The insurance industry is trying to get to grips with provisions in the proposed Insurance Amendment Bill, which gives additional powers to the Insurance Regulatory and Development Authority of India (Irdai), while there is ambiguity in the very definition of the insurance business, according to industry experts.
Illustration: Dominic Xavier/Rediff
Apart from this, limits on the commission paid to intermediaries and restrictions on common directors are matters that are being examined.
Under the proposed Bill, the revised definition of the business allows insurers to enter into non-insurance contracts.
This has raised questions on whether the provision extends to non-insurance value-added services or is limited only to ancillary services.
Industry experts said the prohibition on there being common directors in insurance companies and banks or other financial institutions required clarity.
The Bill empowers the regulator to limit commissions paid to intermediaries, a provision that has been introduced as a facilitating norm and had earlier existed within the regulatory framework, experts noted.
According to insurers, “the changes in investment norms are more progressive and flexible.
“On the commission front, the industry has already been adjusting to intermediary commission post-GST (goods and services tax) and has been considering the introduction of caps.
“The fact that this has now been explicitly mentioned in the Bill suggests that some norms could be introduced.”
Shailaja Lall, partner at Shardul Amarchand Mangaldas, said: “Some of these aspects are open to interpretation.
“While it is a move towards liberalisation, it is accompanied by caution, with several issues remaining subject to delegated legislation by the central government in consultation with the regulator.”
“Many of the proposed changes require greater clarity and debate, including the revised definition of insurance business that allows insurers to enter into non-insurance contracts, the removal of restrictions on investment in private companies, and the requirement for insurers to submit policyholder data to entities regulated and authorised by the Irdai,” she added.
Industry sources said insurers were concerned particularly about a clause that states: “A director or officer of an insurer shall not be a director or officer of any other insurer carrying on the same class of insurance business or of a banking company or of an investment company.”
Several leading life and non-life insurers in India are backed by banks, whose representatives are serving on their boards.
Following the developments, the shares of listed insurance companies saw mixed movements.
HDFC Life Insurance fell 1.1 per cent to Rs 764.4 on the BSE, while ICICI Prudential Life Insurance declined 1.6 per cent to Rs 638.
SBI Life Insurance was marginally higher at Rs 2,036. Max Financial Services slipped 1.7 per cent to Rs 1,669.6, while ICICI Lombard General Insurance ended flat at Rs 1,951.2.
“The Bill seeks to extend restrictions across all insurers — life, general and health — for directors or officers.
“This could create alignment issues with the Listing Obligations and Disclosure Requirements (of the Securities and Exchange Board of India) for independent directors on material subsidiaries, as well as with Section 48A of the Insurance Act,” Lall said.
The Bill permits insurers to invest in private companies, which was earlier prohibited. However, experts said the insurance regulator needed to ensure adequate policyholder protection and robust prudential controls to prevent misuse.
Under the proposed framework, life insurers are required to invest at least 25 per cent of their assets in government securities and another 25 per cent in government or other approved securities, with the remaining balance permitted in other investments.
General insurers must invest at least 20 per cent in government securities and a minimum of 10 per cent in government or approved securities, with the rest as permitted by Irdai.
Shivangi Sharma Talwar, partner at JSA, said: “The Bill strengthens Irdai’s regulatory framework and, in specified circumstances, empowers it to issue regulations without publishing draft regulations when required in the public interest.
“It also explicitly authorises Irdai to prescribe limits on commissions for agents and insurance intermediaries and to frame regulations for the amalgamation of insurance and non-insurance businesses.
“In addition, it enhances regulatory oversight by increasing penalties from Rs 1 crore to up to Rs 10 crore, with the objective of creating an enabling yet protectionist environment.”
Call for clarity
- Provision that allows insurers to enter into non-insurance contracts needs deliberations
- Insurers also mentioned removal of restrictions on investments in private firms
- Concerns raised on clause restricting a director of an insurance firm being a director of other insurer doing same business or a bank
