Insurance Bill gets nod; may take time to become law

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New Delhi, Oct 31 : The Cabinet on Thursday approved the Insurance Laws (Amendment) Bill that will pave the way for increasing the FDI limit in domestic insurance companies to 49% from the existing 26%.

The Cabinet also cleared proposal to increase the Life Insurance Corporation’s paid up capital to Rs 100 crore from Rs 5 crore besides approving changes in the IRDA Act, finance minister P Chidambaram said on Friday. This will ensure that the life insurer complies with minimum capital requirement of Rs 100 crore stipulated by the Insurance Regulatory & development Authority.

However, Chidambaram said that the Bill was unlikely to be passed by the present Lok Sabha mainly due to lack of time as it has to go through a parliamentary committee. Usually, a parliamentary committee may take anywhere between 6 and 8 months to finalise its report on the proposed Bill. Parliament, which is having a recess now, will reconvene on December 10.

The Bill was cleared by a group of ministers led by external affairs minister Pranab Mukherjee early September, over two years after first being referred to the group.

The GoM had recommended 10 new provisions in the draft Bill.

Besides increasing the FDI, the Bill proposes nearly 120 changes to insurance laws, including amendments to the Insurance Act of 1999, LIC Act of 1956, and the IRDA Act, 1999 and General Insurance Business Act, 1972.

This crucial financial sector reform Bill has gained currency after the exit of Left from the UPA government.

However, it now seems unlikely for the Parliament to clear it in a short span of time. Plus, in the backdrop of ongoing financial crisis and frozen credit markets, it’s also not clear whether foreign investors will be willing to buy fresh stakes in Indian ventures. Another key proposal in the 60-page Bill aims to enable foreign reinsurance companies to enter the Indian market. This would help a host of firms such as Lloyd’s of London, Munich Re and Swiss Re to get a full branch status in India .

Currently, General Insurance Company is the only re-insurer in the country. It also proposes to provide greater flexibility on investment norms as well as a stronger role to IRDA.