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In an amendment to the Insurance Act 1938, the Department of Financial Services (DFS), Finance Ministry has proposed implementation of stringent penalties on insurance companies and intermediaries like banks and insurance brokers for mis-selling.
The DFS has proposed levy of fine ranging from a minimum of Rs.1 crore to a maximum of Rs.5 crore for mis-selling. In the proposal, DFS said, “If any insurer or insurance intermediary makes a statement or furnishes any document, statement, account, report or return which is false and which he either knows or believes to be false or does not believe to be true, he shall be liable to a penalty which shall not be less than rupees one crore, but may extend to rupees five crore for each such failure.”
However, individual agents will be exempted from this as insurers will be responsible for their acts.
Further, the DFS has proposed imposing a penalty ranging from Rs.10 lakh to Rs.1 crore for selling insurance policies without registration or invalid license.
In addition, the government has proposed imposition of penalty for non-compliance with IRDAI norms of up to Rs.10 crore on insurance companies and insurance intermediaries. Daily non-compliance fines will be increased to Rs. 1-5 lakh per day, with a maximum cumulative penalty of Rs. 10 crore, proposes DFS.
Recently, the Union Finance Minister Nirmala Sitharaman said that while banks have played a significant role in increasing the penetration of insurance in India, it has also raised concerns about instances of mis-selling. In fact, it added in an indirect way to the increased cost of borrowing to the customers. She said that banks should focus on their core activity of mobilizing deposits and lending money.
Insurance intermediaries include insurance brokers, re-insurance brokers, corporate agents, third-party administrators and surveyors and loss assessors.
Among other key proposals are:
- Allowing foreign investors to hold up to 100% stake in Indian insurance companies
- Reducing the minimum net owned fund requirement for insurers from Rs. 5000 crore to Rs. 1000 crore to set up an insurance business
- Reducing the minimum paid-up equity capital to Rs. 50 crore for insurance businesses serving underserved segments in special cases
- Modifying investment requirement with life insurers to invest 25% of investible corpus in government securities and 25% in government and other securities like state government. Such a requirement for non-life will be 20% in government securities and 10% in government and other securities
- Allowing merger of an insurance business with an entity which does not have insurance business subject to certain conditions
- Allowing health insurance companies to sell personal accident and travel insurance
- Removal of the requirement that says Indian insurance companies must focus solely on specific insurance types life, general, re-insurance or health
- Representation of agents, intermediaries and policyholders in the general insurance council should be reduced from 4 to 3
You can submit your comments to the proposal via email at consultation-dfs@gov.in latest by December 10, 2024.