Tuli & Co
Tuli & Co was established in 2000 to service the Indian and international insurance and reinsurance industry. Tuli & Co is an insurance driven litigation, arbitration and dispute resolution firm that provides legal services to Insurers, Reinsurers and other professionals involved with the insurance market.Show more
The Insurance Regulatory Development Authority of India (IRDAI) recently issued the Guidelines on Standard Individual Term Life Insurance Product. The guidelines aim to introduce a plain, individual term life insurance product with simple features and standard terms and conditions that would meet an average customer's requirements. All life insurers must now offer the prescribed standard product on or before 1 January 2021 with the IRDAI's requisite approval.
In order to clarify issues pertaining to the pledge and transfer of shares of insurers by promoters and shareholders, the Insurance Regulatory Development Authority of India recently issued the Circular on the Transfer of Shares of Insurers. This article summarises the key clarifications set out in the circular.
Owing to rising concerns around mental healthcare in India and the legislative push to recognise the crucial role that medical insurance plays in the treatment of mental disorders globally, the Insurance Regulatory and Development Authority of India has introduced certain measures for the insurance sector aimed at including the treatment of mental illness in the coverage offered under insurance policies. This article summarises the key developments.
Despite the relaxation of the foreign investment limits for insurance intermediaries, insurance intermediation remains a regulated activity. In this respect, the Insurance Regulatory Development Authority of India recently issued guidelines on the repatriation of dividends by insurance intermediaries with a majority foreign investment and a circular mandating the submission of an undertaking by insurance intermediaries.
In order to address the ever-changing COVID-19 pandemic in India, the government has issued various notifications, including a nationwide closure of all public and private establishments (except for essential service providers), which have had a direct impact on the normal functioning of entities, including those in the insurance sector. This article provides an overview of the key notifications and guidelines issued by the Insurance Regulatory and Development Authority of India with respect to the COVID-19 pandemic.
The Indian motor insurance framework underwent a variety of key developments in 2019, including the introduction of standalone own damage cover, the extension of the present insurance framework on ads to point-of-sales persons and registered automobile dealerships and the notification of an amendment to the Motor Vehicles Act 1988.
Health insurance products have seen an improved uptake recently and there appears to be a significant focus on rewarding policyholders for preventive and wellness habits, with a specific focus on forthright disclosures made in policy documents and advertising material. With changes introduced under amendment regulations and the expected issuance of draft mediclaim guidelines, it appears that a more comprehensive wellness regime will shortly be introduced to the Indian insurance market.
The Insurance Regulatory Development Authority of India (IRDAI) recently notified the Indian Insurance Companies (Foreign Investment) Amendment Rules 2019 and the IRDAI (Insurance Intermediaries) (Amendment) Regulations 2019, which have introduced additional conditions with which insurance intermediaries that have a majority shareholding of foreign investors must comply. The regulations have brought much-needed clarity, but the insurance industry's reaction remains to be seen.
Since 2015, foreign investment in insurers and insurance intermediaries has been capped at 49%. However, many felt that this parity in the foreign direct investment (FDI) limits was unfair, as – unlike insurers – insurance intermediaries are not custodians of policyholders' money. Thus, the recently notified Indian Insurance Companies (Foreign Investment) Amendment Rules 2019 have effectively increased the limit on FDI in insurance intermediaries to 100%.
The Insurance Regulatory and Development Authority (IRDAI) recently issued the IRDAI (Regulatory Sandbox) Regulations 2019, which aim to facilitate the creation of a regulatory sandbox in which to test new business models, processes, proposals and applications in order to strike a balance between the orderly development of the insurance sector and the protection of policyholders' interests. Although insurance players are calling the sandbox a game changer, it remains to be seen how much it will be used.
In a recent case, the National Consumer Disputes Redressal Commission (NCDRC) provided some useful guidance in relation to a claim assessment by an Insurance Regulatory and Development Authority licensed surveyor. The NCDRC dismissed the insured's contentions, stating that, among other things, the insured had failed to provide the relevant documentation to the surveyor. Thus, the insured had been unable to take advantage of his own wrongdoing.
The account aggregator ecosystem was introduced to solve the problems of data portability in the insurance sector, among others. However, the question of whether the business model is viable will largely hinge on the successful implementation of the consent architecture envisaged under the Master Directions Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions and the terms of the contractual arrangements which are entered into with the various regulated entities.
The Insurance Regulatory and Development Authority recently issued the Exposure Draft on Insurance Regulatory and Development Authority of India (Conflict of Interest) Guidelines 2019, which seek to provide guidance on the conflicts of interest that arise between insurers and other insurance companies or intermediaries which have the same directors.
The Supreme Court recently ruled in a case between Reliance Life Insurance and the wife of an insured party who had died of a heart attack. Reliance had repudiated the respondent's claim due to the suppression of material facts by the insured, who had failed to provide details of a second policy with another insurer. In its decision, the Supreme Court considered the nature of the disclosure made by the insured and the validity of the ground for repudiation of the claim.
The Insurance Regulatory and Development Authority recently issued the Report of the Committee on the Regulatory Sandbox in the Insurance Sector in India, which proposes to establish a sandbox environment in the insurance sector. According to the report, the sandbox will facilitate innovation in the Indian insurance sector and provide an ecosystem to foster the experimentation required to increase insurance penetration in the market and benefit policyholders. However, reservations remain.
The Aadhaar and Other Laws (Amendment) Bill 2018 was recently passed in the Lok Sabha. The new bill has been welcomed as it provides much-needed clarity regarding the use and storage of Aadhaar numbers. The Insurance Regulatory and Development Authority has taken the bill's enactment as a cue to start providing clarity on the collection and storage of customers' Aadhaar data. It is hoped that the bill will be enacted quickly, as it is unenforceable in its present form.
The Insurance Regulatory and Development Authority of India (Re-insurance) Regulations 2018 were notified on 12 December 2018 and came into force on 1 January 2019. As well as streamlining filing requirements and processes, the regulations consolidate the existing regulations for life and general reinsurance business into a uniform set of provisions for reinsurance business in India.
The Insurance Regulatory and Development Authority of India recently introduced changes to the regulations governing motor insurance in India. Under the Motor Vehicles Act 1988, insurance cover for third-party liability is mandatory for all motor vehicles at the time of purchase. However, until recently, this third-party liability insurance had a mandatory one-year cover term and had to be renewed by the policyholder each year.
Although blockchain is relatively new, India has seen a few segmental adoptions of the technology, with some public authorities – including the Insurance Regulatory and Development Authority of India – acknowledging its potential benefits. Further, recent press reports have indicated that some insurers have already started contemplating various ways in which to implement the technology.
In recent years, the Indian insurance sector has been abuzz with the news of new players looking to acquire stakes in insurers and insurance intermediaries. While the Insurance Act 1938 provides for the manner in which insurers may carry out amalgamations and transfers of insurance business, the regulations governing the amalgamation or transfer of an insurance intermediary's business remain scattered and, in some cases, non-existent.
The Insurance Regulatory and Development Authority of India (IRDAI) recently released the IRDAI (Insurance Brokers) Regulations 2018 to revise the norms governing the establishment and operation of insurance brokers in India. The regulations have introduced a myriad of changes which largely appear to bring parity between the norms applicable to insurance brokers and web aggregators, particularly with respect to solicitation through online, telemarketing and distance marketing modes.
The Supreme Court recently upheld the validity of a quantum-only arbitration clause and affirmed that once an insurer has denied liability, arbitration is no longer an option (unless the insurer and insured come to an independent agreement to arbitrate). In its decision, the Supreme Court stressed the importance of reviewing an insurer's declinature letter to properly assess whether liability had been denied or accepted.
The Insurance Regulatory and Development Authority of India (IRDAI) has released an exposure draft for revising the IRDAI (Insurance Brokers) Regulations 2013 for comments from stakeholders. Following various representations made by insurance brokers and other stakeholders, the IRDAI issued the IRDAI (Insurance Brokers) Regulations 2018 to repeal the erstwhile 2013 regulations, bringing changes to the earlier provisions and adding to the existing compliance requirements for insurance brokers.
There were a number of interesting developments in the Indian insurance industry in 2017, including a rapid increase in the number of insurers, new forms of online commerce and evolving business processes. From a regulatory perspective, 2017 also saw a continued overhaul of the existing insurance regulatory framework, with a slew of new regulations being introduced and existing guidance being amended and updated.
The Insurance Regulatory and Development Authority of India (IRDAI) has recently been receiving requests to allow private equity funds to acquire a majority stake in Indian insurers. In response to such requests from private equity funds, venture funds and alternate investment funds, the IRDAI released new guidelines to facilitate and regulate private equity funds' investment in insurers as investors and promoters.
By way of a May 2017 order, the Insurance Regulatory and Development Authority of India set up the Reinsurance Expert Committee to make recommendations for, among other things, the efficient implementation and operation of the order of preference for cessions specified under the Branch Office Regulations. The committee recently released its report, providing its analysis and recommendations on the terms of reference prescribed under the order.
The draft Financial Resolution and Deposit Insurance Bill 2017 has recently attracted significant attention. This is mainly due to the objections raised by the Insurance Regulatory and Development Authority of India (IRDAI), among other parties. Although the exact nature of the IRDAI's objections to the bill are unclear, a balance may need to be struck between the powers of the existing sectoral regulators and the proposed Resolution Corporation.
As the Indian insurance market develops and matures further, Indian insurers and insurance intermediaries will aim to introduce public issues and list on recognised stock exchanges in order to raise more funds from the public and provide liquidity to their existing shareholders. Companies looking to be initial public offering ready should focus on ensuring optimum regulatory compliance and rectifying any identified compliance issues, which will go a long way in simplifying the process of listing.
The Insurance Regulatory and Development Authority of India recently notified the Motor Insurance Service Providers Guidelines to identify and regulate the role of automobile dealers in distributing and servicing motor insurance products. This move to recognise the role of automobile dealers gives legitimacy to existing practices of solicitation and servicing of motor insurance.
The Insurance Regulatory and Development Authority of India recently set up a committee to make recommendations for the efficient implementation and operation of the order of preference for cessions specified in Regulation 28(9) of the Branch Office Regulations. The committee report is eagerly awaited by the insurance industry, as it is expected to clarify the implementation of Regulation 28(9) and is likely to affect Indian insurers' reinsurance programmes in future.
Following a number of representations made by various stakeholders, and due to the need to update the existing health insurance framework, the Insurance Regulatory and Development Authority of India recently released new regulations and guidelines. The revised regulatory framework seeks to encourage greater internal accountability on the part of insurers, strengthen innovation in product design and promote wellness.
The Insurance Regulatory and Development Authority of India recently replaced the 2009 corporate governance guidelines with the Guidelines for Corporate Governance for Insurers in India. The 2016 guidelines seek to incorporate relevant changes introduced by the Companies Act and consider other relevant changes in the insurance sector in order to provide an appropriate corporate governance regime for Indian insurers.
The Insurance Regulatory and Development Authority of India (Registration of Indian Insurance Companies) (Seventh Amendment) Regulations 2016 have introduced a number of key changes to the existing regulations. These key amendments have provided welcome clarifications and will help to encourage investment in the insurance sector and promote growth and expansion therein.
Until recently, the 2006 Insurance Regulatory and Development Authority of India (IRDAI) Guidelines on File and Use Requirements for General Insurance Products governed the procedures and processes for introducing, modifying and withdrawing general insurance products. The procedures and processes have now significantly changed with the introduction of the IRDAI's revised guidelines, which will come into force on April 1 2016.
The Insurance Regulatory and Development Authority (IRDAI) recently released new draft regulations clarifying that commission and remuneration paid to insurance agents and insurance intermediaries will continue to be regulated and subject to the limits specified by the IRDAI. While some stakeholders view the proposed payment structure as more liberal, others believe that there is scope for further liberalisation.
The insurance sector has witnessed sweeping changes to its regulatory regime since the beginning of 2015. The most recent additions are the guidelines on the term 'Indian owned and controlled' issued by the Insurance Regulatory and Development Authority. While the guidelines shed some light on certain grey areas surrounding the recent regulatory changes in the insurance sector, further regulatory clarity is needed.
The Insurance Regulatory and Development Authority recently released draft regulations on the issuance of other forms of capital by insurers. While these draft regulations are seen as progressive, they contain certain inherent restrictions and limitations. As such, if implemented in their present form, they may run contrary to the recent amendments to the Insurance Act, which aim to encourage and facilitate increased investment in the insurance sector.
The Insurance Regulatory Development Authority of India recently issued rules and guidelines for insurers wishing to establish insurance businesses in special economic zones. However, the way in which the guidelines and rules will be implemented, and the enthusiasm with which domestic and global insurance industry players will receive this new means of carrying out insurance business, remain to be seen.
The insurance regulatory regime has experienced sweeping changes in recent months, but certain aspects are still unclear, including how foreign investment in Indian promoters will be calculated. As such, the insurance industry is eagerly awaiting further clarifications and amendments in order to finalise investment plans and determine how the recent reforms will be applied.
In order to implement the Insurance Laws (Amendment) Ordinance 2014, the Ministry of Finance has ratified the Insurance Companies (Foreign Investment) Rules 2015, which provide insurers and insurance intermediaries with much-needed clarity regarding increases in foreign investment. However, further clarifications and amendments are needed and, until then, it may be difficult to implement the rules and recent press note.
In a recent National Consumer Disputes Redressal Commission case, the insured informed his insurer that his vehicle had been stolen three months after the theft. The insurer repudiated the claim on the grounds that the significant delay in notification was a violation of the insured's policy. The national commission ruled that any delay in notifying the police or an insurer after a vehicle has been stolen is fatal to a claim.
The long-awaited increase in permitted foreign holdings in an Indian insurance company from 26% to 49% is now law. However, rather than becoming law through the usual legislative process, the reform became law through an unusual and temporary device: an ordinance. This places an unwelcome question mark over the resilience of this otherwise welcome reform.
The Allahabad High Court has issued perhaps the sternest order ever issued against an insurer. It directed the insurance industry regulator to examine every policy issued by SBI Life Insurance Company Limited and, if any policy was issued in breach of the file and use procedure and regulations, to discontinue all of SBI Life's policies if appropriate.
In the 2014 Budget Speech, the finance minister stated that foreign direct investment in the insurance sector will be raised from 26% to 49% and that the increase will be coupled with "full Indian management and control", meaning that overseas investors will not have significant management rights or controls. The proposal will come into effect once both houses of Parliament pass the Insurance Bill.
The Insurance Regulatory and Development Authority (IRDA) has drafted regulations that permit IRDA-licensed insurance marketing firms to distribute insurance products. If the regulations are finalised in their present form, apart from establishing a new type of distribution channel, the proposed remuneration structure is likely to have far-reaching implications.
The Department of Industrial Policy and Promotion recently issued a press release clarifying that the 26% limit on foreign investment would apply to insurance companies, insurance brokers, third-party administrators, surveyors and loss assessors. While the press release made the position clear with respect to the insurance intermediaries named therein, it has not clarified the position in terms of other insurance intermediaries.
The Reserve Bank of India recently issued draft guidelines that (once finalised) would permit 'scheduled banks' to undertake insurance business departmentally, subject to the requirements specified in the guidelines. Among other things, the draft guidelines specify that insurance broking services can be offered only in accordance with a bank's comprehensive policy approved by its board of directors.
While the government continues to make assurances that the 26% foreign investment limit in the insurance industry will be lifted, a modest change has recently been made to reinsurance limits. The new regulations introduce a relaxation for reinsurance purchased outside India from 10% to 20%, although the precise level will depend on the credit rating of the reinsurer concerned.
The Insurance Regulatory and Development Authority recently issued a circular directed at loss adjusters, or 'surveyors' as they are known in the Indian market, reiterating their duties and responsibilities. The circular refers to eight particular provisions that require "immediate attention and necessary action from all existing and new corporate [surveyors]".
New draft regulations issued by the Insurance Regulatory and Development Authority propose several important changes that, if implemented, could widely affect the entities presently licensed as web aggregators. While a few of the changes have been positively received, the draft regulations have largely been viewed as imposing greater restrictions on a segment of the industry that was already operating with limited functionality.
The insurance industry is poised for two significant amendments that, if brought into force, are likely to change the manner in which it operates. A proposed increase in foreign investment limits should draw in foreign investors and has the potential to boost the Indian insurance industry, while new bancassurance norms will revolutionise distribution structures on both a theoretical and practical level.
It was recently confirmed that an insurer can now raise its equity investment limit to between 12% and 15%. However, private insurers had been hoping for an increase in the investment limit to 20%, as press reports indicate that the Ministry of Finance had allowed the government-owned Life Insurance Corporation of India (LIC) to invest up to 30%. It has been argued that there is one rule for the LIC and another for other insurers.
A slow creep back towards the tariff regime that existed from 1968 onwards has recently been evidenced in certain areas of the Indian insurance market, the most obvious of which is health insurance. The Insurance Regulatory and Development Authority has issued an exposure draft proposing that health insurance be standardised in order to address the expectations of the public "more effectively".
The Cabinet recently approved an increase in the cap on foreign investment in the insurance and pension sectors from the existing 26% to 49%. If the measure is passed, an inflow of fresh capital, an increase in the number of insurance joint ventures and faster development of the market are expected. However, voices of dissent from within both the ruling coalition and the opposition may interrupt its passage through Parliament.
Following detariffication, insurance prices across a number of sectors were freed from regulation. In those classes of business, premiums plummeted as general insurers pushed for a greater market share. At the same time, prices were cut dramatically in lines of business that had traditionally been profitable. Used to seeing these insurers report profits, the Ministry of Finance recently took action.
In Radiant Overseas Pvt Ltd v Insurance Regulatory and Development Authority the Delhi High Court overturned a previous decision which had ordered an Indian travel company which was conducting business on behalf of an Ukrainian insurer, but which was unlicensed for insurance activities, to cease its insurance operations. The court stated that Indian laws cannot be held to apply to insurance businesses outside India.
Further to recent regulatory changes for overseas non-admitted reinsurers, the Insurance Regulatory Development Authority is now reported to be considering further amendments to limit the percentage of premiums ceded by Indian insurers. If the proposed change is implemented, it will result in life insurers having to renegotiate a number of their treaty arrangements with overseas reinsurers.
For several years stakeholders in the Indian insurance industry, as well as various overseas insurance and reinsurance companies, have been awaiting the passage of the Insurance Laws (Amendment) Bill 2008. However, developments in recent months indicate that the wait is not yet over.
Over the last few months, two events have occurred that will have a significant impact on overseas reinsurers' plans for carrying out reinsurance business in India. First, the Parliament's Standing Committee on Finance appears to have rejected the latest version of the Insurance (Amendment) Bill 2008. In addition, all cross-border reinsurers must now register with the Insurance Regulatory and Development Authority.
The start of 2012 has seen further developments in the troubled motor insurance industry, with worrying reports that the Insurance Regulatory and Development Authority is formally investigating seven general insurers in relation to suspected fraud committed by faking claims and siphoning off funds from the third-party motor pool.
A number of press reports have suggested that a turf war may be brewing between the Insurance Regulatory and Development Authority (IRDA) and the Pension Fund Regulatory and Development Authority over whether annuity products should be sold by pension fund managers or insurers. This follows the recent similar clash between the IRDA and the Securities Exchange Board of India.
A recent judgment of the National Consumer Disputes Redressal Commission is the first clear statement by the courts on whether there is a continuing duty of good faith. The commission ruled that utmost good faith must pervade the entire range of conduct of both the insurer and the insured. While no appeal has yet been filed, it is expected that the Supreme Court will be forced to consider the matter in due course.
The Indian insurance rules and regulations make clear that only licensed insurance agents or intermediaries can solicit or procure insurance business in India. However, a limited exception to this rule was created by the Insurance Regulatory and Development Authority Advertising Guidelines, which permitted promotional activities to be carried out through cold calling by "other than licensed intermediaries".
The first regulatory guidance published by the Insurance Regulatory and Development Authority this year was a clarification of the 2005 Guidelines on Group Insurance Policies. The amendment aims to lower costs for policyholders, but if it leads to policies being discontinued it could result in individuals having to seek cover afresh or claims against insurers on servicing issues.
The Insurance Regulatory and Development Authority has recently taken steps to regulate more closely and restrict the transaction of credit insurance business in India. These steps include the formulation and issuance of new guidelines to govern the conduct of credit insurance business. The Guidelines on Trade Credit Insurance have far-reaching implications within the insurance industry.
The Delhi High Court recently considered the powers of insurance ombudsmen in a health policy renewal dispute in which an insurance company failed to comply with an ombudsman's ruling. The court upheld the ruling, indicating that the courts will be slow to interfere with an insurance ombudsman's ruling.
The Insurance Regulatory and Development Authority recently expanded its guidance on outsourcing by issuing draft guidelines for insurers. The new guidelines are clearly aimed at stricter regulation of the insurance sector and as such have the potential to call into question a number of existing third-party contracts, as well as arrangements with agents and intermediaries.
The Indian insurance rules and regulations make clear that only licensed insurance agents or intermediaries can solicit or procure insurance business in India. The Delhi High Court recently considered this position in a case involving a travel agency which entered into an arrangement with an insurer in Ukraine to collect premiums and issue insurance certificates to Indian tourists travelling to Ukraine.
Under Indian insurance rules and regulations, corporate agents are recognised as legitimate insurance distribution channels that are bound by the rules and regulations applicable to insurance agents. No corporate agent can represent more than one life insurer or one general insurer. However, for several years the industry has lobbied the Insurance Regulatory and Development Authority to approve a multiple agency system.
A recently passed bill has resolved the controversy between the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority over the regulation of unit-linked insurance policies. The bill also provides a mechanism for the resolution of future regulatory disputes and arguably paves the way for a new super-regulator.
India's statutory and regulatory framework for insurance restricts the payments that can be made for the solicitation and procurement of insurance products. The root of this restriction is the Insurance Act 1938, which states that only licensed insurance agents or intermediaries can be paid for the solicitation and procurement of insurance products.
The initial expectation of a behind-the-scenes resolution of the dispute between the Securities Exchange Board of India and the Insurance Regulatory and Development Authority over which of them has jurisdiction over unit-linked insurance products appears to have been overly optimistic. Public interest litigation has been commenced in the Mumbai and Allahabad High Courts, naming a number of life insurers as respondents.
The capital markets regulator, the Securities Exchange Board of India (SEBI), recently wrote to a number of life insurers effectively questioning the basis on which they have been selling unit-linked insurance products to the public in circumstances where they are not registered with SEBI. The regulator believes these products to be collective investment schemes and thus subject to its approval before being sold to the public.
At the end of 2009 the Insurance Regulatory and Development Authority (IRDA) issued its Corporate Governance Guidelines for Insurers, which are to be adopted and implemented by April 1 2010. According to the IRDA, insurers need a corporate governance framework that clearly defines roles, responsibilities and accountability within the organization, and that contains built-in checks and balances.
The health insurance market has shown positive growth rates in recent years and is projected to grow at a rate of 31.5% during the period 2007 to 2015. This update summarizes the regulatory framework for health insurance and analyzes the insurance regulator's recent circular of March 31 2009. It also looks at the market scenario for health insurance and identifies certain regulatory issues.
Free look periods are applicable to health insurance policies and other policies issued by life insurers that have a deferred coverage of risk. The Insurance Regulatory and Development Authority recently issued a circular which mandates that health insurance policies must also provide a free look period and directs life insurers not to deduct a proportionate risk premium in cases where the policy is cancelled during this period.
The Insurance Regulatory and Development Authority recently set up a committee to examine the scope, content and objective of a new set of regulations for the bancassurance model. The committee has been set up in response to requests from insurers to relax the requirement that a bank can enter into a bancassurance arrangement with only one life or one general insurer or one life and one general insurer.
The Insurance Regulatory and Development Authority has taken recent steps towards standardizing the various charges applicable to unit-linked insurance policies (ULIPs). This update focuses on the authority's establishment of a panel of actuaries and the recommendations made by this panel for standardizing and reducing the number of charges on ULIPs.
The progress of the insurance market's movement away from the tariff-based regime has been somewhat halted. However, at the beginning of 2009 a measure of flexibility for insurers was introduced. The Insurance Regulatory and Development Authority has permitted an amendment to certain Tariff Advisory Committee-mandated forms for the fire, engineering, motor (own-damage) and industrial all risks sections of policies.
Based on market feedback and experience, the Insurance Regulatory and Development Authority recently issued revised guidelines concerning the establishment of overseas liaison offices by Indian insurers. Although it is still early days, the imposed restrictions have already begun to draw questions as to why Indian insurers are not allowed greater flexibility.
Indian insurers have reported a marked increase in the demand for terrorism cover in the 2009 renewal season. The demand is naturally being linked to concerns following the Mumbai attacks of November 2008. The insurance of terrorism risks in the Indian market is undertaken through a pool system. One of the aims of the Market Terrorism Pool is to maximize the retention of insurance business within India.
According to the Marine Insurance Act 1963 and Supreme Court precedents, insurance contracts are contracts of the utmost good faith, which require the full and proper disclosure of all material facts so that insurers can properly assess whether to accept the risk offered to them. However, recent judicial decisions reveal a divergence from these statutory principles.
Between 60% and 70% of the general insurance market was previously required to sell certain policies on prescribed terms and rates. The IRDA announced in December 2006 that rates would be freed, but subsequently decided that free wordings will not be allowed. However, it has announced relaxations in the mandated wordings for fire, engineering and motor insurance, effective from January 2009.
The Indian General Insurance Council (GIC) was set up to represent the collective interests of general insurers operating in India. The GIC’s activities are overseen by an executive committee that comprises the chief executives of all Indian general insurers and members of the Insurance Regulatory Development Authority.
Even though the Indian health insurance market grew by 38% in 2006 to 2007, only 1.08% of India’s billion-plus population has medical insurance. The general perception is that prospects for growth in this sector of the insurance market are good.
The Indian general insurance market is in the midst of a transition from a tariff-based regime to a more market-driven system. The Tariff Advisory Committee mandated that policy wordings (ie, insurance terms, conditions, clauses and warranties) be used until March 31 2008. However, the insurance market regulator has announced that it is pushing this date back.
The General Insurance Council (GIC) has published its proposed minimum standard wordings for fire, engineering and motor risks. Although the wordings are lengthy and currently under review by sections of the market, and although the GIC has said that they are not intended to restrict insurers from creating their own wordings, fundamental questions have been raised about the GIC’s stated objectives.
The Indian insurance industry regulator (IRDA) has continued to issue guidance with respect to unit-linked insurance products. India operates a 'file and use' procedure for all life insurance products, meaning products must be submitted to the IRDA before they can be sold to the general public. However, the public's growing interest in buying the products has resulted in increased regulatory intervention.
The Anti-money Laundering Guidelines issued by the Insurance Regulatory and Development Authority in order to implement the Prevention of Money Laundering Act 2002 have been the subject of heated debate within the industry. Following representations by insurers, certain of the guidelines have already been amended and negotiations are likely to continue.
In India, insurers face significant interest payments both when (i) defending disputed claims, and (ii) delaying claim payments in non-litigious claims. With too many cases and too few judges, cases can easily take eight years to be finally resolved. Interest is used as a means of compensating a successful litigant for the delays inherent in the system.
Various decisions of the Supreme Court of India have confirmed that state-owned insurers must be regarded as instruments of the state and that their actions must be guided by the public interest. Therefore, such insurers must act reasonably and fairly under Article 14 of the Constitution to the extent that, where necessary, principles of fairness may override strict policy wording.
Under the Insurance Act 1938, no insurer may pay a general insurance claim unless a loss adjuster has submitted a report on the loss at issue. However, the report is not binding on the insurer, and the insurer retains the right to pay the claimant a different amount from that contained in the report.
The liberalization of tariffs for rates for all tariff business began on January 1 2007. As expected, third-party motor insurance has been the most problematic area since the tariff removal began. In order to deal with these concerns, the Insurance Regulatory and Development Authority has established a pool for third-party motor insurance risks.
The liberalization of the Indian economy has led the insurance industry to investigate the extent to which it may be able to handle the insurance requirements of the 25 million persons of Indian origin living outside India. At present, Indian insurers may open only a representative office overseas, which is subject to strict requirements.
New guidelines for the conduct of insurance and reinsurance business came into force on October 1 2006. Among other requirements, the guidelines prevent a chosen broker from subcontracting a risk to another broker and oblige an Indian broker to co-broker reinsurance with a foreign broker only where that broker complies with Indian guidelines.
The opening up of the insurance market to private competition at the start of this century was the first step taken by the government to bring the insurance market up to date. Now the proposed removal of tariffs from general insurance business looks likely to be the second step. At present, the majority of Indian insurance business is written on tariff terms.