Parliament passes General Insurance Amendment Bill
19th Aug, 2021
The Parliament passed the General Insurance Business (Nationalization) Amendment Bill 2021 which removes the condition that the Central Government should hold 51% shareholding in state-owned general insurance companies.
- The General Insurance Business (Nationalisation) Amendment Bill, 2021 was introduced in Lok Sabha on July 30, 2021.
- The Bill seeks to amend the General Insurance Business (Nationalisation) Act, 1972.
- The Act was subsequently amended in 2002 to transfer the control of these four subsidiary companies from GIC to the central government, thereby making them independent companies.
- Since 2000, GIC exclusively undertakes reinsurance business.
The General Insurance Business (Nationalisation) Act, 1972
- The 1972 Act set up the General Insurance Corporation of India (GIC).
- The businesses of the companies nationalised under the Act were restructured in four subsidiary companies of GIC:
(i) National Insurance
(ii) New India Assurance
(iii) Oriental Insurance
(iv) United India Insurance
How will this bill help to privatise the insurance sector?
- The 1972 Act was enacted to nationalise all private companies undertaking general insurance business in India.
- The present Bill seeks to provide for a greater private sector participation in the public sector insurance companies regulated under the Act.
Key-features of the Bill
- Government shareholding threshold:
- Previous provision: The Act requires that shareholding of the central government in the specified insurers (the above five companies) must be at least 51%.
- Bill: The Bill removes this provision.
- Change in definition of general insurance business:
- Previous provision: The Act defines general insurance business as fire, marine or miscellaneous insurance business. It excludes capital redemption and annuity from certain businesses from the definition. Capital redemption insurance involves payment of a sum of money on a specific date by the insurer after the beneficiary pays premiums periodically. Under annuity certain insurance, the insurer pays the beneficiary over a period of time.
- Bill: The Bill removes this definition and instead, refers to the definition provided by the Insurance Act, 1938. Under the Insurance Act capital redemption and annuity certain are included within general insurance business.
- Transfer of control from the government: The Bill provides that the Act will not apply to the specified insurers from the date on which the central government relinquishes control of the insurer.
Control means: (i) the power to appoint a majority of directors of a specified insurer, or (ii) to have power over its management or policy decisions.
- Liabilities of directors: The Bill specifies that a director of a specified insurer, who is not a whole-time director, will be held liable only for certain acts.
- These include acts which have been committed:
- with his knowledge, attributable through board processes
- with his consent or connivance or where he had not acted diligently
Who will get empowered in this Bill?
- The Act empowers the central government to notify the terms and conditions of service of employees of the specified insurers.
- The Bill provides that schemes formulated by the central government in this regard will be deemed to have been adopted by the insurer.
- The board of directors of the insurer may change these schemes or frame new policies.
- Further, powers of the central government under such schemes (framed under the Act) will be transferred to the board of directors of the insurer.
Impact of coronavirus on insurance sector in india
- The on-going coronavirus pandemic changed the landscape of the Indian insurance industry in a big way.
- The changes are expected to not only increase the insurance penetration rate in the country but also bring a conscious shift in the insurance product-mix.
Government scheme promoting insurance sector :
- AB PM-JAY is an entitlement-based scheme under Ayushman Bharat and is fully funded by the Government.
- It is the largest health assurance scheme in the world and aims at providing a health cover of INR 500,000 ($6,900) per family per year for secondary and tertiary care hospitalization to over 107 million vulnerable families (approximately 500 million beneficiaries).
How significant is this bill?
- Significant boost to privatization: The General Insurance Amendment Bill aims to promote a greater deal of private sector participation in the insurance companies present in the public sector.
- Increase Public participation: Bill is going to increase public participation which is only going to help by bringing more resources.
- Increase foreign investment: the passing of the Insurance Amendment Bill 2021, the foreign investment limit in the insurance sector will be raised to 74%.
This Act was put into play to nationalize all the private companies that were undertaking general insurance in India. The next step forward for this Bill and the public sector lies in the Bill becoming an Act after it is gazetted. After that, all the above-mentioned changes will be set into place and privatization can be taken for public sector insurers once more.