The Insurance Laws (Amendment) Bill, 2008 approved by Union Cabinet

The Union Cabinet today approved necessary official amendments in the Insurance Laws (Amendment), Bill 2008, pending in the Rajya Sabha, with such drafting and consequential changes, if any, in consultation with the Legislative Department.

These amendments are aimed at removing archaic and redundant provisions in the legislations and incorporating certain provisions to provide Insurance Regulatory Development Authority (IRDA) with flexibility to discharge its functions effectively and efficiently. The overall objective is to further deepen the reform process which is already underway in the insurance sector. 

The official amendments will be moved in the Insurance Laws (Amendment) Bill, 2008 pending in the Rajya Sabha. 

Based on the recommendations of the Standing Committee on Finance, the Cabinet has approved amendments containing the following : 

1. The foreign equity cap is proposed to be kept at 49 per cent as provided in the Insurance Laws (Amendment) Bill, 2008 as against the 26 percent. This is done in order to meet the growing capital requirement of insurance companies. 

2. Foreign reinsurers will be permitted to open branches only for reinsurance business in India and the provisions of Section 27E, which prohibits an insurer to invest directly or indirectly outside India the funds of policyholder, would apply to such branches. 

3. The definition of "Foreign Company" for the purpose of Insurance and reinsurance would mean :a company or body established under a law of any country outside India and includes Lloyd`s established under the Lloyd`s Act, 1871 (United Kingdom). 

4. In order to encourage health insurance in India, the capital requirement for a health insurance company is now proposed at Rs.50 crores (instead of Rs.100 crores for General Insurance companies) with a view to reduce the entry barrier to a sector which is a priority sector in the insurance space. 

5. The definition of `health insurance business` has been revised to clearly stipulate that health insurance policies would cover sickness benefits on account of domestic as well as international travel. 

6. In the case of any insurer having a joint venture with a person having its principal place of business domiciled outside India, the Authority may withhold its registration, if it is satisfied that in the country in which such person has been debarred by law or practice of that country to carry on insurance business. 

7. Regarding the obligatory underwriting of third party risk on Motor Vehicles, a separate Motor Vehicle Insurance and Compensation Legislation is being proposed by the Government and the concerns of the Standing Committee regarding the obligatory third party insurance on motor vehicles will be taken care of. 

8. With a view to serve the interest of the policy holders better, the period during which a policy can be repudiated on any ground, including misstatement of facts etc. has been confined to three years from the commencement of the policy and thus no policy would be called in question on ground of misstatement after three years. 

9. The Public Sector General Insurance Companies and GIC will be permitted to raise capital from the market to meet future capital requirements, provided that the Government`s shareholding would not be allowed to come below 51 per cent at any point of time. 

10. The appointment of agents is proposed to be done by insurance companies subject to the agents meeting the qualifications, passing of examinations etc. as specified by IRDA. While the licensing of agents be no longer with IRDA, the Authority is empowered to take action against agents under Section 42(4) of the Insurance Act, 1938 which is essentially to protect the policy-holders interests. This provision will help expansion of agents` network throughout the country and better management and control of insurance companies over them. This will ultimately lead to better insurance penetration. 

11. Mechanism for appeal in case of orders of IRDA against intermediaries has been defined by proposing to amend clause (8) of section 33 of the Insurance Act 1938 to provide for any insurer or intermediary or insurance intermediary aggrieved by any order made under this section to prefer an appeal to the Securities Appellate Tribunal. 

12. Register of claims and policies to be maintained by insurers in any form including electronic. 

13. To specify fine on intermediaries and insurance companies for misconduct of intermediaries and to make appropriate provision in the legislation to effectively deter multilevel marketing of insurance products in the interest of policyholders, and to curtail the practice of mis-selling. 

14. In order to improve the functioning of surveyors and bring in greater transparency, certain modifications are made to provide for regulations on qualifications regarding appointment of surveyors and to strengthen the Institute of Indian Insurance Surveyors and Loss Assessors (IIISLA). The amendments proposed in the Bill seek to do away with the existing statutory prescriptions pertaining to licensing insurance surveyors and loss assessors etc. and leave these issues to be addressed by way of regulations. 

15. Further, although the Standing Committee suggested retaining licensing of agents and their commission structure in the Insurance Act 1938, however, keeping in view the interest of the policyholders and to effectively monitor the performance and activities of the agents, the commission structure and the Code of conduct for agents is to be specified by regulations by the IRDA and accordingly, ceilings on commission in the Act have been done away with and the insurance companies along with the agents are made liable for any violation of the regulations and stiff penalties have been provided for mis-selling, rebating and marketing of products through multi level marketing schemes. 

Background: 

The Insurance Laws (Amendment) Bill, 2008, with a view to amend the Insurance Act 1938, the General Insurance Business (Nationalisation) Act, 1972 and the Insurance Regulatory and Development Authority Act, 1999 was introduced in the Rajya Sabha on the 22nd December, 2008. The Bill as introduced and referred to the Standing Committee on Finance for examination and report. The Standing Committee submitted its report to Parliament on 13lh December. 2011. There are a total of 111 clauses in the Insurance Laws (Amendment) Bill, 2008

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Pension Fund Regulatory and Development Authority Bill, 2011 amendments approved

The Union Cabinet today approved the introduction of certain official amendments to the Pension Fund Regulatory and Development Authority Bill, 2011. These official amendments have been necessitated in view of the recommendations of the Standing Committee on Finance which has examined the Bill. Based on the recommendations of the Standing Committee on Finance, the Government has decided to accept the following: 

1. that the subscriber seeking minimum assured returns shall be allowed to opt for investing his funds in such schemes providing minimum assured returns as may be notified by the Authority; 

2. withdrawals not exceeding 25 per cent of the contribution made by subscriber will be permitted from the individual pension account subject to the conditions, such as, purpose, frequency and limits, as may be specified by regulations by the Pension Fund Regulatory Authority and Development Authority (PFRDA)

3. the foreign investment ceiling in the pension sector at 26 per cent or such percentage as may be approved for the Insurance Sector, whichever is higher may be incorporated in the present legislation; 

4. to establish a vibrant Pension Advisory Committee with representation from all major stakeholders to advise PFRDA on important matters of framing of regulations under the PFRDA Act. 

5. the membership of the PFRDA will be confined to professionals having expertise in economics, finance or law only. 

The New Pension Scheme (NPS) has been made mandatory for all the Central Government employees (except Armed Forces) entering service with effect from 1.1.2004. 27 State / UT Governments have notified NPS for their employees. NPS has been launched for all citizens of the country including unorgnised sector workers, on voluntary basis, with effect from 1st May, 2009. Further, to encourage people from the unorganised sector to voluntarily save for their retirement, Government has launched the co-contributory pension scheme titled "Swavalamban Scheme" in the Budget of 2010-11. As on 7th September, 2012 the number of subscribers under NPS is 37.45 lakh with a corpus of Rs. 20535.00 crore. 

In order to effectively invest and manage such huge funds belonging to a large number of subscribers and to ensure the integrity of the NPS, creation of a statutory PFRDA with well defined powers, duties and responsibilities is considered absolutely necessary and would benefit all NPS subscribers. 

The official amendments to the Bill will be moved in the next session of the Parliament. 

Background: 

The following recommendations of the SCF have not been accepted: 

• As regards the recommendation of SCF for compulsory insurance of the funds of subscribers by pension fund managers, a provision has already been made in the PFRDA Bill, to protect the interest of the subscribers by ensuring safety of contribution of subscribers and also by keeping the operational costs in check, 

• As regards the selection of pension fund managers in such a manner that one third of all such fund managers are from the public sector, since a provision has already been made in the PFRDA Bill that at least one of the pensions fund shall be from the public sector which sets a floor, the ceiling can be any number based on objective criteria. 

The Pension Fund Regulatory and Development Authority Bill, 2005 was initially introduced in the Lok Sabha in March, 2005 to provide for a statutory PFRDA. However, since the Bill and the official amendments, based on the recommendations of the Standing Committee on Finance, could not be considered by the Lok Sabha, and the Bill lapsed on dissolution of the 14th Lok Sabha. 

The Government had announced in the Budget 2011-12 that the revised PFRDA Bill would be moved in Parliament. Accordingly, the PFRDA Bill, 2011 was introduced in the Lok Sabha on the 24th March, 2011 to provide for a statutory regulatory body, the Pension Fund Regulatory and Development Authority (PFRDA) under the provisions of the Bill. The legislation sought to empower FRDA to regulate the New Pension System (NPS). 

The PFRDA Bill, 2011 was referred to the Standing Committee on Finance on the 29th March, 2011 for examination and report thereon. The Standing Committee on Finance gave its Report on 30th August, 2011. Based on the recommendations of Standing Committee, a Cabinet Note, to introduce additional recommendations of the Standing committee on Finance was moved on 19th December, 2011. Since the PFRDA Bill, 2011 was deferred in the Winter Session of the Lok Sabha, therefore the Cabinet Note was withdrawn.

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Forward Contracts (Regulation) Amendment Bill, 2010

The Union Cabinet today approved the proposal to move official amendments to the Forwards Contracts (Regulation) Amendment Bill, 2010 (the Bill, 2010), based upon the recommendations of the Parliamentary Standing Committee of the Ministry of Consumer Affairs, Food & Public Distribution in its 15th Report, in the next session of Parliament. 

After the Bill is passed and enacted by Parliament, Forward Market Commission (FMC) as a regulator will get autonomy and power to regulate the market effectively. New products like `options` will be allowed in the commodity market. This will benefit various stakeholders including farmers to take benefit of `price discovery and `price risk management`. The Bill would enhance public accountability of the Regulator by providing for an Appellate Authority. 

The recommendations of the Committee with regard to definition of the "Commodity Derivative" in Clause 3, establishment and constitution of Forward Markets Commission in Clause 4, term of office of the Chairman and every other whole time members in Clause 5, accounts and audit in Clause 9, penalties for contravention of certain provisions of Chapter IV in Clause 25 of the Bill, 2010 have been accepted and are proposed to be incorporated as official amendments. The amendment in Clause 25 will require consequential amendment in Clause 26, which is also proposed to be included in the official amendments. 

Background: 

The Forward Contracts (Regulation) Act provides for the regulation of commodity futures markets in India and the establishment of the Forward Markets Commission (FMC). While the markets have been liberalized with effect from April, 2003 and modern institutional structures are in the process of being evolved, yet the market regulator, FMC is largely functioning in its traditional format. 

Many of the existing provisions of the Forward Contracts (Regulation) Act need changes to strengthen and reinforce legal provisions to meet the requirements of changing environment. In order to amend further the Forward Contracts(Regulation) Act, the Bill, 2010 was introduced in the Lok Sabha on 6.12.2010. The Bill, 2010 went through examination by the Committee which submitted its 15th Report on 22nd December, 2011

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