Consumers can look forward to a series of changes and not just the advent of new companies and insurance options if the reforms package approved the Cabinet on Thursday gets a green signal from Parliament

The change in law is expected to come as a huge boon for the health insurance business. Market participants reckon that new players may enter the market after the government halves the minimum capital requirement to Rs 50 crore. New players would also result in innovation and more choice for consumers. Also, the definition of health insurance business is proposed to be amended to clearly stipulate that policies would cover sickness benefits on account of domestic as well as international travel.

The government has also decided to pass a separate law to regulate the motor vehicle insurance business, which too would bring much–needed clarity to concerns like thirdparty insurance.

The Insurance Laws (Amendment) Bill 2012 cleared by the UPA will provide for greater regulations of agents selling insurance schemes, lesser flexibility for insurance companies to cancel policies and higher penalties against erring agents. The amendments require that insurance companies do not question the insured in case of a misstatement and fraud after a period of three years. At present this period is restricted to two years. If within this three year period, the insured person dies, the beneficiaries would be expected to disprove a case of fraud. Only licenced and independent surveyors and loss assessors would be allowed to survey claims to ensure that insurance companies do not undervalue the claims.

Insurance companies will be held liable for the actions of the agents, who sell their policies ensuring simpler redress against the wrongful acts, such as miss–selling of policies. The proposed changes also bring in regulations to stop the illegal sub–letting of agencies, or multi–level marketing set ups, which has continued surreptitiously despite a ban since 2002. To ensure that allurement in forms of ‘incentives’ is not used to sell bad policies the law has enhanced to Rs 10 lakh for any agent who tries to offer money on signing a policy instead of convincing the insurer about the virtues of the schemes available. This may be bad news for those who are in the habit of sharing a part of the commission that agents receive.

Although it is already illegal, given that it is an allurement to get someone to buy insurance, the penalty provisions are weak resulting in rampant misuse. Additional safeguards have also been built on for frauds conducted through assignment of policies. There are changes for the public sector general insurance companies too, who will be permitted to raise capital from the market to meet future needs, with the ride that government stake will not fall below 51%.

• With Rs 50cr capital, consumers can expect more choice, more innovation; policies will cover sickness during domestic, int’l travel
• A proposed separate law will regulate motor insurance, address concerns over third–party insurance
• Agents to be regulated more, insurers to be restricted while canceling policies, erring agents to face fines
• Insurers to be held responsible for conduct of their agents; Rs 10L fine on agents trying to offer clients money