The Hindu Business Line : IRDA panel to review Insurance Act sections

The proposed changes assume significance especially since the insurance industry has also been demanding an overhaul of some of the provisions in the original statute.

Bangalore , March 22

THE Insurance Regulatory and Development Authority (IRDA) has set up a committee to review some of the recommendations of the Law Commission made last year.

The Law Commission had submitted a report to the Government in June 2004, suggesting amendments to certain provisions of the Insurance Act of 1938. The recommendations are intended to merge certain provisions in the IRDA Act of 1999 and the Insurance Act of 1938. But the commission had recommended that a detailed panel of experts examine Sections 27, 27A, 27 B, 49 and 64. The IRDA committee to review these provisions is chaired by Mr K.P. Narasimhan and has on it representatives from the industry including the former chairman of the General Insurance Corporation, Mr P.C. Ghosh.

The proposed changes assume significance especially since the insurance industry has also been demanding an overhaul of some of the provisions in the original statute. The review relates to investments, sufficiency of assets, the tariff advisory committee and the shareholders/policy holders funds.

Since the opening up of the industry, life and general insurers have consistently sought liberalisation of the directed investment norms. Insurers want greater flexibility in making investments. Moreover, the mean yield on investments has been adversely hit with the fall in the value of the government securities. This is especially because the yields have dropped from around 11 per cent in 2000 to about eight per cent. Consequently, some of them have sought an increase in the exposures in the corporate debt market and in the equity markets, allowing them to raise their earnings to maintain solvency.

Section 49 of the Insurance Act relates to capital and shareholders funds. Insurers have sought greater flexibility to raise capital from the financial markets for meeting solvency norms on the lines of the banks. Banks are now allowed to raise funds in the form of subordinated bonds. None of the insurers are now permitted to raise funds, through bonds or in the form of equity. However, with the industry facing intense competition, insurers now want an enabling provision allowing them to raise capital in the form of subordinated debt instruments.

The last provision suggested for review relates to the Tariff Advisory Committee. Both the public and private sector insurers have sought greater flexibility in fixing tariffs to cut underwriting losses and ushering in a free pricing regime as in the case of the international markets.

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