Friday, November 7, 2014

Slow moving insurance sector needs a push from the new Bill

This article was first published in the business section of www.rediff.com on November 05, 2014
As the industry awaits amendments in the existing Insurance Bill, Nupur Pavan Bang walks us through the ups and downs in the sector since its liberalisation in 1956, and impact the new Bill will have on various stakeholders. 

The proposed new Bill is considered to be the first major economic reform by the Modi government and over 90 amendments have already been finalised in the existing document.
The Bill will come up for discussion in the upcoming winter session of the Parliament.  

A brief history of how the insurance sector evolved with the times.  
The life insurance sector was nationalised in 1956 and Life Insurance Corporation (LIC) of India was formed then.  
The sector opened up for private participation in 2000, and the country’s  largest insurance firm (LIC) commands 73 per cent market share in the life business segment presently.  
The general insurance sector was nationalised in 1973, with the formulation of the General Insurance Corporation (GIC) Act.
Under this Act, GIC became the parent company of four separate companies including the National Insurance Company, the Oriental Insurance Company, New India Assurance Company and United India Assurance Company.  
In 2002, the control of these insurance companies was handed over to the central government, while GIC was made the sole re-insurer in India.
Today, all the four companies control about 55 per cent of the general insurance market and the remaining 45 per cent is dominated by private players. Like life insurance, the general insurance market too opened up in 2000.  

Inception of Insurance Regulatory and Development Authority (IRDA)  
As a part of the economic reforms in early 1991, RN Malhotra Committee recommended the formation of an insurance regulator.  IRDA was thus formed under the Insurance Regulatory and Development Act in 1999.  
Among the first set of regulations by IRDA, was the opening up of the insurance market for private players. It also allowed foreign companies to own up to 26 per cent stake in private companies.  
Currently, there are 23 private companies, apart from the state owned LIC, in the life insurance sector which command 27 per cent of the market, Being the largest private sector player, SBI Life dominates 4.8 per cent of the market share for first year premiums (Source: IRDA 2012-13).  

Industry break-up
There are 17 private companies, apart from four state -owned general insurers, in the non-life sector (excluding standalone health insurers). ICICI Lombard is the largest private sector player with 9.4 per cent of the market share (Source: IRDA 2012-13).  

A brief synopsis of the New Insurance Bill; its beneficiaries  
The new Bill proposes to increase the FDI limit to 49 per cent from the current 26 per cent. This clause will attract more foreign players to pick up stakes in Indian firms.  
On the other hand, the Indian counterparts, at least a few of them, would benefit from the infusion of further capital and technology.
Some of them may not need the capital as they are promoted by corporate houses with deep pockets.  

Why is there a delay in amending the existing Bill
The Insurance Laws (Amendment) Bill, 2008 was brought to the Rajya Sabha first by the then ruling UPA Government in 2008.
Then in opposition, Bhartiya Janta Party (BJP) did not support it.  
Now the Bill has been brought to the Upper House by the current government, and now in opposition, the Congress is not supporting it.  

Current status
The Bill has been referred to a select committee, which is a committee comprising of members from political parties in proportion to their strength in the house.
Such a committee is an ad hoc committee which may be appointed from time to time to look into specific issues.  
One of them is special economic zones for Insurers, another is that agents would be directly appointed by the Insurers, without the requirement of licensing with IRDA.
Greater emphasis on rural and social sector obligations would help increase the penetration. 

The 15 member Select Committee, headed by Chandan Mitra of the BJP, will give its report on the last day of the first week of the winter session of Parliament. The report will be binding on the government.
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