LIC may take a call on composite licence clauses after the passage of Insurance Laws (Amendment) Bill in Parliament. As per the proposed Bill, an applicant may apply for registration of one or more classes/sub-classes of insurance business of any category or type of insurer. However, reinsurers are prohibited from seeking registration of any other class of insurance business. A composite licence will allow insurers to undertake general and health insurance via a single entity.
LIC would take a call on composite licence and other issues emanating out of passage of the Bill in a comprehensive manner taking into consideration Life Insurance Corporation Act, 1956. The Bill, with proposed amendments to the Insurance Act 1938 and Insurance Regulatory and Development Authority Act, 1999, is expected to be tabled in Parliament in the upcoming Budget session starting next month.
If the proposal for composite insurance registration is passed, there would be change in solvency margin and capital requirement for these companies.
The proposed amendments suggest that the minimum paid up capital be specified by the Insurance Regulatory and Development Authority of India (IRDAI) considering the size and scale of operations, class or sub-class of insurance business and the category or type of insurer. Currently, solvency ratio is pegged at 150 per cent while paid up capital is Rs 100 crore as per the existing law.
The finance ministry has recently circulated for wider consultation the amendment in insurance law, including reduction in minimum capital requirement, with a view to enhancing insurance penetration, improve0 efficiency, and enable product innovation and diversification.
Insurance penetration in India during 2021-22 was 4.2 per cent, remaining same as in 2020-21. Insurance density in India increased from USD 78 in 2020-21 to USD 91 in 2021-22. The level of insurance density has reported consistent increase from USD 11.5 in 2001-02 to USD 64.4 in the year 2010-11.
The proposed amendments primarily focus on enhancing the promoting policyholders’ interests, improving returns to the policyholders, facilitating entry of more players in insurance market leading to economic growth and employment generation, enhancing efficiencies of the insurance industry – operational as well as financial and enabling ease of doing business.
Presently, there are 24 life insurance companies and 31 non-life or general insurance firms, including specialised players like the Agriculture Insurance Company of India Ltd and ECGC Ltd. Last year, the government brought an amendment in the Insurance Act to allow increasing foreign holding in insurers from 49 per cent to 74 per cent.
Besides, Parliament passed the General Insurance Business (Nationalisation) Amendment Bill, 2021, allowing the central government to pare stake to less than 51 per cent of the equity capital in a specified insurer, paving the way for privatisation.
In 2015, the Insurance Act was amended for raising the foreign investment cap from 26 per cent to 49 per cent. All these amendments since privatisation of the insurance sector have led to exponential growth.
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