Page 17 - Insurance Times April 2019

Though the IRDA Act is a 1999 Act, provisions for penalty insurer whose principal place of business is outside
are contained in the Insurance Act. The original Insurance India save with the prior permission of the Authority.
Act is of 1938 and has been amended from time to time. 2. If any person contravenes the provision of sub-section
Here, the key provisions are in section 102 of the Act. The
(1), he shall be liable to a penalty which may extend
Act provides for a penalty up to Rs.5 lakh for each failure.
to five crore rupees. The amount of penalty is
Thus, the quantum seems to be relatively modest when
substantially high.
compared with the provisions under the Banking Regulation
Act. Unlike the SEBI Act, the Insurance Act does not provide For a lot of other provisions, the penalty for violation or
for an adjudicating mechanism, though the regulations non-compliance has been substantially increased. The
relating to various entities like insurers, brokers and agents Standing Committee had recommended to reduce the
lay down the procedure for taking disciplinary action for penalty but this suggestion has not been incorporated as
violations. higher penalties are considered to have more deterrent
effect. The amendment act has made Securities Appellate
Also, except in some specified cases where there is a Tribunal (SAT) as the appellate authority to the Insurance
provision for an appeal to the central government under Regulatory and Development Authority. The issue which is
section 110H of the Insurance Act, there is no appellate required to be kept in mind is that the experts sitting at SAT
mechanism provided under the Act. Hence, appeals lie
should have sufficient knowledge about insurance sector so
before court of law till Securities Appellate Tribunal was set that they can deal with the issues in an effective fashion.
up. Yet one reading of the FSLRC is that almost everything
the regulator does, not just the framing of regulation or the
process by which decisions are reached but also the exercise The Changing Process:
of regulatory judgment as well as policy decisions, is to be The process of amending the insurance laws started way
subject to legal appeal. The development of the insurance back in 2008 with the introduction of Insurance Laws
industry in India is likely to be critically dependent on the (Amendment) Bill, 2008. The process finally culminated with
nature and quality of regulation. the passing of Insurance Law (Amendment) Act, 2015. This
amendment act has raised the cap on foreign direct
Overall, the regulatory environment is favorable and takes investment in insurance sector from 26% to 49% allowing
care that players maintain prudent underwriting standards, for more capital flow in insurance sector which is a capital
and reserve valuation and investment practices. The primary intensive industry. In order to make the sector more
objective for the current regulations is to promote stability effective, a lot of procedure from the Insurance Act has
and fair play in the market place. The environment been omitted and IRDA is given the authority to formulate
surrounding the insurance industry is quickly and drastically regulations for the same.
changing due to the advancement of climate change and
global warming, the emergence of growing industries and Provision for providing loans and advances to agents has
advanced technologies, the increase in companies been diluted a little and made less restrictive. By amending
expanding operations overseas, and the diversification of Section 45, it was mandated for the insurer to provide for
the claim if it is made after three years from the date when
customer needs with changing lifestyles.
the policy became effective. It has also allowed foreign re-
insurers with their branches registered with IRDA to do
Increase in Penalty Amount: business in Indian Territory. It has substantially increased the
The amendment act has considerably increased the penalties as higher penalty has more deterrent effect. In
penalties for violation of the provision of the Act. A few order to provide a better grievance redressal system,
examples are, as per Section 102, if a company doesn't Securities Appellate Tribunal has been made the appellate
comply with directions of IRDA, the penalty has been authority to IRDA's order.
substantially increased from Rupees Five Lakhs to Rupees
One Lakh for each day or Rupees One Crore, whichever is According to the researcher, these reforms will boost the
less. A new section, section 2CB has been introduced which insurance sector in India, will lead to effective regulation of
states that: the sector and hence, will be beneficial for both insurance
1. No person shall take out or renew any policy of companies as well as the customers taking insurance
insurance in respect of any property in India or any ship policies. Insurers that strive to delight their customers must
or other vessel or aircraft registered in India with an migrate from a transactional mentality to a relationship

The Insurance Times, April 2019 17