The insurance reforms bill, which was introduced in the Rajya Sabha is aimed at increasing the cap on foreign direct investment (FDI) in India 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.
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.
Source : Business Standard
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