The Insurance Laws (Amendment) Bill, 2008

Highlights of the Bill

• The Bill allows foreign investors to hold up to 49% of the capital in an Indian insurance company. It allows for nationalised general insurance companies to raise funds from the capital markets.

• Companies or co-operative societies in the life or general insurance business must have a minimum equity capital of Rs 100 crore, while those in health insurance must have a minimum equity capital of Rs 50 crore.

• An insurer cannot challenge a life insurance policy for any reason, after a period of five years.

• Insurers who fail to meet their obligations with respect to underwriting third party motor insurance, or underwriting policies in rural and social sectors or with vulnerable sections, face a fine of Rs 25 crore.

• The Bill provides for appeals against decisions by Insurance Regulatory and Development Authority to lie with the Securities Appellate Tribunal set up under the SEBI Act, 1992.

Key Issues and Analysis

• The Bill provides for Lloyd’s of London to be included within the definition of a foreign company. However, it is unclear whether the members of Lloyd’s who ultimately bear all risks of policies which are written, will be able to operate in the country.

• The IRDA Act, 1999 required Indian promoters of an insurance company to reduce their stake to 26% over a period of ten years. The Bill does away with this requirement.

• The Bill permits a policyholder to completely assign all rights under the policy to a third party, while allowing an insurer to decline such a transfer. The validity of such transfers is under legal challenge. While the Mumbai High Court has ruled that such transfers are valid, the case is currently facing appeal in the Supreme Court.

• While appeals against decisions by IRDA lie with the Securities Appellate Tribunal, the Bill does not provide for the tribunal to appoint a member with experience in insurance law.

• The Law Commission had suggested the merger of key provisions of the IRDA Act with the Insurance Act. This has not been implemented.