The insurance bill was passed by the Rajya Sabha on Thursday, paving way for foreign companies to raise their stake in domestic insurance companies to 49 per cent. The passage of the bill is being hailed as a big positive for the country as it increases India's visibility among foreign investors.
This article focuses on the impact of the new insurance bill for policyholders:
1) One new provision in the insurance bill is being considered to be "retrograde" for policyholders. The onus to prove that a wrong statement was not made at the time of taking the policy would lie with the policyholder and not the insurance company, says former LIC Chairman SB Mathur.
"The move will adversely impact policy holders especially because the track record of some insurers is not very good," he added.
Earlier, companies had to prove that a policyholder had "deliberately" concealed information while taking the policy. The word "deliberately" has also been taken off, Mr Mathur said.
"Imagine if a person dies and his widow and children will have to prove why the husband or father made a wrong statement," he added.
2) According to the new bill, an insurance policy cannot be challenged on any ground after three years. This means if a fraud is detected three years after the policy has been in force, insurance companies will have to pay the policy holder.
3) The new insurance bill allows foreign companies to invest up to 49 per cent in domestic insurance firms. According to estimates, Rs 20,000 crore to Rs 25,000 crore in foreign funds is likely to come immediately. The money will help insurance companies to expand aggressively and will be beneficial for the people. It will be a big positive for private insurers who have limited presence beyond metros and tier 1 cities.
4) Domestic firms will look to expand aggressively with more money coming. More companies are likely to enter in to the insurance sector as well. This will lead to higher competition and insurance premiums may get cheaper for customers, analysts say. Insurance companies will now be able to bring innovation in products as well.
5) The new insurance bill gives more powers to the insurance regulator, which will make it difficult for companies to take policyholders for a ride. This will ensure customer protection.
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