In a surprising development, The Insurance Bill, 2023,’ drafted by the department of financial services(DFS) and now may be ready to be presented in the monsoon session of the Parliament, has no mention of any proposals relating to much talked about new systems like composite license’, differential capital’, reduction in solvency norms', `captive license',`change in investment regulations’, one-time registration for intermediaries’ and allowing insurers to distribute other financial products’
Sources from a shocked insurance industry said they will now consult with the IRDAI about the new development and represent the government to revive the reform proposals
New Delhi:
Disappointing the Indian insurance industry, prospective new players and the insurance regulator IRDAI, the government has dropped all its immediate ongoing plans to effect any major changes, proposed by it earlier, in the various existing Insurance Acts, for pushing faster and higher penetration.
In a surprising development, `The Insurance Bill, 2023,’ newly drafted by the department of financial services(DFS) and now may be getting ready to be presented in the Parliament during its monsoon session, has no mention of any major proposals relating to much talked about new proposed systems like composite license',`differential capital', `reduction in solvency norms',`captive license', `change in investment regulations,`one-time registration for intermediaries’ and `allowing insurers to distribute other financial products’.
The monsoon session of the Parliament will be held during 20th July-August 11.
“The purpose of `The Insurance Bill, 2023,’ is to consolidate and amend the law relating to the business of insurance and will be enacted by the Parliament in the 73rd years of the Republic of India,” said the preamble of the draft bill.
The primary aim of drafting `The Insurance Bill, 2023,’ is much narrower now and it will just focus on changing `The Insurance Act 1938‘ by updating and simplifying some of its provisions, said the ministry sources.
Orginally, back on 29th Nov, 2022, with a much broader objectives of brining about much deeper and sharper reforms in the sector by enacting Insurance Laws(Amendment) Act, 2022, DFS had invited public comments on proposed amendments to the Insurance Act,1938' and `Insurance Regulatory and Development Authority Act, 1999,’ which have been now put on back burner by it.
Now, DFS has completely excluded amending the `Insurance Regulatory and Development Authority Act, 1999′, within the ambit of `The Insurance Bill, 2023,” that would have led to the sweeping reforms in the sector.
Some of the proposals included in Insurance Laws(Amendment) Act, 2022 were for opening up registration to various classes, sub-classes and types of insurers with appropriate minimum capital requirements as specified by the IRDAI, allowing services to insurers that are incidental or related to insurance business as well as distribution of other financial products as specified by IRDAI, enabling newer channels of distribution, providing for efficient use of capital and resources,etc.
However, sources from a shocked insurance industry said they will now consult with the IRDAI about this sudden new development and represent the government to revive the reform proposals.
“We don’t know, what went wrong in New Delhi in the last minute. Now, our efforts will be to revive it after consulting IRDAI. How soon it can be revived, it can’t be told now,” industry sources said.
“It is disappointing to note that that the much awaited reforms have again been postponed thereby pushing the Industry on a back foot. The intermediaries demand of perpetual license which will help in business continuity and allow more capital to flow in THE Broking business will hit a roadblock,” reacted Sumit Bohra, president of Insurance Brokers Association of India(IBAI).
Though, it is not clear as to why the government has suddenly completely refrained from unveiling such big-ticket reforms after going public on it, while preparing the “The Insurance Bill, 2023,’’ analysts speculate on various scenarios including the fact that politically timing may not be right to usher in such radical reforms in the sector during the last year of the Prime Minister Narendra Modi government and they may be implemented afterwards if BJP led National Democratic Alliance(NDA) is voted back to power after June 2024.
This is in line with the overall policy shift of the Modi government which earlier didn’t go ahead with its agenda to privatise more PSU banks in 2023-24 and initiating any move to privatise a PSU general insurer.
Some observers even point out that the government may have gone by the experts advising not to tinker with some of the basic features of the existing Acts, Insurance Act 1938 and Insurance Regulatory and Development Authority Act, 1999, so elaborately and so fast, which have been responsible for an `orderly and stable growth’ of the industry over the decades though deficit on penetration.
The Insurance Bill, 2023’’, which has proposed some minor amendments in the Insurance Act 1938' is now a much simple affair of 140 pages and is expected to be tabled in the Parliament in the upcoming monsoon session, DFS sources said.
In November 2022, asking for public comments on old proposals, DFS had said in view of the changing needs of the insurance sector, a comprehensive review of the legislative framework governing the sector has been done in consultation with IRDAI and the industry.
The earlier proposed amendments primarily focussed on enhancing the financial security of the policyholders, promoting policyholders’ interests, improving returns to the policyholders, facilitating entry of more players in insurance market leading to economic growth and employment generation, enhancing efficiencies of the insurance industry operational as well as financial and enabling ease of doing business, DFS had explained.
Presently, the minimum paid up equity share capital required to carry on any class of insurance business and reinsurance business in India is Rs.100 crores and Rs.200 crores, respectively. The shelved Draft Bill had proposed to remove the minimum capital requirements and specifies that the determination of minimum paid-up equity capital will be in accordance with the regulations specified by the IRDAI considering the “size and scale of operations, class or sub-class of insurance business and the category or type of insurer”.
Currently, the solvency margin of any insurer is at 150 per cent. The earlier Draft Bill had proposed to allow the IRDAI to set different solvency margins for different Insurers, based on the classes and sub-classes of insurance business carried on by them.
Presently, the Insurance Act specifies that the registration of an insurance intermediary shall be valid only for a period of three years from the date of registration, and that an application for renewal for another period of three years shall be made at least 30 days before expiry of such registration.
The earlier draft Bill had proposed to replace the above provision and stated that a registration would remain in force on payment of the annual fee specified “until such registration is suspended or cancelled in accordance with the regulations”.
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Better, major changes are dropped. It would have resulted in turmoil in Insurance Industry because so many cooks spoil the broth.
Insurance marketing is in a very critical situation. Government and Insurance management should increase bonus rate of policy holder’s. Otherwise new customer will not be attracted to buy endowment life policy of LIC.
Endowment policy is the backbone for LIC and it’s agents’
There may be some political compulsion on present Government to defer the proposed reforms but it is a fact that few of them were too early to be implemented in Indian market and few were undesirable. Let there be some review and thought process go into this instead of pushing it too early.
Atlast the opposition of the Employees and Pensioners to the Amendments which are going to destroy the Insurance Industry and encourage “fly by night” operators succeeded.
Indian Insurance industry is yet to enter into a mature phase. It needs more security and expansion of market. Not only that IRDAI itself needs to mature before it takes any measures for the market, it is also influenced by other regulators and LIC.
A mechanism which can drive market and insurer both simultaneously with utmost security needs to be developed. Market is growing undoubtedly almost every year , one step ahead in right direction can enhance growth for next decade and attract FDI in next 3 years to fuel expansion to the full throttle.
Efficiency and functioning of other Insurance related institutions may need to be fine tuned and audited in random and at regular intervals.
Already in mature state. Wise not to push for volatile , uncertain and unstabe Financial services
That’s good that the DFS has not carried out the reforms to the extent the IRDAI has proposed or was ready to be passed as law. Lowering the qualifying conditions of insurers meant to lower the standard of the sector.
It is very matured policy decision government.Insurance industry needs to be more matured.IRDAI needs to study practicality of things at grassroot level before making decisions as it is now making.
one-time registration for intermediaries is must and should be done as it is breeding corruption.
Drastic changes proposed by IRDAI would have put Intermediaries out of regulatory overview leading to chaos like situation.
Present rules, regulations and Acts have enabled the industry to grow on sound footing. Changes in basic structure like Solvency margin and investment norms would have weakened security to policyholders and created situation like avoidance of GST, repotedly to the tune of Rs.60000 crores, by unethical practices. It is better to wait and watch before proposing changes.
For intermediaries, one time registration without upgradation of skills and examining distribution process and committing a huge pay out would lead to non professionalism in the industry and misselling.
Very pleased and relieved that better sense has prevailed amongst Government, DFS and IRDAI in postponing drastic changes in Insurance Act.
Instead Government, DFS and IRDAI must focus on increasing the efficiency of insurance companies and cutting down their wasteful expenditures by enhancing more professionalism among admin staff.
Insurers must be more and more customers centric by increasing Bonus Rates and reducing Premiums wherever and whatever is possible.
Government of India must withdraw GST on all kinds of insurance premium upto Rs 1,50,000 annually per individual to increase penetration of insurance and providing all kinds of insurance cover to maximum possible public. Government, DFS and insurer like LIC and old insurance companies must ensure thorough discussion with genuine representatives of Insurance Federation and professional Club Member Agents to have first hand genuine feedback and suggestions required for changes before implementing them because professional agents know the best being the frontline financial warriors.
Customer centric changes are always welcome.