SECURE FUTURE: An insurance agent explains the details of a policy to a family

Want to live a hassle-free life? Insure it. And everything else that comes along with it. But that might mean exchanging your worldly hassles for a different set of worries, generated by fine print or legal drawbacks.

Thankfully, the regulators of the insurance industry have taken notice and amendments proposed in the Insurance Act, 1938, may soon put right some of the anomalies in the legal guidelines that govern the business in our country. A final call on the issue is to be taken some time later this month by the Insurance Regulatory and Development Authority (IRDA), the body that oversees insurance in India.

The Insurance Act, as its name suggests, was implemented in 1938. At that time, insurance was a nascent industry, and the law was thus equally elementary. In due course of time, however, insurance grew from its basic form to become a complex affair, and is an important part today of the country’s economy. But in stark contrast, little progress was made in the legal sphere vis-a-vis insurance. Save a few minor alterations, the Insurance Act was never overhauled.

Consequently, the law was taken advantage of, both by insurers who wanted to lure more clients by making promises which were not always true, and by insured people bent on making money through false or exaggerated claims.

But all that might soon be a thing of the past, thanks to the proposed amendments. “The exercise is aimed at recasting Indian insurance law so that it relates to modern business norms,” says N.N. Joshi, chief representative, ING Vysya Life. “It’s a much needed move, and from that perspective, much welcome.”

In mid-2003 the Law Commission released a consultation paper on the revision of the Insurance Act. A previous exercise to amend the Act was undertaken in 1999, when the IRDA Act, 1999, was enacted. Currently, insurance in India is governed by both the Insurance Act and the IRDA Act.

The Law Commission undertook the exercise because it felt a need “to strengthen the regulatory mechanism even while restructuring the existing legislation with a view to removing portions that have become redundant as a consequence of the recent changes”. The report was presented in June 2004. Some of the changes suggested there included the merging of the two governing Acts into one law in order to avoid multiplicity, the deletion of provisions no longer effective, and alterations in Sections 38 and 39 of the Act, providing for the assignment and transfer of life insurance policies and nomination by policyholders, respectively.

Further to the Law Commission’s initiative, the IRDA constituted a committee to review the commission’s suggestions and changes, apart from looking at newer areas where alterations could be made to benefit the stakeholders in the industry. Given that the final say is still pending on IRDA’s part, speculation abounds as to what the final list of suggested amendments would look like.

When contacted by The Telegraph, the IRDA refused to give out any details of the proposed changes. But going by what IRDA chairman C.S. Rao recently said, one of the major changes ? apart from those mentioned above ? being considered is the imposition of hefty fines in the event of breach of contract by insurers.

Several people in legal circles think this will be a pathbreaking move. “Breach of contract has always been settled in a compensatory manner in India, but never in the realm of a penalty,” says Sumeet Kachwaha, of the Delhi-based legal firm Kachwaha & Partners. “Jurisprudentially speaking, seeking to introduce a penalty as a way to deal with breach of contract is thus a quantum leap in the legal sphere.”

If introduced, the change would make it possible for a litigant to sue for a greater sum of money than actual financial damages caused through breach of contract, says Kachwaha. “That takes the whole issue of breach of contract, serious as it is, beyond liquidity damages. But since it is a huge change, it needs to be well thought out before being implemented,” he adds.

Amid all the speculation, insurance company officials also point at certain areas in the existing rules which require attention. For example, current regulations prevent insurance companies from transferring policies from one agent to another. “This works against the customer,” says Vivek Khanna, director, marketing, Aviva India. “If an adviser quits, the policies serviced by him become orphans and the customers suffer from lack of personal attention.”

Khanna also points out anomalies in what is called commission sharing ? practised in other countries ? where advisers are known to forego portions of commissions received from insurers and pass them to policyholders, a benefit which gets compounded over the years. “In India, commissions cannot be passed on to policyholders,” says Khanna.

“But some advisers routinely provide rebates on an unofficial basis to make the policy more attractive to customers. We believe it is in the best interests of customers to follow the practice prevalent in other markets,” he adds.

These are perhaps only a few of the fronts on which the industry hopes changes would be made. And though it’s all in a conjectural domain at the moment, the wait ? hopefully ? would be worth the while.