The Union Cabinet, on Thursday, granted approval for increase of foreign direct investment (FDI) limit in the insurance sector from the present 26 per cent to 49 per cent. Alongside, it also cleared amendments aimed at attracting investments and bringing transparency in the working of the insurance companies.
The Cabinet approved amendments to the Insurance Laws (Amendment), Bill, 2008, pending in the Rajya Sabha.
These amendments are aimed at removing archaic and redundant provisions in the legislations and incorporating certain provisions to provide the Insurance Regulatory Development Authority (IRDA) with flexibility to discharge its functions effectively and efficiently. The overall objective is to further deepen the reform process which is already underway in the insurance sector, an official statement said here.
The approved amendments include that the foreign equity cap is proposed to be kept at 49 per cent as provided in the Insurance Laws (Amendment) Bill, 2008, as against the 26 percent.
This is done to meet the growing capital requirement of insurance companies. Foreign re-insurers will be permitted to open branches only for re-insurance business in India and the provisions of Section 27E, which prohibits an insurer to invest directly or indirectly outside India the funds of policy holder, would apply to such branches.
To encourage health insurance in India, the capital requirement for a health insurance company is now proposed at Rs.50 crore (instead of Rs.100 crore for general insurance companies) with a view to reducing the entry barrier to a priority sector in the insurance space.
The government has also revised the definition of ‘health insurance business’ to clearly stipulate that health insurance policies would cover sickness benefits on account of domestic as well as international travel.
Regarding the obligatory underwriting of third party risk on motor vehicles, a separate Motor Vehicle Insurance and Compensation Legislation is being proposed by the government and the concerns of the Standing Committee regarding the obligatory third-party insurance on motor vehicles will be taken care of, the statement said.
The public sector general insurance companies and the GIC will be permitted to raise capital from the market to meet the future capital requirements, provided that the government’s shareholding would not be allowed to come below 51 per cent at any point of time.
To improve the functioning of surveyors and bring in greater transparency, certain modifications are made to provide for regulations on qualifications regarding appointment of surveyors and to strengthen the Institute of Indian Insurance Surveyors and Loss Assessors (IIISLA). The amendments proposed in the Bill seek to do away with the existing statutory prescriptions pertaining to licensing insurance surveyors and loss assessors etc. and leave these issues to be addressed by way of regulations.
