The long-pending Insurance bill, a key economic reform legislation providing for raising foreign investment cap to 49 per cent, was on Wednesday passed by Lok Sabha with the government insisting that the measure is crucial for expanding the penetration of insurance in the country.
The controversial Insurance Laws (Amendment) Bill, which seeks to replace an ordinance, also provides for imprisonment of up to 10 years for selling policies without registration with the regulator IRDA.
The proposed legislation will also allow PSU general insurers to raise funds from the capital market and provides for increased penalty to deter multilevel marketing of insurance products.
The bill, one of the key reform legislations, has been pending since 2008.
Justifying the decision to raise the cap from 26 per cent, Minister of State for Finance Jayant Sinha said the country needs this as “our insurance penetration is low”.
Responding to concerns expressed by members about the fate of the poor, he said the measure takes care of the interests of even the poor.
“...we brought important important safeguards that will protect full interest of people (insured),” he said.
For the poor, the minister said the government is bringing many different policies.
He said more and more FDI is required in the sector to provide more coverage to people of India.
Responding to questions posed by members, the Minister noted that in the banking sector, the FDI cap was 74 per cent and wondered why it cannot be increased in insurance sector.
Sinha cited the case of China and a number of other countries, saying they allow higher foreign investment in insurance. “We are well within our global benchmarks,” he said.
His reply was marked by a spat after he made certain comments which were strongly objected to by oppostion members.
The matter settled only after he expressed an apology and said he had not intention to “disrespect anyone” but was “just pointing out factual errors”.
Though the bill cleared the Lok Sabha hurdle with ease, the government will face a tough task in getting it passed by the Rajya Sabha where it is in minority.
The insurance bill, introduced in Rajya Sabha in 2008, is already pending in that House. When it was introduced in Lok Sabha yesterday, Left and TMC members resisted, contending that the House has no legislative competence as similar bill is pending in the RS.
A bid to withdraw it from the Upper House last week was scuttled by opposition.
The Bill seeks to raise foreign investment limit in the sector from 26 per cent to 49 per cent. While up to 26 per cent will be under the automatic route, the remaining would be cleared through the FIPB.
“The proposed amendments are aimed at bringing about improvements and revisions in the laws relating to insurance business in India to remove archaic provisions and incorporate modern day practices emerging in a changing dynamic environment, which includes private participation,” says the Statement of Objects and Reasons of the Bill.
Under the new provisions, the Life Insurance Council and the General Insurance Council would act as self-regulating bodies for the sector.
Under the proposed law, an insurer will be prohibited from challenging the life insurance policy on any ground after a period of three years of selling it.
It also allows insurers to raise capital through new instruments and do away with the restrictions on divestment of stake by Indian promoters of the joint venture.
The Bill seeks to put a minimum capital requirement for health insurers at Rs 100 crore.