or fraud, the insurance company can
challenge the claim.
The onus is on the policy holder or nominee to prove that statement or suppression of the fact was not
done deliberately.
If the policy holder is not alive, the obligation falls on the shoulders of the nominee.
Earlier the Insurance Companies were allowed to challenge the policy holder in the first two years of the
policy term on the grounds of fraud.
After the first two years, the insurer could still dispute the claim. But in order to do so, the
insurer had to prove that the policy holder had deliberately had committed the fraud.
However the new bill is very clear in this respect.
A policy can’t be disputed after expiry of three years on any grounds.
After three years, the policy holders are assured that the Insurance Company will never
reject claim, once the complete three years on the policy.
Conti….
-2-
Please note, that in the year 2013-14, some of the private players had repudiated as many as 15% of
the claim lodged with them.
3) An amendment that makes the difference to the policy holder with regards to the hiring
of agents.
Hereafter the agents will be appointed by the Insurance Companies directly and Insurer will be held
liable all action of the agent.
If an agent commits a fraud and the policy holders suffers, hereafter it is equally the responsibility
of the Insurance Companies to provide relief to the policy holder.
IRDA has been given power to enforce stiffer penalty on Insurance Companies, if the regulator finds out
that there had been violation of regulation in the appointment of agents, it can penalize the agent
with a fine upto Rs.10,000/- , the insurance company can be liable to pay a penalty upto 1
Crore.
Multi level marketing, which as affected the interest of several policy holders is totally
forbidden by the new law.
The new law forbids such multilevel marketing. This is a positive development.
Every agent who deals with the policy holders is directly employed by the insurance
company.
4) The Bill also holds that any agent who offers an inducement to the policy holder (rebate) directly or
indirectly to take or renew an insurance policy will be penalized to the extend of Rs.10 Lacs.
Earlier the penality was just Rs.500/- under section 41(2).
5) An Agent can work with one life insurance company, one general, one health insurance company.
Each agent will be authorized to sell products of one Insurer.
6) Scrapping of Commission Ceiling:
The insurance act of 1938 specified a limits on the commission that could be paid to the agents under
section 40a, the act specifies that in the life insurance business, the commission paid should not exceed
40% of the 1st years premium and 5% of the renewal premium in the traditional insurance products.
In the new bill this section have been removed.
There is no official cap on commission to agents on traditional products.
The commission structure has to be decided by IRDA.
7) However the unit linked policies will continue to have a cap on net reduction in yield of a maximum
of 2.25%.
These all are the important and salient features which affect the policy holders as well as
the agents.
vinay mohanty
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