The Hindu Business Line : Law panel for review of Insurance Act

THE Law Commission has favoured a review and revision of the Insurance Act, 1938 in such a manner that "it should not only promote insurance but also protect the interests of policyholders and strengthen the Insurance Regulatory Development Authority (IRDA) to ensure financial stability in this sector.

In its 190th report on the subject, tabled in Parliament during the just-ended winter session, the Chairman of the Law Commission, Justice Mr Jagannadha Rao, has written to the Union Law Minister Mr H.R. Bharadwaj, by way of summation of his report that in the changing economic scenario, IRDA has to play a vital role for the regulation and development of insurance business.

The report recalled that following a raft of discussion held with the IRDA, the Law Commission prepared an exhaustive Consultation paper in June 2003, identifying thirteen tentative grounds of revision of the Insurance Act, 1938 and the IRDA Act, 1999 ranging from merger of relevant provisions of IRDA Act with the Insurance Act 1938 to harmonising of the Act with rules and regulations.

It said the Commission awaited the response of the Government of India as well as the IRDA till March 2004.

A brief letter was received early 2004 from the Joint Secretary (Banking & Insurance) in the Ministry of Finance, indicating that it was are in total agreement with the proposals in the Consultation Paper concerning merger of the provisions of the IRDA Act with the Insurance Act, changes in definitions, deletion of redundant provisions, constitution of an appellate authority to examine decisions of the IRDA, enhancement of penalties, rationalising of the powers of the IRDA and strengthening obligations of the insurers and provision for the protection of the rights of the policyholders.

Stating that the Commission decided to confine its recommendations only with regard to the germane legal issues arising in the Insurance Act, 1938, the report said the legal issues include the setting up of a grievance redressal mechanism, repudiation of life insurance polices under section 45 of the Insurance Act and provisions pertaining to nomination and assignment and transfer of policies under sections 39 and 38 respectively.

The Law Commission found the extant system of Ombudsman under the Redressal of Public Grievances Rules to deal with the grouses of policyholders not satisfactory from the point of view of policyholder; nor does the remedy under the Consumer Protection Act, 1986 prove to be effective in the large number of cases of pending decision.

As such, the Commission has said that Grievance Redressal Authorities (GRA) should be constituted to deal with (i) disputes between the insured and the insurer (ii) disputes between insurer and the intermediaries and (iii) disputes between insurer and insurer. However, the GRA should have no jurisdiction in cases relating to third party motor vehicle insurance and marine insurance.

The GRA shall consist of one judicial member who will be the Chairman and the other two technical members.

Besides the GRA, it has been recommended that an Insurance Appellate Tribunal (IAT) should also be constituted to hear the appeals from the order of GRA. There will have to be a further statutory appeal to the Supreme Court from the decision of the IAT, the Commission said.

On repudiation of life insurance policy under extant Sec 45 Insurance Act 1938, the Commission has recommended taking into account the suggestion of the Life Insurance Corporation that after the expiry of five years, no policy of life insurance can be repudiated on any ground whatsoever.

However, an insurer can repudiate a policy before the expiry of five years on the ground that the insured has made a misstatement of or suppressed a material fact.

While Section 38 of the IA provides for assignment and transfer of life insurance policies, there are certain anomalies in the working of sub-sections.

Hence the Commission has recommended that a clear distinction be made between absolute assignment and conditional assignment. As Section 39 of the IA provides that the policyholder might nominate one or more persons to whom the money secured by the policy should be paid in the event of the death of the policyholder, the Commission has favoured amending this section to make a distinction between a "beneficial" nominee and a "collector" nominee.

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