On March 18, the Rajya Sabha passed the Insurance (Amendment) Bill 2021 by voice vote. This bill aims to extend the limit of Foreign Direct Investment (FDI) within the insurance sector to 74 per cent from the present 49 per cent.
What Is The Insurance (Amendment) Bill?
The Bill amends the Insurance Act, 1938. The Act creates a structure for the activity of insurance companies. It governs the relationship between insurers, their policyholders, their shareholders, and the regulators (the Insurance Regulatory and Development Authority of India, IRDA). The Bill aims to raise the amount of foreign capital invested in an Indian insurance firm.
When Was The Bill Introduced?
The Bill to reform the Insurance Act, 1938 was introduced by Ms Nirmala Sitharaman on March 15, 2021, in Rajya Sabha.
Who Presented The Bill?
“I propose to amend the Insurance Act, 1938 to raise the permissible FDI cap from 49 per cent to 74 per cent in insurance companies and permit foreign ownership and control with safeguards,” said Ms Nirmala while presenting the Union Budget 2021-22.
What Does The Bill Say?
According to the new Bill, most directors on the Board and Key Management Personnel (KMP) would be Resident Indians, with a minimum of 50 per cent of directors being independent directors are needed and a set percentage of income set aside as a general reserve.
It also provides for the elimination of limits on insurance company ownership and control.
Nirmala Sitharaman’s Statement
“I propose to introduce an investor charter as a right of all financial investors across all financial products,” added Ms Nirmala.
The government lifted the FDI cap within the insurance sector from 26 per cent to 49 per cent in 2015. Responding to a debate on the Insurance (Amendment) Bill, 2021, Nirmala said that the insurance companies face liquidity pressure, so the government proposed a draft to raise the FDI limit. The FDI is targeted at supplementing the domestic long-term capital, she said.
Sitharaman said the judgment to increase the FDI was made after the sector regulator, IRDA, held detailed consultations with stakeholders. It has all the provisions to protect the insurer’s interest. The rise in foreign investment limit to 74 per cent will help achieve the insurance companies’ capital requirements.
Nirmala enumerated other factors that would gain profit in the insurance sector.
An increase in FDI is aimed toward improving life insurance penetration within the country. The country’s life insurance premium as a percentage of GDP is 3.6 per cent, well below the global average of 7.13 per cent, and general insurance premiums are even worse at 0.94 per cent of GDP, well below the global average of 2.88 per cent.
The opposition party walked out of the house opposing the Bill. They demanded that the Bill should be sent to the standing committee for further examination.
Anand Sharma of Congress Party said, “How will India become self-standing if the government transfers the ownership of the insurance sector to the foreign players.” He opposed the Bill and pondered why the government is in a rush to privatize the insurance sector on such a large scale.
Tiruchi Shiva of the Dravida Munnetra Kazhagam Party said, “While it is understandable that the government required funds, this should not be at the expense of general insurance companies and public sector undertakings.” If such legislation is enacted, he says, insurance would become unaffordable for the common man. Vishambhar Prashad Nishad of Samajwadi Party demanded that the Bill must be sent to the Selection Committee. Manoj Jha of Rashtriya Janata Dal, Praful Patel of Nationalist Congress Party, Banda Prasad of Telangana Rashtra Samithi and Anil Desai of Shiv Sena also participated in the discussion.