Union Budget Insurance Sector

Transcription

1 Issue 8, Vol 2 Jan 2018 Union Budget Insurance Sector The Monthly Insurance Newsletter The Union Budget was announced on 1 st of February by the Finance Minister and we look at various points addressed related to the insurance sector Three public sector insurance companies The Oriental Insurance Co. Ltd, National Insurance Co. Ltd, and United India Insurance Co. Ltd will be merged into a single insurance company and listed on the bourses, finance minister Arun Jaitley announced in the Union Budget. The merging of the three state-run insurers will lead to the creation of a mammoth organization, and will be a key part of the government s divestment target of Rs 80,000 crore set for fiscal year Long term capital gains tax of 10% is proposed for amount exceeding INR 1 lakh. Health and Education Cess will be increased to 4% The Centre has announced the world s largest government-funded health care programme aimed at benefiting 10 Crore poor families by providing coverage of up to INR 5 lakh per family per year for secondary and tertiary care hospitalization. Allocating INR 52,000 Crore to Health sector, Finance minister Arun Jaitley said the government will be setting up 24 new government medical colleges and hospitals by upgrading the existing district hospitals in the country He committed Rs 1,200 crore for the National Health Policy, which would go towards building 1.5 lakh Health and Wellness centres that will provide maternal and child health services, besides free essential drugs and diagnostic services 1Page

2 The insurance regulator IRDAI has said that insurance companies must ensure easy availability of mandatory motor third-party liability cover, including online, and under no circumstance should they deny a request for third-party cover Domestic general insurers have decided to slash their premiums in the 'own damage' motor insurance segment by 5-20% for existing and new customers who own private and commercial vehicles. The move follows new regulations issued by the IRDAI that have led to a cut in the commissions offered by insurers to auto dealers which serve as insurance agencies Insurance companies will soon have to adhere to more stringent, global standards in capital requirements, with the insurance regulator IRDAI set to introduce a Risk Based Capital (RBC) regime. Kicking off the process, the IRDAI has called for Expressions of Interest from consultancies, agencies and institutions for the implementation of the RBC regime. A timeline of March 2021 has been proposed for the implementation of the RBC regime Fifteen Indian insurers have jointly begun the country's first blockchain project in the financial services industry to share medical records and to enable fast approval or denial decisions. This means lower costs for insurers, as one medical examination would be now enough for all insurance providers involved in the project. Currently, each insurer in India commissions separate medical tests for potential customers Premiums lost in compulsory motor third party liability (MTPL) business from uninsured two-wheelers is forecast to rise to INR520 billion (US$8.2 billion) in the fiscal year ending 31 March 2025 from INR56.41 million in FY2016, if the uninsured rate of 75% continued in the segment. According to General Insurance Council of India, 60% of vehicles plying on Indian roads in FY2016 were uninsured. Most of the uninsured vehicles are two-wheelers and 75% of the total two-wheelers plying on Indian roads are uninsured Leading global insurer American International Group (AIG) has announced the acquisition of Validus Holdings, a leading provider of reinsurance, primary insurance, and asset management services. The deal is worth approximately USD 5.56 billion In terms of economic losses resulting solely from weather disasters, 2017 became the costliest year ever recorded at $344 billion 2Page

3 D & O Policy From the perspective of Independent Directors With changes in Companies Act, it is important that the independent directors get proper coverage under the D&O policies. As part of our client awareness programs, we bring a quick view from Independent Directors perspective The D&O policy provides cover for the personal liability of Directors (Executive as well as Non executive) and Officers arising due to wrongful acts in their managerial capacity. The wrongful acts would mean any non-disclosure of facts, misstatements, errors and omissions, negligence, breach of duty and trust etc. This policy provides protection for claims brought against directors, officers and employees for actual or alleged breach of duty, neglect, misstatements or errors in their managerial capacity. Claims would mean legal financial liabilities falling on the Directors and officers. Defense costs are also covered Who can bring the claims? 1. Minor shareholders 2. Employees 3. Customers 4. Competitors 5. Regulators 6. Government Key exposures for the Independent Directors Companies Act 1956 Companies Act 2013 Independent directors were not considered to be officers in default and consequently were not liable for the actions of the board Seeks to hold independent directors liable for acts or omissions or commission by a company that occurred with their knowledge and attributable through board processes. i.e. where they have not acted diligently 3Page

4 1. Asset and Liberty cover : Following a suit against alleged wrongful act, Directors assets are frozen and liberty to use residence etc is withheld. Fees and expenses, costs of legal proceedings incurred to bring an injunction in such matters, can be covered under the extension Asset and Liberty cover & Prosecution costs 2. Bail bond and Civil bond premium: Premium paid to procure a bail or civil bond (or any financial instrument) to serve as a guarantee for insured s contingent obligation, as required by the court, can be covered under the extension Bail Bond & Civil bond premium 3. Spouse and Legal Heir extension : The spouses, legal heirs & representatives extension ensures that any related party who may be dragged into a claim, due to their ownership or control of an executive s assets, is protected. 4. Occupational Health and Safety Expenses including Corporate manslaughter 5. Counseling expenses: Affected directors and officers are often subject to stress / anxiety or similar medical conditions, following a suit being filed against. They may like to appoint a psychologist or counselor to assist them (with prior consent of insurer). Such costs and expenses are payable under this clause. 6. UK Bribery Act and FCPA: Civil fines and penalties imposed under these two acts, on the accused Directors and Officers, as well as the investigation costs, can be paid under this extension. 7. Personal Tax liability: The definition of Loss is extended to include any personal liability an Insured Person incurs with respect to unpaid taxes of an insolvent Company. 8. Court attendance, travel and accommodation expenses: Reasonable cost incurred by the insured person towards travel and stay, for attending the investigation/ court proceedings. This will be restricted to the situation where the insured person has to travel to a different city/ town / state. 9. Crisis Management expenses / Public relation expenses: Expenses incurred to protect the reputation of the Directors and Officers which could be at stake, as a result of the alleged wrongful acts. 4Page

5 Budget Anecdotes In 1991, when the government struggled to finance essential imports oil and fertilisers to repay official debt, the RBI pledged tonnes of gold with the Bank of England and the Bank of Japan to raise $400 million. Knowing that an outright sale of gold would face opposition, it was decided that gold confiscated from smugglers by the government would be pledged as collateral to banks. The budget could not be presented by the end of February as per the schedule due to political upheaval. The second blow came when India s sovereign rating was downgraded by global credit-rating agencies, making it virtually impossible to raise even short-term funds. Things turned bleak for India when global lenders stopped extending loans. India was forced to pledge its gold when its foreign exchange reserves were fast running out. After two banks insisted on physical delivery of gold, the government faced plenty of challenges in terms of air-lifting the consignments and ensuring that the gold met the requisite standards. As the economic situation improved, the government repurchased the gold before December that year and transferred it to the RBI. Hindi translation for Insurance terms Reinsurance प नर ब म Term Insurance अवध ब म Claim द व Marine Insurance सम द र ब म Sum Insured र ब म र श Solicitation ऄप क ष Your feedback matters a lot so please do write: feedback@zoominsurancebrokers.com The information contained herein is based on sources we believe are reliable and genuine and should be understood to be general risk management and insurance information only 5Page