Govt plans to stop multi-level marketing in insurance

The Narendra Modi government intends to add an extra layer of firewall in the contentious Insurance Bill to check widely prevalent unethical practices. It also aims at infusing professionalism in the sector by prohibiting multi-level marketing, hiring of unregistered intermediaries and simple graduates as surveyors.

The Centre is now busy persuading the opposition to support the Insurance Laws (Amendment) Bill, 2008, that seeks to hike the FDI cap from 26 per cent to 49 per cent to aid the cash-starved segment. The Congress had conceived the legislation back in 2004 during the UPA-I regime.

The opposition parties insisted that the Bill be referred to a select committee of Parliament for a discussion on the subject. The Left and TMC MPs have already given notices to the Rajya Sabha secretariat for bringing in counter-amendments in the Bill if it comes up for debate in the House.  

As per the list of 97 amendments that Finance Minister Arun Jaitley plans to bring in, the government wants “foreign investors, including portfolio investors” to replace “foreign company, either by itself or through its subsidiary companies or its nominees” in the existing bill to enlarge the scope of funds, including through Foreign Institutional Investors (FIIs), coming into the country in the insurance sector. 

Clause 53 of the proposed amendments says that “no person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance policy through multi-level marketing”.  

Some broking firms hired by leading companies are layering marketing insurance practices banned the world over.

A senior officer of a company said agencies are forcing aspirants to, for instance, buy personal accident policy to become agents, who in turn sublet it and pass on the earned commission. Some broking agencies are recruiting agents who are then allowed to sell general and life insurance policies through their own hired staff, he said.  

The government said that legal action could be taken against the company, directors and other complicit employees if soliciting and procuring of insurance business is done by persons not authorised for the job.  

The finance ministry has also suggested that no person should act as a surveyor or loss assessor in general insurance business category if he/she does not possess academic qualifications as may be specified by regulations.