The Hindu Business Line : Finance Ministry plans omnibus insurance law

THE making of a brand new omnibus insurance law has taken a major step forward with the Ministry of Finance concurring with the Law Commission on the need to club the two major existing insurance laws - the Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act (IRDA) Act, 1999 - into a single legislation.

The Ministry has given its go-ahead to the commission to frame concrete recommendations on which the Government would subsequently move to finalise Bills to repeal the existing Acts and the preparation of the new Act.

The Law Commission had recently floated a discussion paper on the overhaul of the Insurance Act, 1938 in which it had suggested the merger of the two legislations.

The task of the working on dissecting the existing insurance laws to detect areas that needed improvement was handed to the Law Commission by the IRDA.

"The Law Commission had sought our comments on the consultation paper. We have reverted to them agreeing with the need for a comprehensive law merging the two laws," a top Finance Ministry official said.

However, he added that the Ministry has not gone into the specifics that need to be incorporated in the new law. "We have not reached that stage (of discussing details) yet."

The proposed revamp of the laws would be aimed at strengthening the regulatory framework and removing the clauses that have become redundant as a consequence of the changes in the insurance industry ever since the private insurance companies, both life and non-life companies, were permitted to participate in the sector.

Besides setting up a new grievance redressal mechanism for prompt and effective resolution of policyholders' complaints, the Law Commission's discussion paper has also expressed the need for more stringent norms on `solvency margin' and investments by both public sector and private sector insurance companies.

It has also proposed an adjudicating mechanism through the appointment of adjudicating officers by the IRDA to determine and levy penalties on defaulting insurers, insurance intermediaries and insurance agents for violation of laws and regulations.

It had also mooted the idea of an appellate tribunal to decide against decisions of the IRDA, the new redressal authorities and adjudicating officers and providing for a statutory appeal to the Supreme Court against the decisions of the appellate tribunal.

Other than these, the insurance industry would be keenly watching the treatment of the clause on the cap of 26 per cent of foreign investment in insurance companies in the IRDA Act.

The industry has suggested that the provision be deleted, leaving it to the IRDA to determine the FDI cap.