Wednesday, December 10, 2014

Insurance 'Make in India'


Insurance bill: Cabinet nod to 49% foreign equity cap

Issuance of fresh equity to raise stake not mandatory
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A much-awaited Bill to raise the composite foreign equity cap in the insurance sector from 26 per cent to 49 per cent is likely to sail through in Parliament this session, following the Cabinet on Wednesday approving amendments to the Bill after the government got support from the in this regard.

The amendments were recommended by a parliamentary select committee, without a dissent note from the main opposition party. The committee, chaired by Bharatiya Janata Party (BJP) member Chandan Mitra, also favoured the issuance of fresh equity for increasing stake, though it didn’t recommend making this mandatory.

“The Cabinet approved the incorporation of amendments suggested by a parliamentary select panel in the Insurance Laws (Amendment) Bill, 2008,” sources said. They added the Rajya Sabha was likely to take up the Bill next week.

The select committee opposed a cut in the minimum paid-up requirement for health insurers from the current Rs 100 crore but suggested such a reduction for cooperatives in insurance segments. It also sought a specific definition of control and ownership in insurance companies be incorporated in the Bill, expected to provide a much-needed boost to the government’s reforms agenda.

The National Democratic Alliance is short of a majority in the Rajya Sabha and requires opposition support for the Bill to be passed. With the backing of the Congress, it is expected the government won’t find it difficult to see the Bill through.

The only dissent against the Bill was from the Left, which is ideologically opposed to foreign direct investment (FDI) in the sector, as well as from the Trinamool Congress, the Janata Dal (United) and the Samajwadi Party.

Replying to a debate on supplementary demand for grants in Parliament, Finance Minister Arun Jaitley said, “We are ready to open the door in insurance sector; large investment is waiting to come.”

Earlier, many were divided over whether the committee would recommend a 49 per cent cap on alone or include foreign portfolio investors as well. “The committee recommends the composite cap of 49 per cent should be inclusive of all forms of foreign direct investment and foreign portfolio investments,” the panel suggested in a report, given to Parliament on Wednesday.

Sanjay Tripathy, senior executive vice-president (marketing, product, digital and e-commerce), HDFC Life, said insurers would wait for the finer details of the Bill before taking any decision. He added smaller insurance players could see more investment from foreign partners, as these entities were in need of capital.

Tarun Chugh, managing director and chief executive, PNB MetLife, said, “At this stage, the sector needed long-term capital for growth and expansion, and this was possible only through FDI. Not only does FDI bring in capital and foreign exchange immediately into the economy, it also enables companies to invest further in managerial ability, technical knowledge, administrative organisation, and innovations in products and processes.”

Through a press note earlier this year, the government had included foreign institutional investors (FIIs) in the 26 per cent foreign equity cap in the insurance sector. The category of foreign portfolio investors includes FIIs.

The norms regulating listing of insurance firms are stringent and foreign portfolio investors can come into the sector only if these firms go public. Deepak Mittal, chief executive of Edelweiss Tokio Life Insurance Company, said large players in the sector were interested to increase stake to 49 per cent, adding activity in the initial public offering  segment would begin only after players decided whether they required FDI, foreign institutional investment or both.

Rajesh Sud, chief executive and managing director, Max Life Insurance, said, “The select committee’s recommendations on the Insurance Amendment Bill, tabled in Rajya Sabha on Wednesday, is a welcome development and concludes a long-standing debate. It also indicates the Centre is acting quickly on important policy decisions. The recommendation on the increase in foreign capital to 49 per cent through foreign investors, including FDI and portfolio investors, will open capital coming into the country. Depending on each company’s stage of development and capital requirement, it will now have multiple options available. For some of the more established players, it opens up the possibilities of IPOs, as well as capital for acquisitions, which will allow consolidation in the sector.”

A senior executive from the sector said, “Some large players are interested in an IPO. However, several factors such as FIPB (Foreign Investment Promotion Board) approval or automatic approval, apart from clarity in Indian management control, will be sought before taking a decision.”

Amid a debate on whether equity should be raised only through issuance of fresh shares, the committee said, “Incremental equity should ideally be used for expansion of capital base so as to actually strengthen the insurance sector.” As such, it didn’t make fresh equity mandatory for raising the cap, but said this was the ideal route.

One of the arguments of the dissent notes — by P Rajeeve (Communist Party of India-Marxist), Derek O’Brien (‘Trinamool Congress), Ram Gopal Yadav (Samajwadi Party) and K C Tyagi (Janata Dal United) — was Indian companies would dilute their stake in favour of foreign investment, which wouldn’t increase the capital base of these companies. “There is widespread apprehension that the proposed increase in FDI will allow Indian entities to liquidate a portion of their stake and earn profits that would be several multiples of their original investment, without any fresh capital flowing into the insurance sector,” O’Brien said.

Earlier, there was speculation the committee might recommend a cut in the minimum paid-up capital requirement in the health insurance segment. However, it suggested retaining the requirement at Rs 100 crore, on a par with other insurance segments, saying any reduction “would encourage non-serious players to enter the field”.

The panel, however, recommended slashing this requirement for cooperatives so that these entities could access a market segment that hasn’t been accessed by large insurance companies.

For retaining ‘control’ and ‘ownership’ in Indian companies, the panel favoured including their definitions in the Bill. “The term ‘control’ shall include the right to appoint majority of the directors or to control the management or policy decisions, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements,” it said.

  • Retain minimum paid-up capital requirements of health insurance companies at Rs 100 crore
  • Include definition of ownership and control in the Bill
  • Govt should amend the General Insurance Business (Nationalisation) Act to allow public general insurers to raise money from markets
  • Penalties on insurance companies to be linked to seriousness of offences committed by agents
  • Irda should mull allowing multiple corporate agents in insurance

Insurance in India

From Wikipedia, the free encyclopedia
Insurance in India refers to the market for insurance in India which covers both the public and private sector organisations. It is listed in the Constitution of India on the in the Seventh Schedule meaning it can only be legislated by the central government.
The insurance sector has gone through a number of phases by allowing private companies to solicit insurance and also allowing foreign direct investment. India allowed private companies in insurance sector in 2000, setting a limit on FDI to 26%, which was increased to 49% in 2014.[1] However, the largest life-insurance company in India, Life Insurance Corporation of India is still owned by the government and carries a sovereign guarantee for all insurance policies issued by it.[2]


In India, insurance has a deep-rooted history. Insurance in various forms has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya (Arthashastra). The fundamental basis of the historical reference to insurance in these ancient Indian texts is the same i.e. pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. The early references to Insurance in these texts have reference to marine trade loans and carriers' contracts.
Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance Company[3] was started by Anita Bhavsar in Kolkata to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer.
At the dawn of the twentieth century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by an actuary. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company , which was founded in 1906, and is still in business.
The Government of India issued an Ordinance on 19 January 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1 January 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on 1 January 1973.
The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation of India, GIC). GIC had four subsidiary companies. With effect from December 2000, these subsidiaries have been de-linked from the parent company and were set up as independent insurance companies: Oriental Insurance Company Limited, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited.

Industry structure

By 2012 Indian Insurance is a US$72 billion industry. However, only two million people (0.2% of the total population of 1 billion) are covered under Mediclaim, whereas in developed nations like USA about 75% of the total population are covered under some insurance scheme. With more and more private companies in the sector, this situation is expected to change. ECGC, ESIC and AIC provide insurance services for niche markets. So, their scope is limited by legislation but enjoy some special powers.

Insurance Repository

On 16th September 2013, IRDA launched 'Insurance Repository' services in India. It is a unique concept and first to be introduced in India. This system enables policy holders to buy and keep insurance policies in dematerialized or electronic form. Policy holders can hold all his insurance policies in an electronic format in a single account called electronic insurance account (eIA). Insurance Regulatory and Development Authority has issued licenses to five entities to act as Insurance Repository:
NSDL Database Management Limited, Central Insurance Repository Limited ( CIRL ), SHCIL Projects Limited, Karvy Insurance repository Limited, CAMS Repository Services Limited

Legal structure

The insurance sector went through a full circle of phases from being unregulated to completely regulated and then currently being partly deregulated. It is governed by a number of acts.
The Insurance Act of 1938[4] was the first legislation governing all forms of insurance to provide strict state control over insurance business.Life insurance in India was completely nationalized on 19 January 1956, through the Life Insurance Corporation Act. All 245 insurance companies operating then in the country were merged into one entity, the Life Insurance Corporation of India.
The General Insurance Business Act of 1972 was enacted to nationalise the about 100 general insurance companies then and subsequently merging them into four companies. All the companies were amalgamated into National Insurance, New India Assurance, Oriental Insurance and United India Insurance, which were headquartered in each of the four metropolitan cities.Until 1999, there were no private insurance companies in India. The government then introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector and allowing private companies. Furthermore, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies.
In 2006, the Actuaries Act was passed by parliament to give the profession statutory status on par with Chartered Accountants, Notaries, Cost & Works Accountants, Advocates, Architects and Company Secretaries.A minimum capital of US$80 million(Rs.400 Crore) is required by legislation to set up an insurance business.


The primary regulator for insurance in India is the Insurance Regulatory and Development Authority (IRDA) which was established in 1999 under the government legislation called the Insurance Regulatory and Development Authority Act, 1999.[5][6]
The industry recognises examinations conducted by IAI (for actuaries), III (for agents, brokers and third-party administrators) and IIISLA (for surveyors and loss assessors). TAC is the sole data repository for the non-life industry. IBAI gives voice for brokers while GI Council and LI Council are platforms for insurers. AIGIEA, AIIEA, AIIEF, AILICEF, AILIEA, FLICOA, GIEAIA, GIEU and NFIFWI cater to the employees of the insurers. In addition, there are a dozen Ombudsman offices to address client grievances.

Insurance education

A number of institutions provide specialist education for the insurance industry, these include;
  • National Insurance Academy, Pune, specialized in teaching, conducting research and providing consulting services in the insurance sector. NIA offers a two year PGDM program in insurance. NIA was founded as Ministry of Finance initiative with capital support from the then public insurance companies, both Life (LIC) and Non-Life (GIC, National, Oriental, United & New India).
  • Institute of Insurance and Risk Management, Hyderabad, was established by the regulator IRDA. The institute offers Postgraduate diploma in Life, General Insurance, Risk Management and Actuarial Sciences. The institute is a global learning and research center in insurance, risk management, actuarial sciences. They provide consulting services for the financial industry.
  • Amity School of Insurance Banking and Actuarial science (ASIBAS) of Amity University, located in Noida and established in 2000, offers MBA programs in Insurance, Insurance and Banking, and M.Sc./B.Sc. actuarial sciences to a Post Graduate Diploma in Actuarial Sciences.
  • Pondicherry University is offering mba in insurance management. Pondicherry university is the only central university which offers insurance management in India.
  • Birla Institute of Management Technology is a graduate business school located in Greater Noida, established in 1988, offers a PGDM-IBM program in insurance business management. This program was launched in 2000 by the Centre for Insurance and Risk Management and is accredited by the Insurance Regulatory and Development Authority. Life Office Management Association (LOMA), USA is BIMTECH's educational partner and BIMTECH is an approved centre for LOMA examination. The Chartered Insurance Institute (CII), UK has accorded recognition (by way of credits) to the BIMTECH PGDM-IBM program. Their two year PGDM program in insurance business has been recognized as equivalent to the Associate level of the Insurance Institute of India, Mumbai.
  • NLU, Jodhpur, offers a two year MBA and one year MS (for engineering graduates) program in insurance.
IRDA controls all the Insurance business in India. They set up the structure and boundaries for the insurance companies to act within. Starting from licensing to approving the products, IRDA directs the companies in India. They also protect customer interests in the country.
To become an insurance advisor in India insurance act 1938 mandates that the individual has to be "a Major with sound mind". After the advent of IRDA as Insurance Regulator it has framed various regulations viz training hours, examination and fees which are amended from time to time. Since November 2011 IRDA the Insurance Regulator in India has introduced a syllabus (IC-33) conceived and developed by CII, London. The syllabus mainly aims to make an Insurance Agent a financial professional. But almost all insurers are facing tough times making the candidates pass the examination which has become relatively tough.

See also


  1. "FDI Limit in Insurance sector increased from 26% to 49%". IANS. Retrieved 10 July 2014.
  2. [1], Sovereign guarantee for all policies issued by LIC will continue.
  3. The Oriental Insurance Company Ltd was incorporated at Bombay on 12 September 1947 ""
  4. here
  5. GOI. "IRDA ACT 1999". GOI. Retrieved 19 June 2012.
  6. GOI. "IRDA ACT 1999". Department of Financial Services, GOI. Retrieved 19 June 2012.

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