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.
The Indian insurance market has grown five times in the last six years since private players were allowed in. Analysts expect an increase in the FDI limit to bring in around $4 billion of ?sticky? foreign investment in existing ventures as well as speed up the entry of big players like All State , Nationwide and Samsung, who have been actively looking for Indian partners.
Reinsurers like Lloyds of London, which has only recently recalled its India representative after giving up on insurance reforms, and Munich Re are also expected to be able to enter the Indian market once the Bill becomes a law of the land.
With insurance penetration in the country still at only 4% of Gross Domestic Product (GDP), there is still a lot of scope for expanding the insurance pie. Moreover, with the business for private players growing at a brisk 60-70% in past few years, the need for capital infusion has become acute.
While Indian partners in insurance joint ventures would be keen to offload 23% of their stakes to the foreign partners and invest the funds in their core businesses, not all foreign insurers may bring in capital readily. This is because the global financial crisis triggered by the US sub-prime mortgages market has hit insurers along with banks, asset management companies and hedge funds. Big global insurance players have taken a $77 billion hit on their books since the crisis began last year.
But for now, all players are keeping a close watch on the UPA?s ability to get the Insurance (Amendment) Bill through the parliament. ?Only when the Bill is cleared will a clear time table and mechanism for increasing stakes emerge. The mechanism enshrined in the law would be a decisive factor for some foreign partners,? said the CEO of a leading life insurance joint venture.