The Insurance Bill, 2021 got passed by both the houses of the Parliament in March 2021. As per the new bill, the initial ceiling of the foreign investment in India has been spiked from 49% to 74%. The objective of the bill is to devote the ownership and control majorly to the Indian investors.
As per our Finance Minister Nirmala Sitaraman, this will help in increasing the insurance penetration of the country which is a mere 3.7 percent as the higher foreign investments will progressively help the investing companies to meet the growing demands for capitalistic resources. It is also expected to help small scale private insurance companies to grow since they contribute almost negligently to the global insurance penetration levels. The Bill strikes off major restrictions regarding the control of shares and the liability of minimum investment in assets.
It is done to combat the severe liquidity pressure especially during the pandemic situation. The higher foreign capital will help to escalate the GDP of the country which has been severely affected.
However, the opposing parties bring out several concerns attached with this bill. It was suggested that the bill should be sent to a standing committee for further examination and analysis.
Our Finance minister promised that the Insurance Regulatory and Development Authority of India (IRDAI) as formed under IRDAI Act 1999 has undertaken several safeguards to suggest the success of the bill. A robust system of check and meet criteria has been severely executed for the same. Major Directors, personal management teams and stakeholders will be Indian based and the profits incurred will be strictly reserved in India. Essentially Indian Residents are the key features as the important stakeholders.
Another crucial aspect of the bill is to generate a spirit of competition in the insurance sector and to ensure that the money is invested only within the borders of India and not beyond.
The insurance sector was set up first in 2000 under Vajpayee government. An FDI of 26 percent was allowed to be set up by the private companies. With the advent as well as the growth of the insurance sector, the demand for more funds by the capital intensive companies increased and hence the need to increase the FDI ceiling from 26 percent to 49 percent as per the amendment of 2015. It gives Indian joint promoters to have a say in company matter settlements as per the ‘Indian Management Control clause’ which was inserted as a key feature of the bill.
When the FDI limit was 49 percent, the majority of shares were controlled by the Indian investors which were 51%. With an FDI limit to 74% the foreign investors would possibly want a majority in the control.
Another reason of a direct spurge of the FDI limit to 74% could be dated back to when the political parties demanded the need for specific laws for FDI investments and ceiling and an insurance law to govern these investments. If the ceiling needs to be increased, the bill has to be sent to the parliament. In order to avoid that, the direct spike from 49 percent to 74 percent can be noted.
HISTORICAL ANALYSIS OF INSURANCE SECTOR:
Insurance underwent major evolution and seen spurt in growth. The first Insurance Company established in Calcutta known as the Oriental Life Insurance in 1818. However, the scope of insurance was very less due to the dominance by the western sphere and the sector was very streamlined back then with less scope. Over time, the insurance sectors got regulated and government of India got the control over various insurance sectors. The first Indian Insurance act that came up as a measure to protect the business operations was in the year 1914. It was further amended in the year 1938 with an aim to protect the interest of the insurers
The major concerns that come up with the passing of the bill are with the advent of more control that the Indian investors are getting through the bill, the interest and the risk of the foreign investors to actually invest is one of the main questions. Between the period of
2014-2020, the Insurance ceiling was raised from 26 percent to 49 percent. The result was an inflow of 26000 crores. But since the majority of the control over the shares was still not hands as it was still less than 50, a better outcome and influx would have been possible.
With a raise in the ceiling from 26% to 49% the insurance penetration had increased marginally. It, as a percentage of GDP is mere 3.7 percent whereas the global average stands at almost the double. Penetration is expected to show higher levels from a higher level of the incomes, which is dependent on faster economic growth.
The small players in the insurance sector are considered at risk, as the access to a huge capital investment might provide the required push over the major investors. However, there are no provisions for the weaker foreign companies to be prevented from entering the Indian insurance sector which can be challenging for the small insurance sectors in India and lead to a further collapse.
An adequate say of investors is what they expect because the more rigid and higher the particulars, the less interest and attractive the foreign investors will be. By the 19th century the government nationalized various insurance companies to combat complexities and corrupt practices that were emerging. In the 21st century, year 2000, Insurance Regulatory and Development Authority had established. IRDA’s role is to ensure fair competition among various businesses and form certain principles and objectives to ensure security and protection to the holders. Today the insurance sector has expanded to various other branches. One of the crucial schemes which had been implemented to improve the inflow of Insurance in India is the Saral Jeevan Bima Yojana. It ensures that policies and guidelines become simplified for the people to understand. As per the order of IRDA, these companies had to ensure that the specific details of the products were very transparently revealed to the customers in terms of the details of the product. This was done to ensure that the people are in no way cheated by the companies and receive the products that they pay for. According to the scheme no exclusivity could be created and the products had to be made available to all people equally.
The main problem is the unequal distribution of these companies. Most of them are urban centric due to which their demands for various products are not met. There is a long way forward in order to execute various other schemes to ensure the investment in technology and infrastructure is rightly made to meet the rural needs. This can be achieved when other schemes incorporate this into their agendas, for example:
Pradhan Mantri Jan Dhan Yojana which aims at bank services as a national need to the public at low rates. It helps in the inclusion of the less privileged to become a part of financial security and not remain unbanked. The mediators have a very prevalent role to ensure insurance is not denied to anybody. These can be further empowered by promoting digital modes of payment, which does not require a physical access. Further offline transactions modes are also available. The UUSD, which allows various transaction services even in the offline mode. This reduces the dependency on the internet access and advanced equipments. These are the methods to ensure that everybody is included within the schemes. Various complexities are resolved in this way, and the threats of frauds and extra payments are reduced when the mediators monitor the system well. This will draw more rural population and ensure their inclusion as a part of the growing insurance.
There are various other non-insurance sectors which are growing and have an increasing scope in the country. For example, Vehicle sector, heath and agriculture specific sectors. More focus is needed in sectors that promote products related to disaster and other threats or various other protections. These can grow more if the insurers ensure more inflow of capital, which is somewhere lacking. The investments also get affected due to the banking crisis and dilemma.
Since in the 21st century IRDA, functioned as an autonomous body regulating the insurance sector, it was necessary to ensure that the members of IRDA are well versed with the growing needs, demands, profits, losses, statistics and other expertise related to the insurance. This was introduced as a part of 2008 amendment, and Securities Appellate Tribunal became the supreme authority to monitor this efficiently.
Under Insurance Amendment Act 2015, a lot of emphasis was given to the crucial sectors such as Health Insurance. As per the act, separate benefits were covered for any health related affairs and expenses. A business promoter who has held a business for more than 10 years can still hold shares not less than 26 percent in opposition to the previous insurance Bill 2008. The highly restrictive clauses have been amended to introduce more flexibility for benefit. Loans were allowed under section 29 of the 2015 act keeping in high regards the rules and principles prescribed by IRDA. Earlier loans of any kind were strictly prohibited. Adherence to IRDA however is mandatory as per the amendment 2015. Various forms of punishment have been listed in case of violation for the same. This can be considered as one of the major cons of the 2015 act. The increasing punishment/ penalty amounts can directly affect the interest of the stakeholders and the inflow of insurance in the sector. One of the major reasons of the introduction of Insurance Amendment Act 2021 is due to the success that is attributed to the act of 2015. The boost in the FDI and the growth of Assets Under Management (AUM).
The policy of reservation cannot be undermined with the expansion of the role of private sectors as insurance is a highly regulated sector in terms of the approval, exercise pricing and marketing promotions and is not outside the private sector entities. Reforms that ensure the customers and the insurance policy companies and the individuals acquiring services from them, in terms of the redressal system and calculating the effects of increasing penalty amounts need to be understood and initiated. Lastly, the awareness regarding the various policies and the benefits that people can prevail is very important in the society, not just to boost the economy but to acknowledge the right to equal access of the various products that these companies offer. Any amendment and execution of new policy requires time to evaluate the effects of its pros and cons in a real sense and not discussions and debates.
The new foreign investment is promised newer and advanced technologies, better pricing and competition for the policyholders and IRDAI approved investors and directors based in India, however the fine line to balance out between the need for new investments and higher insurance penetration on one side and the risk of actual investments coming from foreign companies, the quality and strategy of the investing companies is a subject of importance and IRDAI’s approval and check for the ready companies is expected to suffice. More competition is clearly seen as the need of the hour for a higher influx. With the amendments that have been introduced in the Insurance Act over the years, it can be analyzed that the effort has always been to include the marginalized, to promote the growth of new sectors and ensure equal benefits and combat corrupt practices the amendment has been introduced with a complete objective of improving the economy and liquidity of the country in the interest of the people.
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Name: Alina Khan
College: Symbiosis Law School, Noida