Insurance companies have sought relaxation in the hefty penalties proposed in the insurance bill for ‘mis-selling’ and demanded that they should not be held liable for any ‘act of omission’ by their agents. In a representation to the select committee of Rajya Sabha, which is examining the bill, insurers have argued that an “exorbitant increase” in penalties will not only discourage regulated entities but also affect voluntary compliance.
The insurance bill seeks to raise foreign investment limit in the sector to 49% from 26%. The bill, which has been passed by the Lok Sabha, met stiff resistance from opposition parties in the Rajya Sabha where the ruling NDA is in a minority. The 15-member select committee, headed by BJP leader Chandan Mitra, is expected to submit its report in the first week of the winter session of parliament.
The government hopes to get the bill approved by the house in the upcoming session. “We have said that the quantum of the monetary penalties should be justified,” a senior executive with a life insurer, who is aware of the deliberations, told ET. “Exorbitant increase could discourage regulated entities and will not support voluntary compliance.” The insurers have also sought a distinction between them and the actions their agents.
Under the proposed law, insurers are liable to pay a fine of up to Rs 1 crore for any act of omission by their agents.The Life Insurance Council has also argued that the proposed penalties may be benchmarked with those levied by the other sectoral regulators. The council is an association formed to discuss matters of interests to life insurers.
The insurance industry wants the government to amend Section 45 (1) of the insurance bill that says no life insurance policy can be questioned after expiry of three years from the date of issuance.”We want that policies obtained through fraudulent means should be kept out of that clause,” said the head of a life insurance firm, adding that paying such claims may encourage unscrupulous customers who want to take advantage of amended section that restricts the insurer’s right to prevent fraud beyond three years. “Further, if fraud is detected, only surrender value till the date of repudiation should be paid in such policies as against the full fund value envisaged in the present law,” the top executive said.
Both the finance ministry and the insurance regulator have labeled some of these demands as unjustified.”Stringent penalties will ensure that customer’s interests are protected. Besides, this will ensure insurers will be extra cautious towards monitoring and training of its employees,” said an official with Insurance Regulatory and Development Authority.