In possibly the highest payout in recent times, the Motor Accident Claims Tribunal ordered the owner of a dumper truck and an insurance company to jointly pay around Rs 4.13 crore compensation (with interest) to the family of a Sakinaka 54-year-old garment businessman, who died after his bike was rammed into by the heavy vehicle in 2016.
The tribunal relied on the income tax returns, which it said was “a statutory document on which reliance may be placed to determine a victim’s annual income”. The tribunal refuted the insurance company’s claims that since the victim was not wearing a helmet, he was responsible for his death. The family had sought compensation of Rs 3 crore.
The wife of Jameel Shaikh and his six children moved the tribunal on November 7, 2016, against the dumper truck owner GauriJadhav and New India Assurance Co Ltd.
The family said on August 28, 2016, between 3-4pm while Jameel was proceeding from Sakinaka to Powai on his motorcycle, the truck came from behind at “high, improper speed” and knocked him down. Jameel was taken to hospital, where he was declared dead.
An FIR was registered against the driver for causing death by negligence. The dumper owner didn’t respond to the claim and the order against them was passed ex parte.
The insurance company argued that had Jameel worn a helmet, which was mandatory in law, the head injury could have been avoided. It is contended that the driver of the offending vehicle was not holding a valid and effective driving licence at the time of the accident and thus, insured has committed breach of terms and conditions of the policy. It denied the liability to pay the compensation.
The tribunal said the insurance company had not produced evidence to support its claims.
Reforms in insurance law are in order
GoI is reportedly looking at changes in the insurance law, including lowering the minimum capital requirement, to drive up insurance penetration. Easing the minimum capital requirement of 100 crore will help reduce the initial hurdle for new-age companies foraying into the sector.
Allowing different types of insurance companies such as micro-insurance and agriculture insurance – akin to different kinds of banks catering to different customer classes – will foster innovation. Greater competition will drive down costs and give policyholders a wider choice. The capital requirements after the initial roll-out are a function of the volume of business and, so, depend on the insurer’s book size.
Insurance is a risk-based business. Premium payments lie on the books of insurers, and prudential norms require insurance companies to provide for more capital as premium collections rise. So, more capital will be necessary if these insurers want to grow.
A vibrant insurance market that can attract long-term funds calls for more reforms. Rightly, the FDI cap was hiked to 74% from 49% to allow foreign partners majority control. Reportedly, two rules – one that requires insurance companies to have an identifiable promoter with a 50% stake in perpetuity (unless another promoter steps into his shoes), and another barring M&As between insurance and non-insurance entities – are seen by some as roadblocks to investment. A road map for stake dilution makes sense when a company is professionally managed and capable of getting listed. The insurance regulator should take a page from RBI that allows stake dilution by promoters of private banks. Lifting the bar on M&A activity involving a noninsurance company is in order. It can help insurers build capabilities by acquiring startups.
Mergers will result in more effective use of capital to support the insurers’ solvency margin requirements. Consolidation will help increase insurance penetration into India’s hinterland. Clear regulatory norms are required for policyholders to have trust in insurers.
FinMin mulls changes in insurance laws to boost penetration
The finance ministry is contemplating changes in insurance laws, including reduction in minimum capital requirement, with a view to increasing the insurance penetration in the country.
Insurance penetration in India increased from 3.76 per cent in 2019-20 to 4.20 per cent in 2020-21, registering a growth of 11.70 per cent. Insurance penetration measured as the percentage of insurance premium to GDP witnessed handsome growth during the year, mainly due to the outbreak of COVID-19.
The ministry is doing a comprehensive review of the Insurance Act, 1938 and also looking at making relevant changes to help push growth of the sector, sources said, adding the process is at a preliminary stage.
One of the provisions being considered is lowering the minimum capital requirement of Rs 100 crore for setting up an insurance business, the sources said.
Easing capital requirement would allow entry of differentiated insurance companies like in the banking sector, which has categories like universal bank, small finance bank and payments bank.
With the ease of entry capital norms, sources said, there could be entry of companies focussed on micro insurance, agriculture insurance or insurance firms with regional approach.
So for them, the solvency margin requirement would also be different but without compromising on policyholders’ interest, the sources said.
Entry of more players would not only push penetration but result in greater job creation in the country.
Presently, there are 24 life insurance companies and 31 non-life or general insurance firms, including specialised players like the Agriculture Insurance Company of India Ltd and ECGC Limited.
Last year, the government brought an amendment in the Insurance Act to allow increasing foreign holding in insurers from 49 per cent to 74 percent. Besides, Parliament passed the General Insurance Business (Nationalisation) Amendment Bill, 2021, allowing the central government to pare stake to less than 51 percent of the equity capital in a specified insurer, paving the way for privatisation.
In 2015, the Insurance Act was amended for raising the foreign investment cap from 26 per cent to 49 per cent. All these amendments since privatisation of the insurance sector have led to exponential growth.
According to a study, India is likely to become the sixth largest insurance market in the world in the next 10 years, supported by regulatory push and rapid economic expansion.
Total insurance premiums in India will grow by an average 14 per cent per annum in nominal local currency terms over the next decade, making India the sixth largest in terms of total premium volume by 2032 from 10th largest in 2021.
Both life and non-life insurers collected a premium of Rs 8.2 lakh crore during 2020-21.
