How policy holders stand to benefit from new Insurance Law

The hike in the foreign direct investment (FDI) limit in Indian insurance companies to 49% from 26% is the most talked-about aspect of the Insurance Laws (Amendment) Bill 2015, passed by the Rajya Sabha on Thursday, but it has several implications for the policyholders, too.

For one, higher participation from foreign partners could translate into innovative products, better services and technology and improved customer service standards. "With more capital and domain knowledge flowing in, you could see more competitive products in the market. We could also see product innovations and better use of technology," said Vighnesh Shahane, CEO and whole-time director, IDBI Federal Life.

The new law also makes provisions for levying stiffer penalties, ranging from Rs 1 crore to Rs 25 crore for various violations, including mis-selling and misrepresentation. This could act as a deterrent against the rampant mis-selling menace which has resulted in many policyholders being duped into buying unsuitable products.

"The Insurance Bill says that insurers will be held responsible for mis-selling by agents. We have asked for clarification on this matter. It remains to be seen whether penalties will be levied even after the insurer has taken appropriate action against the erring distributors," said Arijit Basu, managing director and CEO, SBI Life.

Another clause that directly impacts policyholders relates to information provided by them at policy inception. Insurers will not be able to call a life policy into question after three years, on any grounds. Within three years, doubts can be raised in case of frauds. In such cases, the insurance company will have to give in writing the grounds on which it has based the decision.

A policyholder can prevent the repudiation if she is able to prove that she did not knowingly make a wrong statement, suppress material important facts or that necessary disclosures were made to the insurer. In case of a death claim, the onus of disproving the charge of fraud will fall on the nominee.

"It works in favour of honest policyholders as their claim settlement will become smoother," said Basu. However, many insurers also fear that fraud syndicate rings could exploit this clause to their advantage.

The new law has also paved the way for easier nomination process. At present, the nominees are not beneficiaries, but mere receivers of the proceeds. The insurance company is discharged of its legal liabilities once the payment was made to the nominee.

Source -Economictimes.com