Why in News?
The Lok Sabha recently passed The Insurance (Amendment) Bill, 2021 which was previously passed by the Rajya Sabha. The Bill now awaits the President's assent to become an Act.
Background of the Bill
The Insurance (Amendment) Bill, 2021 was introduced in the Rajya Sabha by the Minister for Finance and Corporate Affairs, GOI on March 15, 2021.
This bill seeks to change a few provisions of previously enacted The Insurance Act, 1938.
The proposed amendments deal with the quantum of FDI influx in the Insurance Sector as well as the investment and ownership conditions related to insurance companies in India.
It must be noted that FDI was allowed in the Insurance Sector for the first time in the year 2000. The limit was set at 26%.
Through The Insurance Rules (Amendment) Act, 2015, the Government increased the FDI investment cap to 49%.
The Minister for Finance and Corporate Affairs, while presenting the Bill, also said that the Insurance Regulatory and Development Authority of India (IRDAI) consulted various stakeholders before going ahead with the Bill.
Provisions of the Insurance (Amendment) Bill, 2021
Limit on Foreign Direct Investment
According to the bill, the Government has decided to raise the limit of Foreign Investment in Indian Insurance Companies from 49% to 74%.
The bill says that this limit is being increased to achieve the objective of the Foreign Direct Investment (FDI) Policy of supplementing domestic long-term capital, skills and technology for the growth of the insurance sector and the economy as a whole.
This foreign investment may be subject to additional conditions as prescribed by the central government under the rules.
Investment of Assets
The Insurance Act 1938 requires the insurance providers to hold a minimum investment in the assets which would be sufficient to pay back their insurance claim liabilities. If the insurer is domiciled outside India, then the company must hold assets in India in a trust consisting of trustees who must be residents of India.
However, this provision of the Act also applied to insurance companies incorporated in India under two conditions. One, if 33% of the investment in the company is domiciled outside India and second if 33% of the members of the governing body of the company is domiciled outside India.
The Insurance (Amendment) Bill seeks to remove this provision from the bill for further development of the Insurance Sector of India.
Motive Behind the Bill
The Insurance (Amendment) Bill, 2021 has been passed to solve the problem of long-term capital availability in the Insurance Sector which is a capital intensive sector in itself.
The Indian Insurance Sector has been under liquidity stress due to the high solvency fund ratio in the sector. The Bill will solve this problem as it relaxes the investment cap on the insurance companies.
The Bill also protects the national interests by mandating the investment of a part of profits within India.
With over 4 lakh employees, over 36 lakh insurance agents, 7 public sector companies and 61 private companies indulged in the Insurance Business, the Bill will surely have a large impact.
About IRDAI
The Insurance Regulatory and Development Authority of India is an autonomous body created by the Government of India to regulate and develop the insurance sector in India.
It is a statutory body created through the Insurance Regulatory and Development Authority Act, 1999 (IRDA Act).
The headquarters of IRDAI is located in Hyderabad, Telangana. The headquarters were shifted from Delhi to Hyderabad in 2001.
The Mission of IRDAI is to protect the policyholders in the insurance companies, to ensure the growth, development and regulation of the Insurance Sector in India and to handle matters related to insurance.
The Functions of IRDAI are as follows 1. To protect the rights of the policyholders in India. 2. To provide registration certificates to Insurance Companies in India after scrutiny. 3. To engage in renewal, modification and cancellation of registration certificates. 4. To create regulations to protect the interests of policyholders in India.
Critical Points about the Bill
The critics say that the safeguards in the bill are not enough to protect the interests of Indians as the companies may take away a large chunk of profit outside India that otherwise was to be given to Indian Companies.
Further, the critics are of the view that extensive liberalization of the Insurance sector may also affect Indian Interests as the Insurance Sector is one of the largest revenue-generating sectors in India.