The snowballing global financial crisis may have hit the world?s biggest insurance players like AIG and Fortis severely. But the UPA government is undeterred by the recent turn of events and is hoping to carry forward its financial sector reform agenda, beginning with a hike in the foreign direct investment (FDI) limit in the insurance business along with a slew of other reforms.
The Cabinet on Thursday is expected to take up for approval the Insurance Laws (Amendment) Bill that aims to increase the FDI limit in domestic insurance companies to 49% from the existing 26%. The UPA expects to table it in the forthcoming session of Parliament beginning October 17.
The Bill was finally cleared by a group of ministers led by external affairs minister Pranab Mukherjee last month, over two years after the matter was first referred to it. The GoM has also recommended 10 new provisions in the draft Bill.
Besides increasing FDI, the 60-page draft Bill proposes nearly 120 amendments to insurance laws, including amendments to the Insurance Act of 1938, the LIC Act of 1956, and the IRDA Act of1999.
A key proposal aims to enable foreign reinsurance companies to enter the Indian market. This would benefit a host of firms like Lloyd?s of London, Munich Re and Swiss Re to get a full branch status in India. Currently state-owned General Insurance Company is the only re-insurer in the country.
Incidentally, the world?s largest society of underwriters ? Lloyd?s, which had been very keen to set shop in the country ? recently called back its India representative after losing hope of any movement on the requisite reforms.
Officials said despite the Left parties having pulled out of the government, the two contentious clauses ? of raising the FDI cap and allowing foreign re-insurers- could give rise to more controversy given the condition in the international financial markets.
The UPA government may not be able to push the Bill too far. With just a month long session of the Lok Sabha before the general elections, it may not be enacted into law as it is expected to be referred to the Parliamentary Standing Committee on Finance for consideration.
The Bill also seeks to increase the Life Insurance Corpor-ation?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 a level playing field with private insurers.
It proposes to provide greater flexibility on investment norms as well as a stronger role to the IRDA. The regulator would have more powers vis-?-vis
the Securities Appellate Tribunal and would also order the closure and opening of businesses outside India. To give a boost to health insurance, the Bill also seeks to lower the capital requirement for standalone health companies from the existing Rs 100 crore to Rs 50 crore. Another proposal relates to permitting insurance companies to raise resources through hybrid capital.