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The Finance Ministry has not shelved its earlier planned set of Big Bang insurance reforms including introduction of “composite insurance licence”, captive insurers and differential minimum capital requirements, a top official said.
These insurance reforms including composite licence are very much on the table and may be introduced at an appropriate time this year, Vivek Joshi, Secretary, Department of Financial Services in Finance Ministry, told businessline in an interview. Joshi, however, noted no exact timeline can be given on this front.
He was responding to a query on status of the big reforms on the insurance sector that the Finance Ministry had contemplated in the year 2022.
Infact, DFS had exposed for public and stakeholder comments a set of proposed amendments for both IRDAI Act and Insurance Act and received slew of suggestions by December 15, 2022, which was the last date for sending in feedback.
The proposed amendments to these two laws are part of the Centre and IRDAI’s overall efforts to enhance insurance penetration, encourage product innovation and diversification so as to achieve the goal of ‘insurance for all’ by 2047.
Since it has been over a year after the stakeholder views had been received, there is now lot of heightened discussion in industry circles and among the public on when the government intends to implement these reforms through amendments to the Insurance Act 1938 and IRDAI Act.
With India slated to go in for general elections in the next few months, it js unlikely these reforms will see light of the day till the polls are completed and a new government comes into office (although there is high expectation of current dispensation returning back for third term), an industry observer noted.
Besides introduction of concept of “composite insurance licence” and captive insurers, the reforms proposed in 2022 include allowing insurers to distribute other financial products as specified by IRDAI and allowing services to insurers that are incidental or related to insurance business.
Proposed reforms
The proposed reforms, especially having differentiated capital requirements, is expected to facilitate entry of more players in insurance market leading to economic growth and employment generation and enabling ease of doing business.
The last major amendment to the Insurance Act happened in February 2021 when the government hiked the foreign direct investment (FDI) limit to 74 percent from 49 percent earlier.
The IRDAI does not allow composite licensing for insurance companies, which means that an insurance company cannot offer both life and non-life insurance products under one entity.
The Standing Committee on Finance headed by BJP MP Jayant Sinha has in its latest report on insurance sector (tabled in Parliament on Tuesday) recommended that government must introduce a provision for composite licensing for insurance companies and make the related amendment in legislation at the earliest.
The government should hold deliberations with stakeholders to find solutions to the issues that need to be resolved, such as capital and solvency requirements for the composite insurers, as they have to deal with different risks and returns from different types of insurance. Also, the accounting and reporting standards for the composite insurers have to be prescribed, the Parliamentary Panel said.
According to a Swiss Re Group report - in 2021, insurance penetration was 4.2 percent in India, while the global average was 7 percent. Similarly, insurance density was $91 in India, while the global average was $874.
Life insurance
Moreover, the Indian insurance sector is heavily tilted towards the life insurance segment that has a share of 76 per cent. Globally, the share of life insurance business in total premium was 43.7 per cent and the share of non-life insurance premium was 56.3 per cent in 2021.
The Insurance Act, 1938 serves as the principal Act to provide the legislative framework for insurance in India. It provides the framework for the functioning of insurance businesses and regulates the relationship between an insurer, its policyholders, its shareholders, and the regulator, the Insurance Regulatory and Development Authority of India.
In India, as per the provisions of the Insurance Act, 1938, life insurers can only offer life insurance products, while general insurers can offer non-life insurance products, such as health, motor, fire, marine, etc.
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