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Rule of law
The single point which we should emphasise through this episode is:
the rule of law. All of us must aspire to have an India which is
governed by the rule of law. The letter of the law must drive the
behaviour of every government agency. Government agencies must
act in the public domain with full reasoning - as has been done by
SEBI in the order which shows the full rationale of what is being
done, and was immediately posted on the SEBI website. And it should
be possible to appeal the order in an environment where the judges
are competent and the appeals process gets handled swiftly.
But do the laws make sense?
The second order issue that needs to be addressed is: Does it make
sense for the laws to be constructed in the present fashion? Should we
have this combination of the Insurance Act, the IRDA Act, the SEBI
Act and the SC(R) Act which imply that the production of ULIPs
requires compliance with both SEBI and IRDA rules? This is a good
question and merits a deeper examination.
Financial laws in India are a ramshackle mess and urgently require a
comprehensive rewrite. The broad economic thinking for rewriting
these laws has been done through three expert committee reports in
the last three years -- the Percy Mistry report (on Bombay as an
international financial centre), the Raghuram Rajan report (which
focused on domestic aspects of finance) and the Jahangir Aziz report
(which focused on debt management). In order to implement these
plans for rewriting the laws, the budget speech this year announced
the creation of the Financial Sector Law Reforms Commission
(FSLRC) which should rewrite a host of these laws into a small,
modern, internally consistent set.
Regulatory coordination
Even if the work of FSLRC goes well, putting these new laws into
place will take a few years. Even after these laws are in place, a
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under the policy, after deducting the loan, will be given to the
nominee/claimant.
Assignment is of two types : Conditional Assignment
Absolute Assignment
Under Conditional Assignment, the policy may be transferred back to
the original policyholder, after happening of a specified event or
fulfilling the condition laid down at the time of assignment. Such
policy will be re-assigned in favour of the assignor by the assignee.
Under Absolute Assignment, the rights are transferred in favour of
assignee completely and it can not be reverted back. The payment
under the policy will be made to the assignee at the time or maturity
or earlier death of the life assured.
While assigning a policy, a notice in writing of the transfer or
assignment will be given to the Insurer to register such assignment.
Such notice is required to establish the priority of claim, if needed.
Assignment automatically cancels the nomination made earlier under
life insurance policy.
The life insurance industry was nationalized under the Life Insurance
Corporation (LIC) Act of India. In some ways, the LIC has become
very flourishing. Regardless of being a monopoly, it has some 60-70
million policyholders. Given that the Indian middle-class is around
250-300 million, the LIC has managed to capture some 30 odd
percent of it. Around 48% of the customers of the LIC are from rural
and semi-urban areas. This probably would not have happened had
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the charter of the LIC not specifically set out the goal of serving the
rural areas. A high saving rate in India is one of the exogenous factors
that have helped the LIC to grow rapidly in recent years. Despite the
saving rate being high in India (compared with other countries with a
similar level of development), Indians display high degree of risk
aversion. Thus, nearly half of the investments are in physical assets
(like property and gold). Around twenty three percent are in (low
yielding but safe) bank deposits. In addition, some 1.3 percent of the
GDP are in life insurance related savings vehicles. This figure has
doubled between 1985 and 1995.
CONCLUSION
It seems cynical that the LIC and the GIC will wither and die within
the next decade or two. The IRDA has taken "at a snail's pace"
approach. It has been very cautious in granting licenses. It has set up
fairly strict standards for all aspects of the insurance business (with
the probable exception of the disclosure requirements). The regulators
always walk a fine line. Too many regulations kill the motivation of
the newcomers; too relaxed regulations may induce failure and fraud
that led to nationalization in the first place. India is not unique among
the developing countries where the insurance business has been
opened up to foreign competitors.
The insurance business is at a critical stage in India. Over the next
couple of decades we are likely to witness high growth in the
insurance sector for two reasons namely; financial deregulation
always speeds up the development of the insurance sector and growth
in per capita GDP also helps the insurance business to grow.
Bibliography:
http://EzineArticles.com/?
expert=Sowmya_Suman
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