Bill to reform the insurance sector may enter monsoon session

They say stakeholder consultation on the bill is expected to be completed by the end of March before the final version is submitted for cabinet approval, followed by introduction and approval by parliament.

“The bill is almost ready, but the industry wants certain clarifications and changes to some provisions. We expected it to receive parliamentary approval during the budget session itself, but the need is felt to discuss the provisions of the bill, taking into account stakeholder input, so that progressive and growth-oriented legislation is drafted,” said one of the people quoted above.

Questions to the Ministry of Finance remained unanswered until going to press.

However, an official said anonymously that reforms in the insurance sector were at the top of the government’s agenda and that progressive, forward-looking legislation is on the way.

The government does not intend to affect the independence of the non-life and life insurance boards and it is therefore unlikely that the Insurance Act will change the composition of the boards by including a government representative. The person said the industry wants wider representation on the councils and if the changes affect autonomy then this should be avoided.

Granting a combined license to insurers would allow a single entity to offer both life and non-life products, according to the bill.

The bill has divided the industry, with some sections describing the move as progressive, while others, including state-run general insurance companies, oppose such licenses for insurers, which they say could further fragment the market and give access to various “unserious” and financially weaker players in the vast Indian insurance market.

The General Insurance Board, the main industry body of general insurers, had initially opposed the introduction of composite licenses, but reversed its position at a meeting in January, where it approved the granting of composite licenses by check.

Questions to the damage board remained unanswered until going to press.

“There are several issues that require further consultation. The government will openly draft legislation that addresses all concerns of the industry and simplifies regulation. So the merits of all suggestions, including newer ones, would be studied before the bill is finalized,” the person said.

The draft bill also gives insurance companies, among others, the freedom to sell various financial products, just like banks. These can be products such as mutual funds, but this will become clear once rules for the amended legislation have been drawn up.

The draft bill proposes to remove the existing requirement of paid-up equity €100 crore for setting up a life, non-life or health insurance business.

The Treasury Department has instead proposed a tiered licensing regime, under which an insurance company may commence business, taking into account the size and scale of operations, the class or sub-class of business, and the category or type of insurer.

Many of these proposed amendments to the bill have been implemented based on the recommendations sent to the government by the insurance regulator before the budget session.