Context: The Government has sought to introduce amendments in the Insurance laws to increase the Insurance penetration and reform the insurance sector to make it more competitive. However, these amendments may go against the interests of public sector Insurance companies.
Relevance of the Topic: Prelims: Key facts and developments about the Insurance Sector in India.
Insurance Sector in India:
Present Status:
- The insurance sector is regulated under the Insurance Act, 1938. The sector can be divided into Life Insurance and General Insurance (Health, Motor etc.).
- Both Public sector and Private sector companies are allowed to offer Insurance in India.
Public sector Insurance Companies.
- The Life Insurance Corporation Act of 1956 nationalised the life insurance business by transferring it to Life Insurance Corporation.
- General Insurance Business (Nationalisation) Act, 1972 (GIBNA) nationalised the general insurance business in India and regulates 4 general insurance companies- New India Assurance, United India Insurance, Oriental Insurance company and National Insurance Company.
Private sector Insurance Companies:
- IRDA Act, 1999 allowed Private sector participation in the Insurance sector. India also allows FDI of up to 74% in Insurance.
Insurance Penetration and Density:
- Insurance penetration is measured as the ratio of insurance premium to GDP. While insurance density is calculated as the ratio of Insurance premium to population (per capita premium).
- India's overall Insurance penetration is around 4% while the Insurance density is around $70.
Proposed Amendments in Insurance Acts:
- Composite License: As per the provisions of the Insurance Act, 1938, life insurance companies can only offer life insurance products, while general insurance companies can offer non-life insurance products, such as health, motor insurance etc. Hence, IRDAI does not allow composite licensing for insurance companies, which means that an insurance company cannot offer both life and non-life insurance products under one entity. Draft amendments allow composite licences for Insurance companies.
- Foreign investment: Increase in FDI cap on Insurance from 74% to 100%.
- Requirement of capital: The 1938 Act provides capital requirements for different classes of insurance business. The amendment provides that for entities engaged in more than one class of insurance business, the IRDAI may specify the capital requirements. This should not be less than the sum of capital required for carrying out each class of business separately. In addition, IRDAI can also reduce the minimum capital required to up to Rs 50 crore. This can be done for insurers serving underserved or special segments prescribed through regulations.
Concerns with recent proposals:
- Presently, LIC can offer only Life Insurance under LIC Act, 1956 (and not General Insurance). Similarly, 4 General Insurance Companies can provide only General Insurance (and not Life Insurance) under the General Insurance Business (Nationalisation) Act, 1972 (GIBNA). Hence, the Government needs to amend the LIC Act and GIBNA to enable composite licensing for public sector Insurance Companies. However, no such amendments have been proposed.
- A composite licensing regime would allow only the private sector companies to offer both Life Insurance and General Insurance. However, the public sector insurance companies would not be able to get a composite license. This would hinder public sector insurance companies from competing with the Private sector Insurance companies.