New amendment bill in Indian insurance sector discouraged
Indians are up in arms as the new Amendment Bill 2008 is being proposed. The Bill, which is yet to be approved, seeks to liberalise the insurance sector by increasing the foreign direct investment cap from 26 per cent to 49 per cent.
The proposed legislation could be a game changer and could assist the falling rupee and the wide current account deficit.
The major highlights of the Bill are: definition for the term ‘health insurance’ and ‘foreign company’. It also presents new criteria and compliances in the insurance business. The other relevant amendments proposed include that the agents, insurance brokers or other insurance intermediaries cannot be directors of an insurance company. Regarding the transfer of shares, India’s Insurance Regulatory and Development Authority (IRDA) must approve any transfer of shares, which results in a single investor owning more than five percent of the equity of an insurance company. The regulator must also approve a transfer of more than one percent of the equity of an insurance company by an individual or firm or group under the same management.
The Bill provides for rights of transfer or assignment of an insurance policy, wholly or in part, whether with or without consideration to third parties by the policyholders. The validity of such transfer would be always open to challenge. Many foreign countries allow such practices including US and Canada.
The passage of the Bill is important for it talks about certain key aspects necessary to provide momentum to growth of the insurance sector. The important development includes FDI and health insurance. The banking sector allows FDI to the extent of 74 percent, therefore, there is no point depriving the insurance sector with parallel increment of FDI limit. The amendments suggested in FDI are meant to increase the cash flow in the sector. The other important aspect of the Bill is the health insurance business, which is in growing phase in India. As the 70 percent of the medical expenses are still borne by individuals, health insurance business has huge potential.
