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Insurers see slim chance of getting House nod for FDI in 2014

FDI hike in insurance is not UPA 2's radar

M Saraswathy Mumbai
Last Updated : Feb 04 2014 | 1:38 AM IST
The insurance Bill is unlikely to be passed in the Parliament session starting this week - the last session before the general elections - insurance executives said.

“The expectations of the Bill being passed are low,” said Amitabh Chaudhry, managing director and CEO of HDFC Life. A senior life insurance executive said with a possible change in government after the elections, the incoming parties would also look at people-centric reforms first in 2014. "Insurance FDI, if at all comes to the Parliament, will only come by 2015," the official said.

The United Progressive Alliance (UPA) government has said its priority is to pass the anti-corruption Bills that are pending in Parliament. The insurance Bill that seeks to increase the foreign direct investment (FDI) in the sector from 26 per cent to 49 per cent is not on the government’s radar at present.

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KEY HIGHLIGHTS OF THE INSURANCE BILL
  • Hike in Foreign Direct Investment (FDI) in insurance from 26% to 49%
  • No policy would be called in question on ground of misstatement after three years. This would mean that companies cannot call into question any policy after the three year deadline for any act of commission or commission committed by consumer
  • Motor Vehicle Insurance and Compensation Legislation is being proposed for obligatory underwriting of third party risk. The maximum liability for third party claims to be limited and time deadline for filing third party claims to be clarified
  • Minimum capital requirement for health insurance set at Rs 50 crore as against Rs 100 crore for general insurance companies  
  • IRDA empowered to take action against agents to protect policy-holders interests

Ananthanarayanan, managing director and CEO of Bharti AXA General Insurance, said that earlier they were hopeful of the Bill being passed. But now, if it does not happen, the current state of the economy will continue.

The CEO of a private general insurance company said this decision does not come as a shock since when there were opportunities earlier for it to be passed, the government did not pass it.

This would have been a welcome change for an industry that needs a capital infusion of more than $12 billion in the next five years, he added. “However, it is clear that this not the government’s priority, since they are gearing up for the upcoming elections. Passage of Insurance FDI would not be a game-changer for the vote bank, hence they do not see it as a priority.”

When the insurance Bill was first introduced in Parliament in 2008, it faced huge opposition because of the FDI proposal. There were various routes proposed, including models like 23 per cent through foreign institutional investor (FII) route and 26 per cent through FDI. However, Parliament was unable to arrive at a consensus.

The UPA government had also looked at hiking FDI in insurance to 49 per cent, without any increase in voting rights. This, however, was not accepted by the other parties.

Forty-nine per cent FDI for insurance and pension was mooted when Pranab Mukherjee was the finance minister, but the decision to approve the proposal was deferred by the Cabinet.

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First Published: Feb 04 2014 | 12:47 AM IST

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