Concerns with the Insurance (Amendment) Bill, 2021

Synopsis:The Insurance (Amendment) Bill, 2021 has few important concerns. But the move is a welcome step to the Insurance sector.

Introduction:

The Lok Sabha has passed the Insurance (Amendment) Bill, 2021. The Bill had earlier been cleared by the Rajya Sabha also. Now it only requires the presidential assent to become a law.

About the Insurance (Amendment) Bill, 2021:

1. The Bill amends the Insurance Act,1938. The Bill seeks to increase the maximum foreign investment allowed in an Indian insurance company from 49% to 74%.
2. However, such foreign investment may be subject to additional conditions as may be prescribed by the Central Government. The conditions include,
   • The majority of directors on the Board and key management persons in health and general insurance companies has to be resident Indians.
   • At least 50% of directors of the Insurance companies have to be independent directors.
3. The bill also removes restrictions on ownership and control.

Click Here to Read more about the Insurance (Amendment) Bill

Concerns with the Insurance (Amendment) Bill:

There are certain key concerns raised by the critics of the bill. These include,

1. The present actual share of FDI in the insurance sector is less than the current limit of 49%. Further, the present target was aimed to achieve within 5 years. But that is not achieved so far. Hence, there is no justification for increasing the limit to 74%.
2. Infusion of market funds in the insurance sector is not viable. The critics mention the time when financial institutions like DHFL, Yes Bank have collapsed, infusing market funds might lead to the collapse of insurance institutions also.
3. The Bill does not have a provision to prevent financially weak foreign companies from entering into the Indian insurance sector.
4. Many Indian insurance companies are already in Joint Venture with foreign companies. Hence, the Government’s claim that foreign investment is needed for bringing newer technology to the country is not substantiated.

Government’s response to the concerns:

1. The bill is aimed at solving some long-term capital availability issues in the insurance sector.
2. The banking and insurance industry fall under the strategic sectors according to the government’s strategic disinvestment policy. The 74% cap is just a limit posed on the FDI. Hence, there should be no apprehension on privatization.
3. The bill will increase competition in the insurance sector. This will in turn facilitate affordable schemes for middle-class people.
4. Half of the market share of the Indian insurance sector is already held by private companies. The public sector insurance market share is merely 38.78%. On the other hand, the private sector enjoys 48.03% of the market share. So the increase in FDI is essential to improve the insurance penetration further.

The Insurance (Amendment) Bill might facilitate insurance penetration among middle-class Indians. But the adequate safety mechanisms have to put in place to check the insurance companies.

Source: The Hindu