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Insurance Bill seeks to hike FDI cap to 49 per cent from 26 per cent

NEW DELHI: The insurance reforms Bill, introduced in the Rajya Sabha on Monday despite protests by the Left parties, seeks to hike the foreign direct investment (FDI) cap on private insurance companies to 49 per cent from the existing 26 per cent and also permit the four State-owned general insurance companies to go public and raise funds from capital markets.

As per the statement of objects and reasons, the Insurance Laws (Amendments) Bill, 2008, which proposes to amend the Insurance Act, 1938, the Insurance Regulatory and Development Authority Act, 1999, and the General Insurance Business (Nationalisation) Act, 1972, seeks to “raise the foreign equity in Indian insurance company from 26% to 49% and maintain foreign direct investment cap at 26% for the insurance cooperative societies.”

With the introduction of the Bill, the long-pending reforms in the insurance sector – as announced by the then Finance Minister P. Chidambaram in his budget speech in July 2004 – which had since been hanging on fire owing to stiff opposition by the UPA Government’s Left allies – has finally been set in motion.

Also, on enactment of the Bill, the four nationalised general insurance companies, namely, Oriental Insurance, New India Assurance, United India Insurance and National Insurance, would be able to tap the capital market for funds, subject to prior approval from the government.

Alongside, the Bill seeks to fix the minimum investment limit for health insurance companies at Rs. 50 crore as against the current minimum paid-up capital norm of Rs. 100 crore for companies entering the life or general insurance business sector. The objective of the lower limit is to encourage companies with less capital to launch health insurance schemes and increase the penetration in this major insurance business segment.

Besides, the Bill also seeks to permit foreign re-insurance companies to open offices and conduct business as against the current norm of only the General Insurance Corporation (GIC) writing the re-insurance business within the country. The minimum paid-up capital for companies in re-insurance business has been pegged at Rs. 200 crore. It will “facilitate entry of Lloyd’s of London in insurance business in India as a foreign company in joint venture with Indian partners and also as branch of foreign re-insurer,” the statement said.

To protect the interest of policyholders against any litigation, the Bill stipulates that no insurance policy can be challenged after a gap of five years. Under the proposed norms, the IRDA will be empowered to decide insurance-related disputes, with a provision of appeal to the Securities Appellate Tribunal (SAT).

While the amendments make it mandatory for general insurance companies to underwrite third-party risks of motor vehicles, the Bill also seeks to delete provisions relating to the Tariff Advisory Committee (TAC) in view of de-tariffing of rates and premiums.

There is also a provision for the setting up of life insurance council and general insurance council as self-regulating bodies.

As for equity divestment, the Bill seeks to remove the restrictions on Indian promoters of insurance companies. Under the current norms, promoters are required to “divest 26 per cent or such other (equity), prescribed percentage in the manner and period prescribed by the Central Government.”

For carrying on insurance business without registration, the Bill prescribes a fine up to Rs. 25 crore and imprisonment up to 10 years.

This apart, there is also a provision for penalty up to Rs. 25 crore in case an insurer fails to comply with the obligations regarding rural, social sector or motor vehicle insurance.

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