NEW DELHI : The government plans to introduce legislation during the monsoon session of Parliament to implement sweeping reforms, including provisions for a composite insurance license, relaxed barriers to entry for businesses and simplified investment rules insurance sectorsaid two people who were briefed on the development.
In the monsoon session beginning July 20, the center is expected to introduce two laws — the Insurance Laws (Amendment) Bill, 2023, and the Insurance Bill, 2023, the people said on condition of anonymity. The first legislation would target reforms to increase insurance penetration, improve efficiency and enable product innovation. The Insurance Act 2023, on the other hand, aims to simplify and update the legal framework for the sector. It involves the repeal and re-enactment of the Insurance Act 1938 with the aim of simplifying pre-constitutional provisions by renumbering and deleting obsolete provisions from the British era.
“The draft Insurance Act (Amendment) 2023 has already been submitted to the Union Cabinet for approval before it is tabled in Parliament. The draft Insurance Law 2023 is currently being finalized and the stakeholder consultation is being finalized so that this draft law can also be presented in the upcoming session. If the bills get the approval of Parliament this year, some of the newer provisions, including amended licensing standards, could go into effect later this year or early in FY25,” said one of the two aforementioned people.
While inquiries to the Treasury Department spokesman went unanswered, a government official said insurance sector reforms were a priority and progressive legislation was being introduced.
The Draft Insurance Act (Amendment) 2023 will introduce changes including simpler minimum capitalization requirements for insurers. Currently, the law prescribes a minimum capital of ₹100 crore for life, general and health insurance companies and ₹200 crore for reinsurance companies.
The proposed changes will give the Indian Insurance Regulatory and Development Authority (Irdai) the flexibility to set different minimum capital values depending on the class/sub-class of insurance business in which the insurer operates. This would allow microinsurers, now discouraged by high capitalization needs, to offer affordable coverage to rural areas and low-income people.
The new law could also include a provision for granting compound licenses to insurers, where a single company could offer life and non-life products, excluding reinsurance business. Composite insurers are also permitted in countries such as Singapore, Malaysia and the United Kingdom.
The bill also provides that insurers may offer policyholders ancillary services related to insurance business. There is also a proposal to allow insurers to market other financial products that may be specified in regulations issued by the insurance regulator. It also introduced the concept of a ‘captive insurer’, a general insurance company undertaking business solely for its holding/subsidiary/affiliate companies. This move will likely allow conglomerates and corporate groups to set up an insurer to cover business-related risks in their corporate groups.
The changes also bring several other changes, including simplified investment rules, a lower net fund requirement for foreign reinsurers, a different solvency margin and putting insurance companies on an equal footing with banks in terms of approving share transfers. In addition, the bill proposes removing restrictions on commission payments.
The bill also seeks to preserve the independence of the general and life insurance councils, with no plans to change their composition to include government officials. Industry leaders stressed the importance of broader representation on the councils and advocated against any changes that threaten their autonomy, the official said.
The bill contains several recommendations from the insurance regulator that have been submitted to the government.
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