Report No. 190

1.6. Law Commission's Consultation Paper

1.6.1 The Law Commission prepared an exhaustive Consultation Paper which was placed on the Law Commission's website in June 2003. Copies were also sent to the Government at the Centre, the IRDA, the public and private sector insurance companies and a wide range of other experts in the field of law and insurance. Responses were invited to the recommendations made in the Consultation Paper. A copy of the Consultation Paper (omitting paras 1 to 5 and the appendices) is annexed to this Report as Appendix-I.

1.6.2 The Consultation Paper aimed at an integrated approach to the exercise of revision of the insurance laws in a manner that not only promotes insurance business but also protects policyholders and strengthens the Authority to ensure systemic financial stability. It was pointed out that when the IRDA Act was prepared, the comprehensive revision of the Act was not possible due to paucity of time. It was also specifically mentioned that the present exercise of revision did not cover:

(i) The Marine Insurance Act, 1963;

(ii) Motor Vehicle Insurance;

(iii) Fire Insurance; and

(iv) Principles governing third party risks in general insurance business.

Grounds of revision of the Insurance Act, 1938 and the IRDA Act, 1999

1.6.3 The Consultation Paper identified thirteen tentative grounds of revision. Since the Consultation Paper itself is appended to this Report, these grounds of revision are not repeated here. Nevertheless, they could be summarised as under:

i. Deletion of provisions of the Insurance Act, 1938 that are redundant;

ii. Deletion of transitional provisions of the Act;

iii. Replacement of references in the Insurance Act, 1938 to older enactments by corresponding new legislations;

iv. Reclassification of insurance businesses including changed definitions of the terms 'insurance' and 'insurer';

v. Merger of relevant provisions of IRDA Act with the Insurance Act, 1938;

vi. Providing for appeal against decisions of the IRDA to an independent body;

vii. Setting up of an independent grievance redressal mechanism with an appeal to an Insurance Appellate Tribunal and further appeal to the Supreme Court of India;

viii. Repudiation of policies by insurers on account of misstatement of facts or failure to make disclosure of the material information which would render the contract void or voidable;

ix. Provisions regarding investments, loans and management;

x. Provisions relating to 'solvency margin';

xi. Empowering IRDA to intervene when 'solvency margin' falls below 'control level';

xii. Harmonising of the Act with rules and regulations; and

xiii. Provisions relating to penalties.

The process of consultation

1.6.4 A series of discussions were held with the IRDA in regard to the proposals made by the Commission in the Consultation Paper. Simultaneously, discussions were held with the insurance companies under the aegis of the Federation of Indian Chambers of Commerce and Industry (FICCI). Written responses were also received to the Consultation Paper from a wide range of respondents.

No detailed response from Government or IRDA.

1.6.5 The Law Commission of India awaited the response of the Government of India as well as the IRDA till March 2004. A brief letter dated January 19, 2004 was received from the Joint Secretary (B&I), Government of India in the Ministry of Finance, Department of Economic Affairs, Insurance Division, indicating that they 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, rationalizing of the powers of the IRDA and strengthening obligations of the insurers, provision for protection of the rights of the policyholders etc.

It was stated that specific comments on the amendments suggested in numerous sections of the Act proposed in the Consultation Paper would be given only after "a new Insurance Act is drafted by the Law Commission and sent to us." There has thus been no specific response from the Insurance Department to the various other proposals in the Consultation Paper. Since the exercise of revision of the Acts was started more than a year ago, it was felt that the Report itself might get delayed if the Commission had to wait any further to receive their responses. Accordingly, the Commission proceeded to finalise its recommendations based on both oral and written responses received to the Consultation Paper.

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