COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

Insurance bill likely to be introduced in LS on Friday

Tara Shankar Sahay in New Delhi

The Insurance Regulatory Authority bill is likely to be introduced in the Lok Sabha on Friday. Copies of the draft will be circulated late tonight to the members of the House, the Lok Sabha Secretariat sources said.

It is understood that the Business Advisory Committee of the Lok Sabha has got the proposed bill printed for circulation among the members.

Despite dissent in the ruling alliance at the Centre including members of the Bharatiya Janata Party, Prime Minister Atal Bihari Vajpayee has indicated that he would push through the bill. The Congress leaders have also indicated that they would support the bill.

Sonia Gandhi has said that the party had mentioned it was in favour of the insurance bill in its manifesto for the Lok Sabha elections early this year.

In a late night development, brushing aside the objections from sections of the Sangh Parivar and the trade unions, the government came out with the bill which envisages equity shares by foreign companies not to exceed 26 per cent of the paid up capital and another 14 per cent for Non-Resident Indians, Overseas Corporate Bodies and foreign institutional investors.

Copies of the bill circulated to members of Parliament tonight do not differ from the Cabinet proposal on foreign equity holding in an Indian insurance company.

The bill has been circulated tonight to enable the government to fulfil the statutory obligation of 48-hour notice before it was introduced in both the houses of Parliament. It is almost certain that the bill will be introduced on Friday.

According to the bill, an Indian insurance company has been defined in which the aggregate holding of equity shares by a foreign company either by itself or its subsidary companies or its nominees does not exceed 26 per cent of the paid-up capital in such Indian insurance company.

Besides, an aggregate shareholding of equity shares not exceeding 14 per cent of the paid-up share capital in an Indian insurance company may be held by foreign institutional investors, NRIs and OCBs.

These provisions will apply to companies which want to carry out life insurance business, general insurance business or reinsurance business.

The bill outlines the manner of divesting excess shareholding by promoters in certain cases. The promoters will be able to divest in a phased manner the share capital in excess of 26 per cent of the paid-up capital after a period of six years from the date of commencement of business by an Indian insurance company or within such period as may be prescribed by the Central government.

The Insurance Regulatory Authority envisaged under this bill will consist of a chairperson, not more than five whole-time members and and not more than five part-time members, all to be appointed by the Central government.

The tenure of office of the chairperson and every other whole-time members will be five years and are eligible for reappointment. The part-time members will also hold a five-year term. No person will hold office in the authority after attaining the age of 62 years.

The authority will have the duty to regulate, promote and ensure orderly growth of the insurance and reinsurance business. It will protect the interest of policy-holders in matters concerning assigning of policy, nomination by policy-holders, insurable interest and settlement of insurance claims.

It will also regulate investment of funds by insurance companies as well as maintenance of margin of solvency. It will adjudicate disputes between insurers and intermediaries or insurance intermediaries.

The bill also provides for constituting a fund to be called the Insurance Regulatory Authority Fund which will be credited by all government grants, fees and charges received by the authority. This fund will be applied for meeting the salaries and allowances and other renumeration of the members and employees of the authority.

The accounts of the authority will be audited by the Comptroller and Auditor General.

The bill also stipulates the powers of the Central government to supercede the authority and to issue directions. The decision of the Central government whether a question is one of policy matter or not is final.

If at any time the Central government is of the opinion that on account of circumstances beyond the control of the authority, it is unable to discharge the functions or has persistently defaulted in complying with any direction given by the Central government or circumstances exist which render it necessary in public interest, the Central government by a notification can supercede the authority for such a period not exceeding six months as may be specified in the notification. In such a case the government can appoint a person to be the Controller of Insurance.

The bill provides that rules and regulations made under the Insurance Regulatory Act should be laid in Parliament.

An important provision of the bill is that no insurer will directly or indirectly invest outside India the funds of the policy- holders.

The authority after taking into account the nature of business and to protect the interest of policy holders, issue to an insurer the directions relating to the time, manner and other conditions of investment of assets to be held by him.

Under the bill it is proposed to give a statutory character to the Interim Insurance Regulatory Authority by enacting a legislation in this regard and amending Section 30 of the Life Insurance Act of 1956 and Section 24 of the General Insurance Business (Nationalisation) Act 1972 to permit the entry of private Indian companies into the insurance sector and to make certain consequential amendment to the Insurance Act 1938.

Finance Minister Yashwant Sinha in his Budget speech had stated that along with the reforms of the banking sector, it was necessary to move forward with reforms in insurance which has so far been a public sector monopoly.

The government in its statement of objects and reasons says that the bill aims to provide better insurance coverage to the citizens and augment the flow of long-term resources for financing infrastructure. This is the rationale for opening the insurance sector to competition from private Indian companies.

The Insurance Regulatory Authority Bill 1996 for establishment of the authority was referred to the department-related standing committee of the Ministry of Finance. The committee submitted its report on May 9, 1997.

However the bill incorporating these recommendations of the standing committee was taken for consideration but could not be passed and the bill was withdrawn by the United Front government.

Additional reportage by UNI

Business news