Marking a major milestone in the government’s reform programme — and despite opposition protests, parliamentary approval was on Thursday accorded to the insurance law amendment bill, with the Rajya Sabha adopting the measure seeking a hike in the foreign equity cap on domestic companies from 26 percent to 49 percent.
Formally called the Insurance Laws (Amendment) Bill, the measure — which seeks to replace an ordinance that was promulgated during the inter-session period — has been passed by the Lok Sabha on March 4.
While the bill had secured easy approval in the Lok Sabha, its passage in the upper house, where the ruling National Democratic Alliance (NDA) does not enjoy majority, was the crucial test.
The legislation seeks to raise foreign investment cap to 49 percent in the sector. While up to 26 percent foreign capital will be under the automatic route, the balance 23 percent has to secure approval from the Foreign Investment Promotion Board (FIPB).
The Left parties questioned the need for a hike in the FDI limit. Members opposing the bill also pointed to the minuscule claims rejection rate of the Life Insurance Corporation of India (LIC) while the rejection rate was around eight percent for private life insurers.
Earlier on Thursday, the Rajya Sabha took up discussion on the bill after initial reservations from the opposition benches about an identical bill remaining pending with the house.
As the bill was tabled, Communist Party of India-Marxist’s P. Rajeeve said a select committee of the upper house has already given a report on an older version of the bill and the new bill that has been brought was identical in nature.
“If we take up the bill, what happens to the select committee report? Are we ready to dilute the powers of the council of states,” he asked.
Deputy Chairman P.J. Kurien, however, ruled that there was nothing in the rule book or the constitution that could prevent the government from bringing the bill but added that the situation was “unprecedented”.
The issue was, however, sorted later after the house was adjourned for half an hour for discussions, after which the bill was taken up.
The salient features of the Insurance Bill are:
* Public sector general insurance companies would be allowed to raise funds from the capital market.
* Start up capital for health insurers would be Rs.100 crore
* Life Insurance Council and the General Insurance Council will be empowered to act as self-regulating bodies
* Legal recourse to individual customers against insurers
* Flexibility in paying premium through instalments, faster claim settlement, simpler policies, capping on agents’ commissions and consumer redressal.
* For insurance companies, the bill provides for more distribution points for insurance policies, less dependence on insurance agents, ability to raise capital from the market, adoption of international best practices by joint ventures (JVs) and greater role of technology to increase electronic issuance of policies.
* Prohibition of repudiation of claims/policies by life insurers, three years after the date of issuance of the life insurance policy/ reinstatement of a lapsed policy on the grounds of misstatements in application forms – recognition of family members as “beneficiary nominees” and partial assignments in insurance policies – significant increase in penalties for violations – Rs.25 crore for investments, rural and social sector non-compliances; liability of insurers for violations of code of conduct by insurers – penalty up to Rs.1 crore
* Specific prohibition of multi-level marketing in insurance – recognition of tier-II capital (e.g. perpetual bonds of RBI) for insurance companies – removal of compulsory dilution of
equity to 26 percent by Indian promoters after 10 years.
* Converting “corporate agents” into “intermediaries”.
* Reconstitution of Life Insurance Council and General Insurance Council to include members representing policy-holders, intermediaries, NGO/self help groups and persons of eminence.
* Foreign reinsurers allowed to open branch offices in India. (IANS)