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The Insurance Laws (Amendment) Act, 2015 and life insurance policyholders

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Abstract

The insurance sector in India has long been an area that required a comprehensive legislative overhaul. This paper examines the recent amendments brought in this area through legislation. It is well known that insurance reform in India has followed a long and convoluted process spanning more than a decade, including a report by the Law Commission of India, a series of parliamentary standing and select committees and the use of ordinance powers. The paper explains the impact that the amendments have on nomination and assignment with respect to life insurance policies, the legal issues that arise in case of subsequent assignment, the nature of insurable interest under the new regime and the applicability of this framework to assignment of non-life personal insurance policies. This paper proposes a framework that would do away with current notions of nomination and assignment, instead adopting the twin concepts of beneficiary and transferee. In this manner, problems that arise from the dual nature of life insurance, as protection and property, would partly disappear once the legal regime is more closely aligned with the underlying economic rationale behind such instruments.

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Notes

  1. Law Commission of India, 190th Report on the Revision of the Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999 (2004), available at http://lawcommissionofindia.nic.in/reports/InsuranceReport-2nddraft1.pdf [hereinafter LCI Report].

  2. Report of the Select Committee on the Insurance Laws (Amendment) Bill, 2008 (2014), available at http://www.prsindia.org/uploads/media/Insurance/Select%20committee%20on%20Insurance%20Laws.pdf. (The Report was presented to the Rajya Sabha on Dec. 10, 2014) [hereinafter Select Committee Report].

  3. For the sake of convenience, we refer to the Act as it was in force immediately prior to the promulgation of the Ordinance as the earlier Act and the Act as amended by the Ordinance as the amended Act. The amending provisions in the Ordinance and those in the 2015 Act are identical.

  4. OXFORD ADVANCED LEARNER’S DICTIONARY (9th ed., 2009).

  5. A.I.R. 1984 S.C. 346.

  6. We retain the masculine gender only so that the discussion aligns smoothly with the references in the Act provisions.

  7. LCI Report, supra note 1, at 80, 82.

  8. IRDA has been renamed as the Insurance Regulatory and Development Authority of India by § 105 of the 2015 Act.

  9. Select Committee Report, supra note 2, at 34.

  10. Id. at 84.

  11. Insurance Development Regulatory Authority Act, 1999, § 39(6).

  12. The Insurance Laws (Amendment) Act, No. 5 of 2015, § 39(8).

  13. This corresponds to § 38(8) of the amended Act.

  14. The proviso to § 39(4) of the earlier Act.

  15. The Insurance Laws (Amendment) Act, No. 5 of 2015, §45.

  16. LCI Report, supra note 1, at 71.

  17. The Insurance Laws (Amendment) Act, No. 5 of 2015, proviso to § 38(10).

  18. LCI Report, supra note 1, at 71.

  19. Kenneth Black Jr. ET AL., Life Insurance 660 (14th ed. 2013).

  20. Id., at 455.

  21. Id., at 455–56.

  22. Insurance Institute of India, Principles of Insurance IC-01 112 (1st ed. 2011).

  23. 222 U.S. 149 (1911).

  24. Id., at 155.

  25. Id., at 156.

  26. A.I.R. 1962 S.C. 814.

  27. See Black et al, supra note 19, at 604–5.

  28. [2007] 79 S.C.L. 583 (Bom.).

  29. A.I.R. 1959 S.C. 78.

  30. LIC has moved the Supreme Court vide a Special Leave Petition. See Falaknaaz Syed, LIC to Move SC over Policy Trading Issue, Bus. Stand. (April 27, 2007) available at http://www.business-standard.com/article/finance/lic-to-move-sc-over-policy-trading-issue-107042701041_1.html.

  31. LCI Report, supra note 1, at 73.

  32. The Insurance Laws (Amendment) Act, No. 5 of 2015, § 38(2).

  33. The Insurance Laws (Amendment) Act, No. 5 of 2015, § 38(3) and (4).

  34. See Black ET AL, supra note 19, at 23.

  35. The issue as to the legal status of the nominee in these contexts is a complex one. See Mangesh Patwardhan, The Nomination Riddle: Will the Real Nominee Please Stand Up?, 41 Chart. Secry. 170 (2011).

  36. Amir & Orly Lobel, Stumble, Predict, Nudge: How Behavioral Economics Informs Law and Policy, 108 Colum. L. Rev. 2098, 2121 (2008).

  37. See Debosmita Nandy & Avisha Gupta, Insure Policy Plus Services (P) Ltd. v. Life Insurance Corporation of India: Can Life Insurance Policies Be Traded?, 1 Nujs L. Rev. 653, 667 (2008).

  38. Id., at 664.

  39. See Black ET AL, supra note 19, at 605.

  40. Id., at 101.

  41. See Mithoolal Nayak v. LIC of India AIR, 1962 S.C. 814.

  42. See Colin Camerer et al., Regulation for Conservatives: Behavioral Economics and the Case for Asymmetric Paternalism, 151 U. Pa. L. Rev. 1211, 1212 (2003) (arguing that [a] regulation is asymmetrically paternalistic if it creates large benefits for those who make errors, while imposing little or no harm on those who are fully rational).

  43. MINISTRY OF FINANCE, REPORT OF THE FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION (2013), available at http://finmin.nic.in/fslrc/fslrc_index.asp [hereinafter FSLRC Report].

  44. Id., at 152.

  45. Id., at 177. (Unless specified, insurable interest will not be required to constitute a valid insurance contract. The Regulator may specify the types of contracts of insurance that may require insurable interest).

  46. FSLRC Report, supra note 43, at 152.

  47. INSURANCE INSTITUTE OF INDIA, supra note 22, at 51.

  48. George E. Rejda, Principles of Risk Management and Insurance 178 (10th ed. 2011).

  49. Id.

  50. It is not clear whether the Regulator can specify this requirement only at inception or as a general rule. This ambiguity only makes the problem worse.

  51. Aradhya Sethia, Excessive Delegation in the Judicial Appointments Bill?, Law and Other Things (August 30, 2014), available at http://lawandotherthings.blogspot.in/2014/08/excessive-delegation-in-judicial.html.

  52. Ajoy Kumar Banerjee v. Union of India, (1984) 3 S.C.C. 127.

  53. LCI Report, supra note 1, at 71.

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  1. National Insurance Academy, Pune, India

    Mangesh Patwardhan & S. Uma

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  1. Mangesh Patwardhan
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  2. S. Uma
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Correspondence to Mangesh Patwardhan.

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Patwardhan, M., Uma, S. The Insurance Laws (Amendment) Act, 2015 and life insurance policyholders. Jindal Global Law Review 6, 231–253 (2015). https://doi.org/10.1007/s41020-015-0014-3

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