Bill introduced in Rajya Sabha amid stiff protests from Left parties.
Our Bureau
New Delhi, Dec. 22 In the last leg of its term, the UPA Government has come up
with a big-bang approach to insurance sector reforms by introducing two Bills
in Parliament.
This would pave the way for the much-awaited hike in foreign direct investment
(FDI) in an Indian insurance company to 49 per cent from 26 per cent, permit
foreign re-insurers to set up branches here and do away with divestment
restrictions on Indian promoters of insurance companies to enable entry of more
players into the sector.
While a Bill to amend the insurance laws was introduced in the Rajya Sabha, the
Government also introduced the Life Insurance Corporation (amendment) Bill in
the Lok Sabha, with Left parties lodging stout protests against their
introduction in both the Houses, amid a melee.
Later, the Left parties charged that the proposed move to increase the FDI cap
was "a shameless move to facilitate greater control of the insurance sector by
foreign insurance companies".
"It was shocking that the Congress-led Government was taking this step at a
time when the financial crisis in the US had exposed the pernicious practices
of the insurance and financial companies of the West," the CPI (M) said in a
statement.
Shelf life
The Bills were introduced by the Minister of State for Finance, Mr Pawan Kumar
Bansal. The Insurance Laws (Amendment) Bill 2008 will have a longer shelf life,
beyond the term of the current UPA Government that ends technically by April
2009, as it had been introduced in the Rajya Sabha.
Defining health insurance
Besides providing for a hike in FDI cap to 49 per cent in insurance companies,
the Insurance Laws (Amendment) Bill has sought to define "health insurance
business" and provide for a minimum paid-up capital of Rs 50 crore for pure
health insurance companies. The Bill also seeks to maintain FDI cap at 26 per
cent for insurance cooperative societies.
On the re-insurance front, the Bill seeks to permit foreign re-insurers to open
branches only for the re-insurance business in India. The proposed amendments
would also facilitate the entry of Lloyd's of London in the insurance business
as a foreign company in joint venture with Indian partners, and also as a
branch of foreign re-insurer.
Also, the existing restrictions on divestment by Indian promoters of insurance
companies are proposed to be removed. Currently, Indian promoters are required
to divest to 26 per cent or such other prescribed percentage in the manner and
period prescribed by the Central Government.
Moreover, the Bill seeks to allow nationalised general insurance companies to
raise money from the market with the permission of the Central Government for
increasing their business in the rural and social sectors, to meet solvency
margins and other purposes. The proposed amendments seek to provide obligatory
underwriting of third-party risks of motor vehicles on the pattern of insurance
in rural areas and social sectors.
Newer instruments
The Bill provides for insurance companies to raise "newer capital" through
"newer instruments" on the pattern of banks. It would also pave the way for
formulating regulations for payment of commission and control of management
expenses.
Both Life Insurance Council and General Insurance Council are to be made
self-regulating bodies.
The power of adjudication will be with Insurance Regulatory Development
Authority (IRDA) and appeal against the decisions of IRDA will rest with
Securities Appellate Tribunal.
On penalties and fines, carrying on insurance business without registration
could lead to a fine of up to Rs 25 crore and imprisonment of up to 10 years. A
penalty "not exceeding Rs 25 crore" could be imposed if an insurer fails to
comply with the obligations for rural or social sectors or third party
insurance of motor vehicles. All penalties realised would be credited to the
Consolidated Fund of India.
Distinction will now be made between a beneficiary nominee and a collector
nominee in life insurance policies. The responsibility of appointing insurance
agents will rest with insurers and IRDA would regulate their eligibility,
qualifications and other aspects.
Life insurance policies are proposed to be made "unchallengeable" on whatsoever
ground after five years of issue of the policy. Also, there would be limiting
of the grounds for challenge during the period within five years.
http://www.thehindubusinessline.com/2008/12/23/stories/2008122352060100.htm
Deeds, like seeds, take their own time to fructify.
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