Four insurance acts set for overhaul

MUMBAI: Life’s going to be different at Life Insurance Corporation when the LIC Act, 1956, gets amended in this Budget session. According to sources, four major insurance acts — the Indian Insurance Act (1938), the LIC Act (1956), the Insurance Regulatory and Development Authority (IRDA) Act, 1999, and GIBNA, or General Insurance Business Nationalisation Act (1972) — will be amended this session.

The amendment to the LIC Act will enable the insurance behemoth to make strategic investments, without seeking Parliamentary approval. It will also help LIC to convert its representative offices in the US, the UK, UAE, Bahrain and Mauritius into full-fledged subsidiaries, if it wants to, sources said.

The two subsidiaries that LIC has in Kenya and Singapore at present were set up in collaboration with GIC Re after ministry approval. “Right now, clearances for such decisions are accorded within overall budget allocations. With the amendment, the company may be able to mobilise its own capital and move on its own,” an industry source added.

The four sets of amendments will also lead to the formation of an Insurance Appellate Tribunal on the lines of the Securities Appellate Tribunal (SAT), which hears appeals against Securities Exchange Board of India (Sebi) decisions. This will happen when the IRDA Act, 1999, will be amended.

The amendments to the Insurance Act, 1938, would bring about major changes in investment regulations, consumer redressal mechanism and solvency margins. One interesting aspect of the amendments will be to give a proper definition to two terms — insurance and health. Even when the Insurance Act, 1938, underwent a slight amendment, these terms were not clearly defined.

Another important change relates to the solvency ratio of insurers. It is now expected to be made risk-based, instead of 150% of perceived liabilities at present. When it becomes risk-based, insurers will have to look at four criteria: counter-party risks, obligations risks, interest rate risks and business risks. Under Basel II, banks too have to provide capital on the basis of risks rather than just advances.

With the amendment of the IRDA Act, 1999, the regulator is expected to get more powers. One amendment will allow the regulator to act as a licensing authority to new intermediaries. Currently, there are only two intermediaries: agents and other categories like brokers.

In future, if new intermediaries like worksite marketing - under which an employee of a pharma or a retail company can sell insurance products of a company to his colleagues — want to enter India, IRDA will be able to take a call on its own.

The amendments will also make the ‘look-ahead’ period of insurance products statutory. In other words, if you buy a policy and are not satisfied with it, you will be able to send it back to the company and get full repayment within a specified timeframe.

At present, though some companies do this, they deduct a certain amount.

It is not certain whether there will be a clear-cut decision on capital requirements for insurers. While the IRDA Act stipulates a Rs 100 crore capital base for insurers, LIC, since it has been constituted under the LIC Act, has a base of only Rs 5 crore.

The amendments to GIBNA will see the four public sector general insurers - National Insurance Company, Oriental Insurance, New India Assurance and United India Insurance — getting more freedom on pricing. Right now, their equity, audit and tariffs are all decided together. It will also enable them to take divestment and IPO decisions, sources said.