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.
