Proposed changes to insurance laws may cause health claim disputes: Unions
Chennai, December 17, 2022
The proposed amendment to the definition of health insurance business is not exhaustive and may lead to disputes at the time of claims, said four unions in the Life Insurance Corporation of India (LIC).
The Unions also said the proposed amendments does not define the term liability which may lead to misappropriation by the insurers.
The four unions are: Federation of LIC of India Class I Officers' Association, National Federation of Insurance Field Workers of India, All India Insurance Employees Association and All India LIC Employees Federation.
The Indian government has proposed drastic changes to the two insurance laws - Insurance Act 1938 and the Insurance Regulatory and Development Authority Act 1999- and has called for stakeholders views the planned changes.
Scrapping of the statutory Rs 100 crore startup capital for life and general insurance business and Rs 200 crore for reinsurance business, allowing different kinds of insurers including captives, changing the investment provisions are some of the major amendments proposed by the Indian government to the insurance laws.
The government also proposes to allow an insurer to distribute other financial products as specified by and subject to regulations and to services related or incidental to insurance business.
As per the proposed amendment to Section 2(6C) of the Insurance Act 1938 "health insurance business" means effecting contracts of insurance that provide sickness benefits or pay for medical and health expenses.
Quoting the existing definition in the Act, the four unions said the existing definition of health insurance business is explicit to include sickness, medical, surgical or hospital expense benefits.
However, the proposed amendment is not elaborative which may lead to dispute during a claim and the insurers may find scope to harass the customer. Therefore, the existing definition should not be replaced, the four unions said.
The employee unions are also opposed to the idea of insurers distributing insurers to distribute other financial products as it may distract the companies from their insurance products, distribution and proper attention on serving the policyholders.
Industry experts also told IANS that the policyholders funds should be ring fenced so that it is not touched by the players in the case of any liability that may arise due to selling other financial products.
The amendments to the laws are proposed in order to increase the penetration of insurance in the country, which continues to be low even after over two decades after opening up the sector.
The employee unions are also against the government's plan to bring down the net owned funds to Rs.500 crore from the existing Rs 5,000 crore for a reinsurer.
Moreover, the minimum requirement of Rs 5,000 crore was enacted years back. Since then, huge inflation has taken place.
"Reduction in requirement by one tenth may result in insolvency which will put the customers in great sufferings. Therefore, we are of the opinion not to reduce the amount of net owned funds for new registration," the unions said.
Referring to the proposed amendments to Section 27 of the Insurance Act, the unions said the proposed change does not define the liability, which may lead to misappropriation by the insurers.
Therefore, the liability must be defined in explicit terms.
On the proposed deletion of Section 27A of the Insurance Act the unions said: "This section deals with the provision of investments with a conservative view to safeguard the interests of the policy holders. Omission of this section may allow for irresponsible investments by the insurers causing huge harm to the customers."
The unions are also against allowing multilevel marketing in the insurance sector.
Appointment of principal agent, chief agent and special agent to transact any insurance business will bring complexity in the system and will increase the probability of mis-selling as well as fraudulent acts, they said.