For the Indian insurance sector, the news couldnt
have come at a better time.
numerous false-starts and crossing many hurdles, the Insurance
Amendment Bill 2002 (amending the Insurance Act 1938)
and the General Insurance Business (Nationalisation) Amendment
Bill 2002 (amending the General Insurance Business Nationalisation
Act [Gibna] 1972) got the Parliament sanction, with the
Rajya Sabha deciding to underwrite or pass
the bills on 30 July 2002.
amendment to the Insurance Act paves way for the entry
of cooperatives, brokers and other intermediaries into
this sector. Further, much to the relief of many aspiring
corporate agents, the amendment has diluted the qualifying
these are the popular outcomes in general, the crucial
amendment for life insurers is in Section 49. The new
law increases the shareholders share of valuation
surplus (the difference between assets and liabilities,
excluding shareholders funds) to 10 per cent from
7.5 per cent. In the case of non-participating policies
the entire surplus was given to the shareholders.
amended law now enables premium payment through alternate
means - credit cards, the Internet and others. Presently,
the premium has to be paid only by cash, cheque or demand
draft. The rule that the premium has to be paid in advance
- before the insurance cover begins - remains unaltered.
other hand, the amendment to Gibna effectively delinks
General Insurance Corporation of India (GIC) and its four
subsidiaries. Henceforth, GIC will be the national reinsurer
transacting only reinsurance business. With the amendment
the government gets the legal sanction for an administrative
action taken earlier.
to the passage of the two bills, AMP Sanmar Life Assurance
Company CEO S V Mony says: The passage of the two
bills is a significant event for the [life and non-life]
insurance industry and more so for the life insurers.
Now one will witness lots of changes in the existing structure.
says the increase in the shareholders share of valuation
surplus is a move in the right direction as the stakeholders
have to get better returns on their heavy investments.
Some time back, several private life insurers had in fact
infused additional equity; this is apart from the initial
capital of Rs 100 crore.
earlier chairman and managing director of GIC, adds: The
insurance distribution network will see lots of changes
in the general insurance industry with the entry of brokers,
banks and other corporate agents.
Life Insurance Company managing director and CEO R Krishnamurthy
says: I expect the new intermediary of brokers in
insurance to come to play a major role in deepening the
penetration levels in insurance in India. We will see
a good deal of foreign firms entering the sector, leading
to profound changes in the pattern of distribution. We
can anticipate a higher degree of professionalism to develop
in the insurance industry. The subject of risk management
will now attract serious attention, both at the academic
and industry levels.
passage of these Bill has been long awaited by both consumers
and insurers as it allows payment of premiums by credit
cards and also amends the regulations relating to a corporate
agency. This will allow many more organisations to establish
themselves as corporate agents, and give that necessary
push for the full development of bancassurance,
says a spokesman for Royal Sundaram Alliance Insurance,
a leading general insurer in the private sector.
says his company will fully exploit the bancassurance
channel for selling its products - already several banks
have signed insurance products distribution deals.
with him is Birla Sun Life Insurance associate director
(alternate channels) P Nandagopal: The amendments
augur well for insurers like us having multi-channel distribution.
Similarly, bancassurance will develop fast now. But banks
should have a clear focus.
the private insurers are happy with the amendments, it
is business as usual at government companies like United
India Insurance Company and Life Insurance Corporation
of India (LIC). An LIC spokesman, however, says: I
cannot comment on the development without seeing the final
forthcoming was United Indias chairman and managing
director V Jagannathan: Much has been talked about
the threat that private insurers will pose to our existence.
But nothing of that sort has happened. On the hand, we
have registered a premium growth. He believes that
the Indian insurance market is agent-driven.
big corporates we will continue our role as advisors and
risk management experts while insuring their assets. It
is this segment that brokers will target. We hope corporates
will stick to us. Well, vis-à-vis medium-sized
industries, households and individuals
not find them interesting, he adds. But when
it comes to crunch, United India will not hesitate to
deal with brokers.
the role of a broker and whether the brokerage (17.5 per
cent of the premium procured) would increase the costs,
a Royal Sundaram official says: The broker works
on behalf of the insured, and the agent on behalf of the
insurance company. Therefore, the broker will be taking
on a larger role than an agent, such as issuing policies
and facilitating claims - costs that would have been incurred
by the insurer.
the same vein he adds that the brokers will not underwrite
the risks, which will be the duty of the insurer. They
will look to create insurance solutions for their clients
and obtain the best deals in terms of coverage and premium
down, but not out
Now, the insurance unions are not amused. Nor are they
taking the developments lying down. About the delinking
of GIC from its four subsidiaries, All-India Insurance
Employees Association (AIIEA) general secretary N M Sundaram
says: Consolidation is happening globally. Strangely
in India, the government, instead of merging GIC and four
subsidiaries, is separating them despite the recommendations
of the Committee on Public Undertakings, [a parliamentary
committee headed by Prof Vijay Kumar Malhotra, a Bharatiya
Janata Party MP].
says AIIEA collected 84,393 letters written by prominent
citizens to the Indian prime minister and the Lok Sabha
speaker. Subsequently, when Rupchand Pal, MP, moved
the issue in the Lok Sabha on 2 August 2001 it was referred
to the Petitions Committee of the Parliament to review
the whole process of opening up of the insurance sector.
I am surprised how the two bills were passed when the
Petitions Committee is looking into the matter.
has been a chequered journey for both the bills with Left
parties, insurance unions and occasionally other political
parties, based on their convenience, opposing them. Originally
the bills were tabled last August 2001, but were referred
to a parliamentary standing committee. As a matter of
fact the insurance industry itself was opened up in 1999
though the actual process started way back in 1991.
to get the two bills passed during the last budget session,
finance ministry officials this time around sought priority
listing of them. No law is permanent anywhere in
the world, adds Sundaram.
As it stands, now the ball is back in the Insurance Regulatory
and Development Authoritys (IRDA) court. The regulator
has to redraft the regulations to governing brokers and
corporate agents. The broker regulations drafted earlier
were withdrawn by IRDA in the wake of a pending amendment
to the Insurance Act.
Royal Sundaram official says: As with any new regulatory
framework, there are certain aspects that will be developed
over a certain time. Some proposals are pending, including
the foreign shareholding limits for brokers. IRDA will,
no doubt, review all proposals and consider them, if further
redrafting of regulations is required.
of the regulations that the industry demands to be redrafted
pertains to brokerage. The earlier draft fixed a ceiling
of 17.5 per cent. There is a school of thought that believes
that brokerage should not be subject to regulatory ceilings.
The parties to the contract - insurer and the broker
- should be allowed to decide on that quantum.
such a method will be discriminating because the Insurance
Act levies a ceiling on the commission paid to individual
agents. And there will be channel conflict. Moreover,
it may result in the re-emergence of the managing agents
system abolished by the Companies Act. Certainly
there should be a statutory ceiling on the brokerage or
else it would result in several unsavoury episodes,
regulations for brokers and corporate agents will be drafted
by us in 15 days time. It will then be approved
by the advisory committee, assures IRDA chairman