Union Budget 2024: Alterations to be Suggested in The Insurance Bill 1938
In order to achieve ‘Insurance for All by 2047’ the Government will most likely introduce a bill in the upcoming Union Budget seeking amendments to the Insurance Act, 1938.
According to the press release done by Press Trust of India (PTI), the provisions that are expected to be part of the bill are related to composite licence, differential capitals, reduction in solvency norms, issuance of captive licence, change in investment regulations, one time registration for intermediaries, and allowing insurers to distribute other financial products according to PTI’s sources. [1]
This move is expected to majorly help the banking sector and will enable new entrants to explore the market.
Proposed 7 Key Amendments Explained
We have tried to capture the essence and meaning of these 7 key amendments below for your understanding.
- Composite Licence: As per the Insurance Act of 1938, General Insurance providers are permitted to sell non-life insurance like health, auto, fire and marine insurance, and life insurance providers can only offer life insurance products. One insurance company is not allowed to offer both life and non-life insurance products under one umbrella or as a single entity. This is prohibited by the Insurance Regulatory and Development Authority of India (IRDAI).
In the proposed will, the suggestion will be made to introduce composite licencing which will permit insurance providers to give both life as well as non-life insurance.
- Differential Capital: Irrespective of how big or small a firm is, same capital requirements are imposed on all under the current Insurance Laws. The proposed measures is going to recommend the introduction of differential capital norms to ensure that insurers are able to distribute their capital on the basis of company size and area of expertise.
- Reduction in Solvency Norms: Solvency amount is the additional capital an insurer is asked to keep over and above the claim amount that they have to settle. These existing laws require companies to have this solvency amount or margin to guarantee future payment capacities. The proposal will be recommending to lower these solvency ratios in order to promote greater market competition and helping new entrants to join the insurance sector with possibly lesser financial hiccups.
- Issuance of Captive Licences: If this amendment gets a go ahead, larger industries will be able to create their own insurance companies by issuance of captive licences. This will allow the companies to manage their employees’ life insurance on their own based on their specific requirements.
- Changes in Investment Regulations: In order to make investment norms more flexible and efficient, the amendment proposes to shift responsibilities of setting up investment criteria and restrictions from the Insurance Act to the Insurance Regulatory and Development Authority of India (IRDAI). Additionally, in order to allow share transactions, the Act will also increase the minimum paid up equity capital requirement to 5% from initial 1% for IRDAI. This will help simplify the investment process for smaller investors and encourage more market participation.
- One Time Registration Intermediaries: In order to simplify the process for new insurance intermediary entrants and to reduce administrative burdens, the amendment bill is planning to propose a one time registration process. These intermediaries will only need to register once and pay an annual fee set by IRDAI under the Amendment Act. The major difference will come in on the validity timeline of this registration process where the current timeline is of 3 years while the new recommendation is for indefinite validity.
- Insurers Can Distribute Other Financial Products: If the bill gets passed during the Union Budget proposed to begin from July 22nd 2024 till August 12th 2024, it will then be possible for insurance companies to distribute other financial goods. This will help them expand their range of services offered and add more financial solutions under one umbrella.
Read the key highlights of Interim Budget 2024 here
Some Advantages of the Proposed New Insurance Amendment Bill
- They may increase policyholder’s returns and provide better protection to the customers
- These amendments will make new entrants get into the insurance market easily
- Changes in increased efficiency will be able to contribute in economic growth and job creation within the Indian insurance sector
- These amendments will help in simplifying business operations thereby attracting more companies (Indian and foreign) to enter the insurance sector
- These amendments will also ensure current companies get the freedom to choose the type of life insurance they require based on their employees’ specific needs
- Insurers will be able to distribute more financial products as compared to the current scenario where the restrictions are high.
References:
https://www.ptinews.com/story/business/govt-may-introduce-insurance-laws-amendment-bill-in-budget-session/1655191
