Centre to take LIC Act changes out of Insurance Reform Bill’s ambit

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New Delhi, Oct 9: The Centre has decided to delink the amendments required in the Life Insurance Corporation of India Act 1956 from the Insurance Laws (Amendment) Bill 2006, recently cleared by the group of ministers (GoM), chaired by external affairs minister Pranab Mukherjee.

Crucial changes to the LIC Act were necessary to increase its paid up capital to Rs 100 crore from Rs 5 crore. This was meant to ensure that the life insurer complies with the Insurance Regulatory and Development Authority’s (Irda) norms for minimum capital requirement of Rs 100 crore. It would also bring LIC on a level playing field with private insurers.

Now, the Insurance Bill to be introduced in the Parliament session that begins next week, will only include amendments to the Insurance Act of 1938, General Insurance Business (Nationalisation) Act of 1972 and the Irda Act of 1999. The LIC Act amendments would now be carried out separately.

Even as several expert panels have called for doing away with the powers of Reserve Bank of India (RBI) to approve every new bank branch and automated teller machines (ATMs), the Centre is working to endow similar powers on Irda for insurers’ overseas offices while retaining the power to approve domestic branches.

The Insurance Laws (Amendment) Bill 2006 will include provisions to this effect. Finance minister P Chidambaram reasoned that the Irda should be given the powers to control the opening and closure of foreign branches because in the process, the insurance companies assume liabilities that might affect their domestic functioning.

Incidentally, the Planning Commission deputy chairman Montek Singh Ahluwalia had expressed the view that the insurers should be allowed to open branches within India without obtaining permission from Irda and that the authority should just regulate the management expenses but should not ‘micro-manage the opening of domestic branches.’

Chidambaram had pointed out that giving a free hand to insurance companies to open domestic branches would result in the companies setting up offices only in urban areas. The GoM had agreed to the finance ministry’s view and decided that Irda should frame norms that insurers have to satisfy for opening domestic branches.

Giving more teeth to Irda, the GoM, considering the Insurance Laws (Amendment) Bill, 2006 has decided that the regulatory authority would now have the powers to approve opening of foreign insurers offices as well.