Insurance (Amendment) Bill, 2021 

Introduction 

The Insurance (Amendment) Bill, 2021 was introduced in Rajya Sabha, on March 15, 2021, by the Minister of Corporate Affairs, Ms. Nirmala Sitharaman. The Bill amends the Insurance Act, 1938. The Act aims to provide a structure for the conduct of insurance business and regulation of insurance business's relationship with various stakeholders such as policyholders, insurers, the shareholders.

it also provides a framework for the interaction of the insurance entity with its regulator the Insurance Regulatory and Development Authority of India. The Bill also provides a base for the maximization of foreign investment in the Indian Insurance company.

Background

Foreign investment was restricted up to 26% in the year 2000 in the insurance sector. Vide an Amendment Act of 2015, this limit was raised, and 49% of the paid-up equity capital of such a company could be held by a foreign investor, provided that the Indian insurance company was owned and controlled by a person who was a resident of India.

the Insurance companies were facing severe liquidity pressures and capital constraints, which resulted in insolvency-related issues. The growth capital got very hard to ger, and with the pandemic causing liquidity issues for them, an increase in the FDI cap was unavoidable.

What has Changed

The main amendments to be brought by the bill are:

1. Foreign Investment – The Bill permits 49% holding by foreign investors in Indian insurance companies. The precondition for such holding, as provided by the Bill is that such insurance companies should be owned and controlled by an Indian entity. The increase in the limits on foreign investment by 25% i.e., 49% to 74%. It also removes the restriction imposed on a foreign entity from owning and controlling an Indian insurance company, on fulfilment of additional prescribed conditions.
2. Investment of Assets – The Bill mandates for insurers to hold a minimum level of investment in those assets that would suffice to clear the insurance claim liabilities. If the incorporation or domicile of the insurer is outside the territories of India, then such assets are to be held in a Trust. The trustees of this trust shall be a person who is a resident of India. the application of the same on insurers incorporated in India, that have at least (i) 33% capital is owned by investors domiciled outside India, or (ii) 33% of the members of the governing body are domiciled outside India, is removed by the Bill.

Our Word

The decision taken by the Central Government regarding increasing the foreign direct investment limit in insurance from 49% to 74% is sure to accelerate the growth rate of the Indian insurance companies. it can be said that this Bill can prove to be helpful in fastening and expanding the presence of local private insurers in India, which is the lowest insurance penetration level at a global level.