The Insurance Laws (Amendment) Bill, 2015 was passed by the Lok Sabha on 4th March, 2015 and by the Rajya Sabha on 12th March, 2015, thus paving the way for major reform related amendments in the Insurance Act, 1938, the General Insurance Business (Nationalization) Act, 1972 and the Insurance Regulatory and Development Authority (IRDA) Act, 1999. The Insurance Laws (Amendment) Act 2015 enacted on 23rd March, 2015 has seamlessly replaced the Insurance Laws(Amendment) Ordinance, 2014, which came into force on 26thDecember 2014..
The amendment Act removed archaic and redundant provisions in the legislations and incorporated certain provisions to provide Insurance Regulatory and Development Authority of India (IRDAI) with the flexibility to discharge its functions more effectively and efficiently. It also provided for enhancement of the foreign investment cap in an Indian Insurance Company from 26% to an explicitly composite limit of 49% with the safeguard of Indian ownership and control.
Rules and Regulation related to Foreign Investments
Government made the Indian Insurance Companies (Foreign Investment) Rules, 2015 regarding manner of holding of equity shares by foreign investors. These Rules incorporated the standing / prevalent Regulations and practices being followed with respect to the treatment of foreign investment in Indian Insurance companies by IRDA and as per the existing FDI policy of Government of India. The said Rules were notified in the Gazette on 19th February, 2015.
Subsequently, Government issued a clarification in respect of rule 2(l) of the Indian Insurance Companies (Foreign Investment) Rules, 2015, defining “Indian Ownership” vide thenotified on 3rd July, 2015.
Further, the Indian Insurance Companies (Foreign Investment) Rules, 2015 were amended vide the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2016 notified on the 16th March, 2016 to enable foreign investment up to 49% in Insurance sector through automatic route instead of going through the Government route for foreign investment beyond 26% and up to 49%.
Gandhinagar International Financial Tech-city (GIFT) as an International Financial Services Centre (IFSC)
International Financial Services Centre (IFSC) is set up in terms of section 18 of the SEZ Act, 2005. Only one IFSC can be set up in a SEZ. Gandhinagar International Financial Tech-city (GIFT) is a global Financial and IT Services hub, a first of its kind in India, designed to be at or above par with globally benchmarked financial centres. GIFT facilitates Multi Services Special Economic Zone with IFSC (International Financial Services Centre) status, Domestic Finance Centre and associated Social infrastructure at Gandhinagar with the prime focus on development of IFSC and allied activities in SEZ. Primary focus of the Multi Services SEZ is on financial services. GIC-Re, the Public Sector Re-insurer and New India Assurance Company Limited (NIACL) have set up their offices in IFSC in GIFT City.
Based on the rules notified by the Govt. of India, IRDAI (IFSC) Guidelines, 2015 were issued by IRDAI for IFSC Insurance Office(IIO) to transact Reinsurance and/or specified direct insurance business.
Promoting Reinsurance Business in India:
The Insurance Laws (Amendment) Act, 2015 enabled foreign reinsurers to setup branches in India and also enabled Lloyds and its members to operate in India through setting up of branches for the purpose of reinsurance business or as investors in an Indian Insurance Company within the 49% cap.
In exercise of the powers conferred by section 24 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) and in supersession of the Redressal of Public Grievances Rules, 1998 the Central Government has notified Insurance Ombudsman Rules, 2017 on 27.04.2017.The objects of these Rules is to resolve all complaints of all personal lines of insurance, group insurance policies, policies issued to sole proprietorship and micro enterprises on the part of Insurance companies and their agents and intermediaries in a cost effective and impartial manner.
Convergence of life and accident insurance schemes to PMJJBY and PMSBY:
In view of decisions taken in the meeting of Committee of Secretaries on Convergence of Insurance Schemes held on 9th May, 2017 all Ministries / Departments except Ministry of Labour and Employment (for Aam Aadmi Bima Yojana (AABY)) have converged their life and accident insurance schemes to PMJJBY and PMSBY as on 1st June, 2017.
Listing of Public Sector General Insurance Companies
To promote the objective of achieving higher levels of transparency and accountability, the Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi has on 18th January, 2017 given its ‘in principle’ approval for listing the five Government owned General Insurance Companies namely General Insurance Corporation of India, The New India Assurance Company Ltd., United India Insurance Company Ltd., Oriental Insurance Company Ltd. and National Insurance Company Ltd. in the stock exchanges.
The shareholding of these Public Sector General Insurance Companies (PSGICs) will be divested from 100 percent to 75 percent in one or more tranches over a period of time. During the process of disinvestment, existing rules and regulations of Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority of India (IRDAI) will be followed.
Investments of the Insurance sector:
As on 31st March, 2016 the accumulated total investments held by the insurance sector was Rs.26.90 lakh crore. During 2015-16, Assets under Management (AUM) had grown by 11.71 per cent. Public sector insurers continue to contribute a major share of 79.24 per cent in total investments, though investments by private sector insurers are growing at a fast pace in recent years.
Rural and Social Sector Business:
The life insurers underwrote 68.99 lakh policies in the rural sector, viz., 25.8 per cent of the new individual policies underwritten (267.08 lakh policies) by them in 2015-16. LIC underwrote 25.70 per cent of the new individual policies and private insurers underwrote 26.3 per cent of the new individual policies in the rural sector. LIC covered 226.04 lakh lives and private insurers covered 111.13 lakh lives in the social sector. The non-life insurers excluding standalone and specialised insurers underwrote gross direct premium of Rs.10950.9 crore in the rural sector, viz., 12.51 per cent of the gross direct premium underwritten (Rs.87522.91 crore) by them in 2015-16. Public sector insurers underwrote 12.88 per cent of their gross direct premium and private insurers underwrote 12.07 per cent in the rural sector. In the social sector 1897.46 lakh lives were covered during the year 2015-16. The contribution of private sector was 150.89 lakh lives and public sector accounted for 1746.56 lakh lives. All the public and private sector non-life insurance companies including standalone health insurance companies have fulfilled the obligations in the rural and social sector for the year 2015-16.
In order to facilitate penetration of micro insurance to the lower income segments of population, IRDAI has formulated the micro insurance regulations. Micro Insurance Regulations, 2005 provide a platform to distribute insurance products, which are affordable to the rural and urban poor and to enable micro insurance to be an integral part of the country’s wider insurance system. There were 27041micro insurance agents operating in the micro insurance sector at the end of 2015-16 (as against 22761 agents in 2014-15). In micro-insurance-life, the individual new business premium in the year was Rs.31.71 crore through 9.10 lakh policies (as against Rs.28.89 crore under 8.16 lakh policies in 2014-15 ) and the group business amounted to Rs.302.43 crore premium for 292.54 lakh lives (as against Rs.315.60 crore for 231.28 lakh lives in 2014-15 ). Individual death claims paid under micro insurance portfolio for the year 2015-16 amounted to Rs.20.47 crore on 14059 policies (as against Rs.21.57 crore on 13138 policies in 2014-15 ) and in the group category Rs. 414.02 crore was paid as death claims on 132256 lives (as against Rs.426.62 crore on 133268 lives in 2014-15 ).
Anti-Money Laundering (AML)/Combating the Financing of Terrorism (CFT)
The Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) (AML/CFT) guidelines for the insurance sector were issued in March 2006. The sector entered into the ninth year of an effective AML/CFT regime in 2015-16. IRDAI works closely with various departments of the Ministry/agencies in the implementation of AML/CFT guidelines and has initiated various measures towards effective accomplishment of the AML/CFT guidelines in the insurance sector.
Recent Initiatives Taken by IRDAI
a) Insurance Marketing firms: IRDAI had recently brought in the new concept of intermediaries in the insurance distribution known as Insurance Marketing Firm (IMF). The regulations came into effect from 21-01-2015 which cover Insurance soliciting and servicing activities of the Insurance Marketing Firm, and its functionaries including Insurance Sales Person (ISP). It is expected that the standalone marketing firms will be established with the objective of distributing the insurance products which will pave the way for penetration of insurance. In order to encourage more firms to pioneer as IMFs, they are also permitted to simultaneously, market other financial products such as mutual funds of mutual fund companies; pension products of PFRDA; and other financial products marketed by Investment advisors of SEBI etc. IMFs are expected to help in increasing insurance penetration.
b) Common Service Centers: The Authority permitted use of Common Service Centres (CSC) as a distribution channel for selling and servicing insurance products. Guidelines are issued to permit both Life and General Insurers in India to market certain categories of Retail Insurance Policies and Services through M/s CSC e-Governance Services India Limited (CSC-SPV) and its Common Service Centers Network. The Authority approved products suitable for sale in rural areas through this channel, which would help in rural penetration of insurance in a big way. At present more than 1,00,000 CSC are operating in the rural areas in India with one each for a cluster of six villages. The number of CSC is likely to increase to 2.5 Lac in the near future.
c) Web Aggregators: -
Web aggregator maintains/owns a website and provides information pertaining to insurance products and comparisons of price of different Insurers and offers leads to Insurers.
The Authority had issued Regulations for Web-Aggregators on 3-12-2013
d) Insurance Repositories: -
Insurance Repository (IR) is to provide and empower the policyholders with a facility to keep insurance policies in electronic form at one place and to undertake changes, modifications and revisions in the insurance policy with speed and accuracy in order to bring about efficiency, transparency and cost reduction in the issuance and maintenance of insurance policies.
Based on the above, the Authority issued licenses to 5 IRs. There are nearly 4 lakhs accounts opened and out of this nearly 2 lakhs policies were converted in to electronic form.
e) Issuance of electronic Insurance Policy Consequent upon promulgation of Insurance Laws (Amendment) Act 2015, IRDAI has come out with IRDAI (Issuance of e-Insurance Policies) Regulations, 2016 in respect of Issuance of electronic policy and submission of electronic proposal form of insurance policies
f) Specific measures under Health Insurance:
RECOGNISING HEALTH INSURANCE AS A SEPARATE CLASS OF BUSINESS:
Insurance Laws (Amendment) Act 2015 recognized Health Insurance as a separate class of business. Section 2 (6c) of the Act defines Health Insurance Business as; "health insurance business" means the effecting of contracts which provide for sickness benefits or medical, surgical or hospital expense benefits, whether in-patient or out-patient travel cover and personal accident cover. It is one of important milestones for the Indian Insurance Business. Recognition of health insurance as a standalone class of business is expected to usher in an era of improving access to health services to all segments of population, thereby reducing the share of ‘out of pocket’ expenses in the overall medical expenses. Recognizing health insurance as a class also encourages new players to enter this field as standalone health insurers.
To bring in efficiency, a pro-policyholder framework of Health Insurance Regulations was brought in the year 2013. Based on the experience gained and feedback from stakeholders, it was felt that there is a need for revisiting the regulatory framework concerning the Health Insurance for reasons like enhancing the scope for product innovations, making provisions to reward healthy behavior of policyholders etc. Accordingly, Authority constituted a Committee of Experts on 29th December, 2014, to visit/re-visit the regulatory framework on Health Insurance and the committee submitted its report to the Authority on 24th April, 2015. Taking into consideration the recommendations of the Committee of Experts as also the feedback of the stakeholders, the Authority revisited the existing Regulatory framework and notified IRDAI (Health Insurance) Regulations, 2016 on 18th July 2016. These IRDAI (Health Insurance) Regulations, 2016 inter alia covered /addressed the following areas:
1. Permission to launch Pilot Products
2. Wellness and Preventive Features
3. Health plus Life Combi Products
4. Facilitation to offer Group Products under Use and File Procedure