Insurance Market of India and Insurance (Amendment) Bill 2021 - Daily Current Affair Article

References

Recently the Insurance (Amendment) Bill 2021 was passed in Rajya Sabha.

Introduction

The Insurance (Amendment) Bill, 2021 was introduced in the Rajya Sabha on 15 March 2021 by the Minister of Corporate Affairs Nirmala Sitharaman, which has now been passed. This Bill amends the Insurance Act-1938. It provides a framework for the functioning of the insurance business and regulates all stakeholders related to insurance. The recently proposed legislation seeks to increase the maximum foreign investment limit in Indian insurance companies.

What is insurance?

According to the economic concept, any component that reduces risk is called insurance. It is generally a service provided by an insurance company, which is generally of two types.

  • Life insurance - It carries the risk of a person from accident to death.
  • General Insurance - Also called non-life insurance, it ensures the risk associated with assets.

Insurance Regulations in India

  • Insurance in India is regulated by the Insurance Regulatory and Development Authority of India (IRDAI).
  • This institution is a statutory body empowered under the Insurance Regulatory and Development Authority of India Act-1999.
  • It consists of 1 chairman and 5 members (2 full-time members and 3 part-time members). They are appointed by the Government of India.
  • Its headquarter is located in Hyderabad.

The insurance market in India

  • There are 57 insurance companies in India's insurance industry, 24 are in the life insurance business, while 33 are non-life insurers. Among the life insurers, Life Insurance Corporation of India (LIC) is the only public sector company. There are six public sector insurers in the non-life insurance segment.
  • Apart from these insurance companies, the General Insurance Corporation of India is the only national reinsurer. Other stakeholders in the Indian insurance market include approved insurance agents, licensed corporate agents, brokers, general service centers, web-collectors, surveyors, and third-party administrators (TPAs) serving concerning health insurance claims.
  • Under the Insurance Laws (Amendment) Act, 2015, there has been a clear provision to increase the foreign investment ceiling in any Indian insurance company from 26% to an overall limit of 49% and also with the Indian Ownership and control are protected. Now the effort is to increase the limit to 74% by this new legislation.
  • Insurance penetration in India, ie the premium received by Indian insurers has been 3.44% of Gross Domestic Product (GDP) in the financial year 2015-16. Under this, the per capita premium in India ie insurance density has been the US $ 54.7 in the financial year 2015-16.
  • In India, the overall market size of the insurance sector is estimated to be the US $ 280 billion in 2020.
  • During the financial year 2012 to 2020, new business life insurance companies in India increased the CAGR of 15% in premium. Although Corona has negatively affected this increase.

Important points of each Bill: Key amendments

  • The Bill Insurance Act-1938 provides that foreign investors can invest up to 49% of capital in an Indian insurance company. That is, the company should be owned by Indians but this bill increases this limit of foreign investment from 49% to 74% and removes the restrictions of ownership and control. This foreign investment may be subject to additional conditions specified by the Central Government.
  • The Bill Insurance Act-1938 states that insurance companies will have to invest in assets to a minimum extent, which is sufficient to cover their insurance claims liabilities. This provision also applies to an insurance company incorporated in India. If the company is incorporated in another country or located in another country, then these assets should be held by a trust in India and under the authority of a trustee who is a resident of India.

As per the clarification of the Act, this provision shall also apply to an insurance company incorporated in India:

  1. A minimum of 33% of the capital is owned by investors based outside India,
  2. Whose minimum of 33% members of the governing body lives outside India.
  3. The latest legislation repeals this provision as well.

Implications of the enactment of the Bill: -

The insurance market of India is very wide which is continuously increasing. It is true that with the increase of foreign investment, technology will come and competition will increase. Most of the insurance sector in India is in private hands which have been profit-oriented. But there will be some concerns with the disinvestment of Indian life insurance with this step.

Recent Government Initiatives for Insurance Reforms

Government initiative

The Government of India has taken several initiatives to promote the insurance industry. Some of them are as follows:

  • According to the Union Budget 2019-20, 100% Foreign Direct Investment (FDI) was allowed for insurance intermediaries.
  • In December 2020, Uttarakhand announced its plan to offer 'COVID-19 Insurance Policy' to international tourists.
  • In November 2020, India Post Payments Bank (IPPB), in association with PNB MetLife India Insurance Company, announced the launch of Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) for customers.
  • IRDAI has allowed insurers to invest up to 10% in additional Tier 1 bonds issued by banks to increase their Tier 1 capital to expand the pool of qualified investors for banks.

The conclusion

India's insurance market is a fast-growing market. Currently, 110+ InsurTech start-ups are operated in India. Along with this, insurance in India is related to common life, so caution is necessary for deciding on this subject. Although the government itself is reducing its liability as an insurance company, it is still regulating the insurance through IRDAI and the government is securing the funds of the Indian public.

General Studies Paper 3
  • Economy
  • Topics are related to the Indian economy and planning, resource mobilization, progress, development, and employment.

Mains Question:-

  • Recently, some amendments have been introduced in the Insurance Act in India. Analyze India's insurance market in the light of these amendments.