Law panel for more powers to IRDA  ( December '9,2002, HBL)

STEERING clear of the politically sensitive issue of the foreign investment cap in insurance ventures, Law Commission of India is set to suggest sweeping changes in insurance laws. The changes will include giving more punitive powers to the Insurance Regulatory and Development Authority (IRDA), greater corporate disclosures for insurance companies and repeal of the two major legislations of the past - the Life Insurance Corporation Act, 1956 and the General Insurance Business (Nationalisation) Act, 1972.

While this could initiate the process of arming IRDA with wide powers to crack the whip on errant insurance companies, as has been recently done for the capital market regulator, the Securities and Exchange Board of India (SEBI), consumers of insurance would also stand to gain as the commission's call for greater disclosure would focus on the investment front requiring companies to inculcate a greater degree of care in handling policyholders' funds.

The recommendations are being considered as part of an exercise currently being undertaken by the Law Commission at the behest of IRDA to review the major insurance laws and to merge them into a single omnibus legislation. The four laws under scrutiny are the Insurance Act, 1938, the IRDA Act, 1999, the LIC Act and the GINBA, 1972.

The review was considered necessary since all the four laws need to be brought in tune with the current market realities. "The focus of the review is customer protection. Many of the provisions are considered archaic. For example, some penalties for violation by insurance companies are levy of miniscule fines of a few rupees. A need has also been felt for removing redundant and contradictory provisions and incorporating all the remaining provisions into one single law to ensure smoother functioning of the insurance industry," a senior Law Commission official said. However, he declined to detail the proposals under consideration.

A preliminary draft of the proposed discussion paper has already been finalised. The commission Chairman, Mr Justice M. Jagannadha Rao, has already invited the IRDA Chairman, Mr N. Rangachary, for discussion on the draft after which the final discussion paper would be prepared for comments from all sections of the public. "We expect to release the discussion paper within two/three weeks," commission officials said. Though the suggestions of the Law Commission are not binding on the Government it would be a powerful input for future legislative exercise relating to insurance. "It is up to the Government to accept or reject our suggestion, but being a statutory body our suggestion would have its own impact," officials said.

They said that suggesting a repeal of the LIC Act and the GIBNA was being considered since the two Acts were set up to grant monopoly powers to the nationalised insurance companies. If accepted, this would mean that LIC, GIC and the four nationalised non-life insurance companies would be corporatised.

"The two Acts are now redundant since the monopoly clauses have already been deleted," the officials said.

He said that the decision to keep the foreign equity cap out of the review was on account of the existing ceiling of 26 per cent (arrived at as a political consensus in Parliament). Hence, the Law Commission thought that it would be wise to leave it out of the purview of the present exercise.