Insurance Laws (Amendment) Bill

source:  BSC Chronicle, Feb 2015

   The select committee of the Rajya Sabha submitted its report on the Insurance Laws (Amendment) Bill, 2008, and the Cabinet approved it, incorporating the amendments suggested by the committee, for presenting the Bill in the Rajya Sabha.  One of the most keenly tracked propositions of the Bill is to increase the foreign direct investment (FDI) to 49 per cent from the current 26 per cent and make the cap a composite one.  That is, it should be inclusive of all forms of FDI and foreign portfolio investments.

    Apart from pumping in capital that may be to the tune of   50,000 cr over the next five-year period, it is the practical involvement of the foreign partner in terms of technological advances in terms of technological advances and underwriting competencies that will benefit our market.  We should witness a new regime of awareness and need-based insurance plans coming in the market.

    The proposed hike has the potential to attract up to $7-8 bn from overseas investors, giving a major boost to the segment.  With the Parliamentary Select Committee endorsing the increase, industry experts said the move could help facilitate inflows to the tune of   25,000 cr from abroad into domestic insurers.

    But there is more to the Bill than just the hike in foreign capital.  It will pave the way for some important reforms.  After the Insurance Bill is passed by Parliament, the same norms for foreign investment will apply to the pension sector as well.  The bigger theme running is to empower the regulator and allow it to take ongoing decisions within a framework.  So, while there I a framework to ensure that expenses of an insurance company are controlled, mechanics like regulating it through commissions is handed over to the regulator.  This means that while the overall expense of the insurers will stay within limits prescribed by the Insurance Act 1938, the sub-limits, such as commissions, can be decided by the Insurance Regulatory and Development Authority (Irda).

    The other big takeaway is the increase in penalties.  The bill holds the insurer responsible for a defrauding agent and makes it liable to a penalty of up to   1 cr.  The industry lobby, however, protested the penalty, Representatives from the Life Insurance Council, an industry body, for instance, stated that it would be very difficult for the insurance companies to manage the acts of agents as the number of agents is large and they are spread all over the country.  But the select committee report maintains that the insurers cannot absolve themselves.