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| Govt proposes raising FDI cap in insurance to 49% |
| Press Trust of India / New Delhi Dec 22, 2008, 20:31 IST |
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The insurance reforms bill, which was today introduced in the Rajya Sabha amid Left protest, is aimed at increasing the cap on foreign direct investment (FDI) in private companies in the sector from 26 per cent to 49 per cent and allowing state-owned general insurance companies to raise funds from capital markets.
The Insurance Laws (Amendments) Bill seeks to raise "the foreign equity in the Indian insurance company from 26 per cent to 49 per cent and maintain foreign direct investment cap at 26 per cent for the insurance cooperative societies," its statement of objects and reasons said.
Among other things, the bill is also aiming to permit nationalised general insurance companies to go public and raise funds from capital markets. Once the bill becomes Act, the four state-owned general insurance companies -- Oriental Insurance Company, New India Assurance, United India Insurance and National Insurance Company -- will be able to hit capital markets to raise funds after obtaining permission from the government.
The minimum investment limit for health insurance companies is proposed to be fixed at Rs 50 crore. At present, the companies entering in insurance business -- life or general insurance -- are required to have a minimum paid-up capital of Rs 100 crore.
The move to lower the investment limit is expected to encourage companies with less capital to launch health insurance business and increase the penetration of this important segment of insurance business. The insurance sector reforms have been pending for long.
Although then Finance Minister P Chidambaram in his budget speech in July 2004 expressed the intention of the government to raise the FDI cap in private insurance companies to 49 per cent, it failed to push the proposal due to stiff resistance from then outside supporters, the Left parties.
The bill will allow the foreign re-insurance companies to open offices and conduct business in the country.
Presently, General Insurance Corporation (GIC) writes the re-insurance business within the country. The minimum paid up capital for companies undertaking re-insurance business will be Rs 200 crore. The bill, the statement added, will facilitate entry of Llyod'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 bill also incorporates provisions for allowing insurance companies "to raise newer capital through newer instruments on the pattern of banks". No insurance policy, the bill said, can be challenged after a gap of five years. The provision will protect the interest of policy holders against any possible litigation.
Under the proposed norms, the IRDA will be given the powers to decide the insurance related disputes, with a provision of appeal to Securities Appellate Tribunal (SAT). The tribunal currently deals with appeals against the decision of the stock market regulator Securities and Exchange Board of India (Sebi). The amendments also make it mandatory for general insurance companies to underwrite third-party risks of motor vehicles.
Among other things, the bill seeks to delete provisions relating to Tariff Advisory Committee (TAC) in view of detariffing of rates and premiums. Before the opening of the insurance sector, the rates on various policies were fixed by the TAC. A provision has also been made for setting up of Life Insurance Council and General Insurance Council as self-regulating bodies.
The insurance bill seeks to remove the restrictions of divestment of equity by Indian promoters of insurance companies. Under the existing provisions, the promoters are required to "divest 26 per cent or such other (equity), prescribed percentage in the manner and period prescribed by the central government".
The proposed provisions will make a distinction between a 'beneficiary' nominee and 'collector' nominee in life insurance policies. As regards insurance agents, the statement of object and reasons said, IRDA will "regulate their eligibility, qualifications and other aspects".
The bill also prescribes a fine up to Rs 25 crore and imprisonment up to 10 years for carrying on insurance business without registration. In addition, there will also be 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.
The bill also provides for regulation regarding opening and closing of foreign and domestic branches, payment of commission and control of management expenses.
The other important provisions include introduction of a system of permanent registration of insurance companies. The IRDA, however, will have the right to cancel registration on breach of specified conditions.
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