Chennai: Even as they eagerly await the passage of the amended insurance bill, private players are viewing with trepidation the revised provisions relating to penalties, which are to be significantly hiked.
For instance, the bill proposes to penalise insurers up to Rs.1 crore for all acts and omissions of agents, including violation of code of conduct mentioned in the law.
Non-life insures failing to achieve the minimum target of motor third party policies will be fined up to Rs.25 crore.
The insurer's anxiety is high as the Insurance Regulatory and Development Authority (IRDA) has been levying the maximum penalties on erring insurers for the past couple of years.
Recently private life insurer Aegon Religare Life Insurance Company was fined Rs.40 lakh by IRDA for various violations.
"The Insurance Bill proposes a new section under which an insurer will be liable for all acts and omissions of its agents with a fine that may extend up to Rs.1 crore. There should be a provision that exempts insurers from liability if the agent acts beyond the scope of the authority granted by the insurer," a senior official of a private life insurer told IANS, asking not to be named.
According to him, under the Indian Contract Act, acts of an agent bind the principal if the former acts within the scope of authority granted by the principal.
"In line with the above principles, the section may be amended to cast the responsibility on the insurer for acts done with the scope of authority granted by the insurer," the official said.
According to him, the insurance industry has several agents-- individuals and corporate-- and there are cases of mis-selling by them which the industry is taking corrective action.
Similarly, the penalty for non-compliance with investment related provisions has been increased from Rs.500,000 to Rs.25 crore.
The Insurance Bill now proposes a steep penalty up to Rs.25 crore on insurers not complying with the rural and social sector sales target and on general insurers for not underwriting minimum levels of motor third party insurance policy.
Currently where insures fail to comply with the rural sector sales targets then the penalty is Rs.500,000 for each such failure and an imprisonment upto three years.
In case an insurer fails to comply with the social sector sales targets then the maximum penalty is Rs.25 lakh for each such failure and in case of continued non-compliance then cancellation of insurer's registration/licence.
The Bill also proposes to revise the penalty amount under Section 102 of the Insurance Act to Rs.100,000 for each day during which such failures continue or Rs.1 crore which ever is less, said the official.
The existing maximum penalty is Rs.500,000.
The IRDA has been penalising errant insurers now under the Section 102.
"The penalties should be moderated. The proposed penalties are on the high side. If the fines are moderate then there will be better compliance," V.Manickam, secretary general, Life Insurance Council, told IANS.
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