Panel Okays Delinking Of Gic Arms
The standing committee on finance today approved the amendment of the Bill to delink General Insurance Corporation (GIC) from its subsidiaries and covert it into a national reinsurer.
The committee, however, criticised the Centre for opening up insurance sector to private players before amending General Insurance Business Nationalisation Act (Gibna) of 1972.
"To prevent flight of capital from India in the form of reinsurance premium and to ensure the development of our own strengths and resources to retain the risks within the country itself, GIC has been made to operate only in reinsurance arena under section 101(a)(8)(ii) of the Insurance Act, 1938," it said in a report to Parliament.
"Moreover, this measure is also in tune with provisions in Irda Act of 1999," the committee, headed by N Janardhana Reddy, said while agreeing to the amendment of Gibna without any modification.
However, the committee was critical on the government's haste in opening up the sector without considering the fate of GIC arms -- New India Assurance, National Insurance, Oriental Insurance and United India Insurance -- after getting delinked from the parent.
"The government should have anticipated the need to amend Gibna well in advance before licences were given to private companies," it said.
In their note of dissent, committee members Rupchand Pal and Prabodh Panda said: "Mergers of all the four general insurance companies is all the more required to increase their financial strength, reduce administrative costs prevent them from competing with each other".
The committee also okayed the Insurance (Amendment) Bill 2001, which paves the entry of brokers and cooperatives in the sector and permitting payment of premium through credit cards and the Internet.
The committee accepted the amendments without any modification, but asked the government to provide necessary safeguards to existing insurance agents.
"Though the existing network of insurance agents have expanded the insurance business extensively in terms of volume and geographic spread within the country, yet there remains vast potential still to be tapped," it said in a report tabled in Parliament today.
The Bill contains provisions relating to the payment of commission and fee for insurance intermediaries, allowing flexibility in the eligibility of corporate agents.
"To accelerate growth and development of insurance sector in an even manner and benefit insuring public with wide range of products at competitive premium and speedy settlements, the institution of insurance intermediary should be introduced with specific safeguards and checks for a period of two years," it said.
The bill also contains the provisions for allowing a more flexible mode of payment or premium through the credit cards, smart cards and Internet. The amendment also envisages the distribution of surplus of life insurance business to the policyholders.
Reinsurance brokers who were keen to enter into direct broking business, are now having second thoughts as a result of the revised commission rates for agents that was issued on Thursday by the Insurance Regulatory and Development Authority (Irda). "With the rates reduced so drastically, even if we were to be given a few percentage more, it would not take care of our expenses," said a leading reinsurance broking firm. The broking community had anticipated a commission rate of 17.5 per cent when the Irda had announced last year that it would allow insurance companies to give up to 15 per cent commission to agents.