New insurance draft Bill goes to Cabinet this month

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With an eye on the October session of Parliament, the finance ministry is planning to approach the Cabinet with the Insurance Laws (Amendment) Bill for approval by the end of this month. “We are drafting a fresh note and we hope to take up to the Cabinet by the last week of September,” an official told The Financial Express.

While sticking to most of the initial proposals, the revised Cabinet note will include a few changes suggested by the group of ministers (GoM). The GoM headed by external affairs minister Pranab Mukherjee cleared the Bill which seeks to raise the foreign direct investment cap in the insurance sector from the existing 26% to 49%, in a meeting earlier this week.

The new proposals relate to changing the capital requirement for insurance companies and providing greater flexibility to the Insurance Regulatory and Development Authority to decide on investment guidelines.

The Bill now proposes to lower the capital requirement for standalone health companies to Rs 50 crore from Rs 100 crore. It is hoped that with a lower capital requirement, more companies will be attracted to enter the health insurance market.

As part of the new proposals, along with life companies, general and health insurance companies will also be permitted to raise resources through hybrid capital.

Additionally, the Bill seeks to increase the Life Insurance Corporation’s paid up capital to Rs 100 crore from Rs 5 crore. This will ensure that the life insurer complies with Irda’s norms for minimum capital requirement of Rs 100 crore. It will also bring LIC on level playing field with private insurers.

With the Left parties having pulled out from the government, North Block is confident of getting the Cabinet’s stamp of approval on the Bill without further delay. The Insurance Laws (Amendment) Bill was originally taken to the Union Cabinet in 2006 but was referred to the GoM, following persistent opposition by the UPA government’s erstwhile allies.

The Centre now plans to introduce the Bill in the forthcoming session of the Parliament, which is slated to being on October 17. However, even if it is introduced in the session, the Bill will, in all probability, be referred to the Parliamentary Standing Committee on Finance. With the general elections around the corner and just one short parliament session available after the coming session to clear the vote on account, the Bill may still not become a law under the UPA.