Insure and be more secure

Venkatachari Jagannathan
02 August 2002

Chennai: For the Indian insurance sector, the news couldn’t have come at a better time.

After numerous false-starts and crossing many hurdles, the Insurance Amendment Bill 2002 (amending the Insurance Act 1938) and the General Insurance Business (Nationalisation) Amendment Bill 2002 (amending the General Insurance Business Nationalisation Act [Gibna] 1972) got the Parliament sanction, with the Rajya Sabha deciding to ‘underwrite’ or pass the bills on 30 July 2002.

The amendment to the Insurance Act paves way for the entry of cooperatives, brokers and other intermediaries into this sector. Further, much to the relief of many aspiring corporate agents, the amendment has diluted the qualifying stipulations.

While these are the popular outcomes in general, the crucial amendment for life insurers is in Section 49. The new law increases the shareholders’ share of valuation surplus (the difference between assets and liabilities, excluding shareholders’ funds) to 10 per cent from 7.5 per cent. In the case of non-participating policies the entire surplus was given to the shareholders.

The amended law now enables premium payment through alternate means - credit cards, the Internet and others. Presently, the premium has to be paid only by cash, cheque or demand draft. The rule that the premium has to be paid in advance - before the insurance cover begins - remains unaltered.

On other hand, the amendment to Gibna effectively delinks General Insurance Corporation of India (GIC) and its four subsidiaries. Henceforth, GIC will be the national reinsurer transacting only reinsurance business. With the amendment the government gets the legal sanction for an administrative action taken earlier.

Mixed reactions
Reacting to the passage of the two bills, AMP Sanmar Life Assurance Company CEO S V Mony says: “The passage of the two bills is a significant event for the [life and non-life] insurance industry and more so for the life insurers. Now one will witness lots of changes in the existing structure.”