Changes in General Insurance Business Bill: RSTV - Big Picture

Rajya Sabha TV's programs and discussions provide valuable insights and information, particularly concerning UPSC perspectives. This article delves into the RSTV Big Picture debate on the Changes in the General Insurance Business Bill. The focal point of the discussion centered around the recent passage of The General Insurance Business (Nationalisation) Amendment Bill, 2021, by the Lok Sabha. The objective of this bill is to amend the General Insurance Business (Nationalisation) Act, 1972, which was initially enacted to nationalize all private companies engaged in general insurance business in India.

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https://youtu.be/V7bxosINH14?feature=shared

Overview:

The recently sanctioned General Insurance Business (Nationalisation) Amendment Bill, 2021 by the Lok Sabha marks a significant milestone in reshaping the landscape of India's insurance sector. This legislative move seeks to introduce pivotal changes to the existing General Insurance Business (Nationalisation) Act of 1972, which was originally enacted to nationalize private companies engaged in general insurance business within the country.

Aims of the Bill:

The multifaceted objectives of the bill encompass a spectrum of strategic goals:

• Enhancing private participation within the public sector companies governed by the 1972 Act.
• Elevating insurance penetration levels and fortifying social protection mechanisms.
• Safeguarding the interests of policyholders through a more dynamic regulatory framework.
• Catalyzing accelerated economic growth through a revamped insurance sector.

The General Insurance Business (Nationalisation) Amendment Bill, 2021 proposes a significant departure from the erstwhile requirement mandating the central government to maintain a minimum equity capital holding of 51 percent in specified insurers. In addition to this pivotal change, the bill sets out to redefine the scope of general insurance business, streamline the transfer of control from the government, and articulate the liabilities of directors in a more nuanced manner.

Understanding the General Insurance Business (Nationalization) Act, 1972:

The foundation of the insurance sector's evolution in India rests upon the General Insurance Business (Nationalisation) Act of 1972. This legislative framework facilitated the acquisition and seamless transfer of shares of Indian insurance firms, propelling the development of the general insurance business. Subsequent amendments in 2002 mandated the transfer and vesting of shares of acquiring companies with the central government, obliging it to maintain a controlling stake of at least 51 percent in general insurance companies.

About General Insurance Business:

The transformative impact of the General Insurance Business (Nationalisation) Act, 1972 (GIBNA) led to the comprehensive nationalization of the entire general insurance business in India. The establishment of the General Insurance Corporation (GIC) became the cornerstone, overseeing, controlling, and conducting the business of general insurance. Following a series of mergers, four subsidiaries of GIC emerged: National Insurance Company Limited, The New India Assurance Company Limited, The Oriental Insurance Company Limited, and United India Insurance Company Limited.

The 2021 Bill's Proposed Amendments:

• Lowering of government shareholding threshold:
  • The Bill abolishes the stipulation mandating the central government to maintain a minimum of 51 percent shareholding in specified insurers.
  • A clear intent to privatize insurance companies is evident, leading to a reduction in government control.
• Change in the definition of General Insurance Business:
  • The Bill introduces a fundamental shift by replacing the Act's definition with that provided by the Insurance Act, 1938, thereby eliminating specific categorizations.
• Transfer of control from the government:
  • The Act's application to specified insurers ceases once the central government relinquishes control.
  • Control, in this context, encompasses the power to appoint a majority of directors and influence management or policy decisions.
• Liabilities of directors:
  • Directors not serving full-time roles will be held liable only for specific acts committed with knowledge, consent, or negligence.

Advantages of the Bill:

The strategic advantages envisaged by the bill are far-reaching:

• Attracting private capital infusion into the general insurance business.
• Gradual reduction of the government's stake in state-owned general insurance companies.
• Mobilization of critical financial resources for sectoral growth.
• Empowering public sector general insurers to innovate and offer a diverse range of products and services.
• Contributing to India's increased share in the global insurance market.
• Aligning with the government's broader disinvestment target for the current fiscal year.

Disadvantages of the Bill:

Opposition concerns have surfaced, primarily focused on:

• Apprehensions regarding potential complete privatization and concentrated ownership.
• Fears of diminishing public trust in insurance due to increased private sector influence.
• Counterarguments suggesting the well-regulated nature of the insurance sector and the safeguarding of consumer interests even in the event of privatization.
• Acknowledgement that the government may incur financial losses in the form of reduced dividends as its share in the general insurance business diminishes.

The Insurance Sector in India:

The Indian insurance sector is categorized into life insurance and non-life insurance (or general insurance). Oversight of both segments is provided by the Insurance Regulatory and Development Authority of India (IRDAI).

The capital-intensive nature of the insurance business necessitates substantial investment, and the funds for this can be derived either through public funding or public investment. Therefore, the recent bill not only seeks to attract private investment but also aims to elevate insurance density in the country.

Conclusion

The immediate imperative is a concerted effort to deepen insurance penetration across India. The amendment represents a positive stride in this direction, but the onus now lies on the private sector to build and reinforce trust among the populace. Public faith in public sector insurance companies remains robust, and the private sector must underscore transparency and regulatory adherence to bridge this trust deficit. As the insurance landscape evolves, the industry must navigate toward a more inclusive and dynamic future.

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