Insurance Amendment Bill: What Are The Proposed Changes In Insurance Laws?

To bring in a diversity of insurance products for consumers and enhance competition in the sector, the government has proposed some amendments to the Insurance Act of India. The amendments are proposed to the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and Insurance Regulatory and Development Authority Act, 1999.

If the proposal is approved, the Insurance Regulatory and Development Authority of India (Irdai) will form regulations to implement the new framework which would affect policyholders and the Indian insurance sector as a whole.

The proposed amendments include:

- Raising the foreign direct investment (FDI) limit in the insurance sector to 100 per cent.

- Reducing the paid-up capital requirement for insurance companies

- Introducing a composite license for insurance companies, allowing them to offer both life and non-life insurance products

This proposal aims to amend insurance laws to ensure better accessibility and affordability of insurance for all and promote industry expansion. The amendments have been constituted following a comprehensive review of the sector's legislative framework, in consultation with Irdai and the industry.

Says Balachander Sekhar, founder and chief executive officer of RenewBuy, “The proposed Insurance Amendment Bill is a significant step towards strengthening and modernizing India's insurance sector. The move to allow a single license for life, health, and general insurance coupled with allowing 100 per cent foreign direct investment can bring in a paradigm shift to the sector.”

Let’s understand these proposed amendments in detail:

Opening Agent Ties: For decades, insurance agents in India have worked under the regulation wherein they could represent only one insurer in each category - life, general, or health insurance.

As per the proposed changes, the government wants to change this rule by allowing agents to partner with multiple insurers across categories. This could translate to more choices and better products, and possibly better premiums for the customers.

However, Irdai will continue to play a crucial role here to ensure that these new partnerships don’t lead to a conflict of interest.

100% FDI: The proposal also includes raising the Foreign Direct Investment (FDI) limit in Indian Insurance Companies from 74 per cent to 100 per cent.

This is expected to enable an insurer to carry on one or more classes of insurance business and activities related/incidental to insurance.

Moreover, the government is also proposing to reduce the requirement of Net Owned Funds for foreign re-insurers from Rs. 5,000 crores to Rs. 1,000 crores.

Additionally, Irdai is being empowered to specify lower entry capital (not be less than Rs 50 crores), for under-served or un-served segments on a special case basis.

This amendment would be a ticket for international players to bring their cutting-edge technology, innovative practices, and diverse product portfolio to the Indian insurance market.

“Allowing 100 per cent FDI in insurance will attract significant interest from global insurance players. Many international insurers can now enter the Indian market which will drive Indian insurers to adopt global best practices in product & processes, innovation as well as cutting-edge technologies. This will ultimately help consumers access the best products and services,” Sekhar states.

Composite License: The Bill also aims to initiate a ‘composite license’ for insurance companies. Currently, if a company wants to sell both life and non-life insurance products, it needs separate licenses. A composite license will allow insurers to consolidate their operations while also reducing compliance burdens and costs.

For Indian insurers, this will offer an opportunity to diversify their portfolios and remain competitive in this market wherein the new entrants will face low entry barriers and good competition. Foreign insurers will also benefit by being able to simplify their different joint ventures and consolidate operations.

This would also mean a wide array of options for customers.

The Bill, if implemented, promises more insurance penetration in India. For consumers, it is expected to bring better insurance products, competitive pricing, and improved service delivery.