New insurance Act contains several pro-consumer measures
16 Mar 2015
While the raising of the ceiling on foreign direct investment in the insurance sector has grabbed the most attention, the new insurance Act also contains several pro-consumer measures, finance ministry officials say.
The new provisions hold the company responsible for any mis-selling of products. Higher penalties of up to Rs25 crore for violations by agents and insurance companies have been introduced in the Act as a deterrent to mis-selling.
''The amendments to the laws will enable the interests of consumers to be better served through provisions like those enabling penalties on intermediaries and insurance companies for misconduct," a senior finance ministry official said.
Moreover, in another pro-consumer move, life insurance companies will now not be able to deny an insurance claim after three years of commencement of policy on any ground.
Under the amendment, no policy can be called into question on any ground after three years. Life insurance companies will have to prove within this time that the policy-holder had suppressed any health-related information or committed a fraud.
It also disallows multi-level marketing of insurance products in order to curtail the practice of mis-selling, the official added.
The amended law has several provisions for levying higher penalties ranging from Rs1 crore to Rs25 crore for violations, including mis-selling and misrepresentation by agents and insurance companies.
S B Mathur, secretary general, Life Insurance Council, told Mail Today that the new law is good for consumers as it also holds insurance companies liable for the mis-selling of products.
Earlier, insurance companies usually took the plea that the policy was a contract between the insurance agent and the individual in cases of mis-selling.
Now, they will not be able to pass the buck to agents.
The new law should also help curb the prevalent practice, especially among state-owned insurers like the Life Insurance Corp, of denying claims on flimsy grounds almost routinely, forcing policy-holders to approach consumer courts or simply bribe officials to clear their claims.
In the new law, the period during which an insurance company can repudiate policy on any ground, including misstatement of facts, will be confined to three years from the commencement of the policy and no policy would be called in question on any ground after three years, rather than five years as previously.
Mathur also pointed out that the new Act does give enough allowance for honest mistakes that can be made at the time of filling policy forms. In country where a vast chunk of the population is not literate, some genuine errors can occur while providing information, he added.
The amendments also provide for an easier process for payment to the nominee of the policy holder as the insurer would be discharged of its legal liabilities once the payment is made to the nominee. It is also now obligatory in the new law for companies to underwrite third-party motor vehicle insurance under regulations framed by the Insurance Regulatory Authority of India.