New Delhi: The government is mulling an overhaul of outdated insurance laws and bundling them into a comprehensive new legislation that would give more teeth to the regulator Insurance Regulatory and Development Authority (IRDA) and protect the interests of policyholders.

Law Commission, which has been entrusted with this task, will come up with a "status paper" on the insurance laws within a month, official sources told reporters on August 21.

The Indian insurance sector is governed by the Insurance Act of 1938, LIC Act of 1956, General Insurance Business (Nationalisation) Act of 1974 and the recent IRDA Act.

The purpose of new legislations is to ensure that there is a comprehensive regulatory mechanism with adequate enforcement powers, make insurance hassle-free for consumers besides effective functioning of the sector, Law Commission sources said.

The idea is to give IRDA more powers especially to regulate the PSU insurance companies, which were so far regulated by Acts of Parliament.

The proposed law would try to address the problem of the regulator in dealing with new players in the event of failure in adhering to the regulators' norms on solvency ratio.

The new law would also provide a mechanism, which would protect the interests of policyholders in the event of a company going bankrupt, sources said.

The new law would incorporate some of the best practices as observed worldwide, so that the Indian insurance industry is ranked at par with international market and consumers get a fair play, the sources added.

PTI