5 Things You Should Know About The Insurance Bill

15/12/2014 10:18 PM IST | Updated 15/07/2016 8:24 AM IST
Hindustan Times via Getty Images
NEW DELHI, INDIA- NOVEMBER 24: Prime Minister Narendra Modi walks with Union Minister of State for Parliamentary Affairs & Minority Affairs Mukhtar Abbas Naqvi, Minister of Urban Development and Parliamentary Affairs Venkaiah Naidu, Minister of State Skill Development & Entrepreneurship (Independent Charge) Rajiv Pratap Rudy, Dr. Jitendra Singh Minister of Science and Technology during the opening day of the winter session of Parliament on November 24, 2014 in New Delhi, India. The Narendra Modi government, which has promised big reforms in its first budget, is looking to push the Insurance Bill as well as the Goods and Service Tax Bill in the month-long winter session that begins today. (Photo by Vipin Kumar/ Hindustan Times via Getty Images)

The Parliament is expected to discuss the Insurance Laws (Amendment) Bill this week. The legislation will mark the biggest change in the crucial sector since foreign investment was allowed in 1999. This will open up the market to a greater degree to international majors such as AIG International Group, Standard Life Plc and MetLife. Consumers will benefit from greater choice.

Entry of foreign companies is expected to help raise India's insurance penetration—premiums underwritten as a proportion of a country's economic output.

Here are the five most important features of the bill:

  1. The bill will allow foreign investment limit in an Indian insurance company from 24% to 49% equity stake. Foreign capital can flow in either as direct investment or by buying shares from the stock market.

  2. Will allow foreign firms to invest in the reinsurance sector, i.e. companies that insure the insurance companies.
  3. Health insurance will become a separate sector. That's welcome, given that the vast majority doesn't have insurance in a country where government care is free but poor quality, and private healthcare is expensive. Opening up this sector is expected to attract majors such as the Aetna Group of the U.S.
  4. Dominance of state-run firms will end. At present, government-owned Life Insurance Corp of India has more than two-thirds of the life insurance market, while four other state-run firms together control more than half the non-life insurance market. When this bill becomes law, insurance majors who operate with local partners, such as AIG, will have more access to foreign capital and can scale up fast.
  5. Both Indian and foreign firms will be able to raise capital from international investors. This is currently not allowed for India's state-owned general insurance companies.

The Bill does have a clause that management must reside with Indian companies. That won't be a stumbling block though, and foreign players have been waiting a long time for this to happen. Although Modi's government passed the bill easily in the lower house and the cabinet gave its approval on December 10, a lack of support in the upper house means the bill might get stalled again until the next session of parliament. The Congress party, which had initially supported the bill when it was in power, has now decided to oppose it.

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