Insurance reforms in first 100 days agenda of BJP government if voted back

Planned reforms in the insurance sector include a provision for a composite insurance licence, relaxed entry barriers for companies, simplifying investment rules and giving more powers to the regulator to determine the licence fee structure for companies.

According the one the two persons cited above, the finance ministry has finalized the draft Insurance Laws (Amendment) Bill and proposes to push it for cabinet and Parliamentary approval as soon as the new government comes to power at the Centre. This is expected to be pushed for implementation during the first 100 days of the new government.

The government is working on a 100-day post-election agenda as well as a vision document for transforming the country into a developed nation by 2047. Finance minister Nirmala Sitharaman in her budget speech said the government will take up next-generation reforms to push growth and development in the next five years.

“The bill has been finalized by the finance ministry after extensive public and stakeholder consultation process in which we received over 1,000 pages of comments. The state governments have also been consulted and some of their comments and suggestions have been included in the bill. The extensive process of consultations has provided a strong, progressive, forward-looking legislation that would not need any further changes and can be taken directly for Parliamentary approval process by the government coming to power at the Centre post elections," said one of the two people on condition of anonymity.

Queries sent to the finance ministry and secretary, financial services, remained unanswered at press time.

Officials said the amendment bill is complete in all respects and would be implemented irrespective of the party coming to power.

The main changes for the insurance industry post the amendments is grant of composite licences to insurers. Under it, a single entity could offer both life and non-life products unlike now where these two businesses have to be carried by separate corporate entities. Composite insurers are also allowed in countries such as Singapore, Malaysia and the UK.

The proposal on composite licence had earlier divided the industry, with certain sections favouring the move as progressive and others, including state-run general insurers, opposing it on the grounds that it would further fragment the vast Indian insurance market and allow the entry of non-serious and financially weaker players. Now the changes have been favoured with checks.

The draft bill also allows insurance companies the freedom to sell different financial products, just like banks. These could include products such as mutual funds but clarity on this would emerge once rules governing the amended legislation are drafted.

The draft bill suggests doing away with the existing requirement of paid-up equity capital of ₹100 crore for setting up a life, general or health insurance business and ₹200 crore for reinsurance businesses.

The finance ministry has instead proposed a differential licencing regime where insurance companies will be categorized by the size and scale of operations, class or sub-class of the business, and the category or type of insurer.

Accordingly, the draft bill has now removed capital requirement clause and instead given the powers to determine capital requirements of companies to the Insurance Regulatory and Development Authority (IRDA) in consultation with the government.

Differential licencing would enable micro-insurers, which are now deterred by high capitalization needs, to offer affordable insurance cover in rural areas and to low-income people, said the people cited above.

It has also introduced the concept of a “captive insurer", a general insurance company undertaking business exclusively for its holding/subsidiary/associate companies. This move will likely allow conglomerates and corporate groups to incorporate an insurer to cover business-related risks within their groups.

The bill will bring far-reaching reforms to the insurance sector and help in further improving insurance penetration in the country, said an official at a global audit and consultancy firm—one of the two people cited above–on the condition of anonymity as the bill is still under discussion and there was no clarity on the way forward.

The amendments also bring several other changes, including simplified investment conditions, reduced net-owned fund requirement for foreign reinsurers, differential solvency margin, and bringing insurance companies on par with banks regarding share-transfer approval. Further, the bill proposes to remove limits on commission payments.

Along with the Insurance Laws Amendment bill, the government post elections may also bring in the Insurance Bill, 2023 for Parliamentary approval as part of the reform initiative for the insurance sector. This bill has been drafted to simplify and update the legal framework governing the sector. It entails the repeal and re-enactment of the Insurance Act, 1938, aiming to simplify pre-constitutional enactments by renumbering and eliminating obsolete British-era provisions.