23.12.08

Govt tables insurance Bill in House


The long-awaited and much-hyped insurance Bill was finally tabled in the Parliament (Rajya Sabha) today amid heated discussion and protest from the Left parties. The bill, which aims to bring in comprehensive amendment of insurance laws, including a proposal to raise the foreign investment ceiling from 26 per cent to 49 per cent, was approved by the Union Cabinet in October this year. The Union Cabinet approved the Insurance (Amendment) Bill, 2008 for amendment to Insurance Act 1938, General Insurance Business Act, 1972, and Insurance Regulatory and Development Act, 1999, on the basis of recommendations made by GoM. The Bill is being introduced in Rajya Sabha to ensure it does not lapse even if there is a change in the government in the upcoming general elections.At present, the total capital base of the insurance industry, that includes both life and non-life companies, is Rs 8,500 crore. Of this, Rs 2,000 crore is contributed by the foreign players and the rest by the domestic players. An increase in the FDI limit will ease off some pressure on the domestic insurance companies. According to estimates, the increase in limit would bring in a massive inflow of over $2.5-3 billion foreign investment.A simple calculation shows that raising the FDI limit to 49 per cent may increase the total FDI in the life insurance industry by almost 2.5 times to Rs 6,200 crore from the current level of around Rs 2,500 crore. “If you include general insurance industry, the figure would double and cross the Rs 10,000-12,000 crore ($2.5 billion) mark,” said an insurance source.
N S Kannan, executive director, ICICI Prudential Life Insurance, said, “Given that life insurance is a capital-intensive industry, any reform in terms of increase in foreign ownership limit for the insurance industry is a welcome move. This FDI would be long-term foreign capital and not volatile money.” Besides this, the Bill will give public sector non-life insurance companies freedom to raise capital by selling a minority stake and relax norms that mandates Indian partners to sell part of their holding, either through a public issue, or other means to broadbase the ownership of such firms after ten years of operation. Also, as of now, it is mandatory for general insurance companies to underwrite third-party risks of motor vehicles. The bill seeks to delete provisions relating to tariff advisory committee in view of detariffing of rates and premiums. This committee used to fix prices of the policies before the sector was deregulated. A provision has also been made to set up Life Insurance Council and General Insurance Council as selfregulating bodies.The amendments will also vest greater powers in the hands of the regulator and give it more teeth. Insurance Regulatory and Development Authority (IRDA), at present, doesn’t have specific powers. The proposed norms will allow IRDA to decide insurance related disputes, with a provision of appeal to the securities appellate tribunal. The tribunal currently deals with appeals against the decision of market regulator Securities and Exchange Board of India (Sebi). To encourage more players in the standalone health insurance space, the Bill proposes to bring down the paid-up capital requirement Rs 50 crore from Rs 100 crore. As per the current IRDA Act, all life and non-life companies must have a minimum paid-up capital of Rs 100 crore.
Among other changes proposed, the Bill will allow the foreign re-insurance companies to open offices and conduct business in the country. As of now, stateowned GIC rewrites the re-insurance business within the country. No insurance policy, the Bill says, could be challenged after a gap of five years. The provision will protect the interest of policy holders against any possible litigation.

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