NDA's insurance Bill not much different from UPA version

There are hardly any changes in the Bill for the Select Committee to peruse

The National Democratic Alliance (NDA) government's Insurance Laws (Amendment) Bill, 2014, stalled by the Opposition demanding it be referred to a Parliamentary select committee, is almost a replica of the Bill cleared by the United Progressive Alliance (UPA) government last year.

A closer look reveals finance minister Arun Jaitley's Bill is different from predecessor P Chidambaram's Bill mainly on two counts. First, it explicitly says the foreign investment of up to 49 per cent will include foreign portfolio investors and that the insurance company should be Indian-owned and controlled.

The Bill tabled in the Rajya Sabha in 2008 merely stated that shareholding by a foreign company (direct and indirect) should not exceed 49 per cent. The amendments proposed in 2013 retained this.

INSURANCE BILL
Two key differences between Jaitley's & Chidambaram's Bills

INSURANCE LAWS (AMENDMENT) BILL, 2013

• Foreign shareholding (direct and indirect) should not exceed 49%
• A life insurance policy may be called in question within five years if there is suppression or misstatement of facts

INSURANCE LAWS INSURANCE LAWS

• Shareholding of foreign investors (including FIIs) should not exceed 49%
• A life insurance policy may be called in question within 3 years on any ground including misstatement of facts

The second difference in Jaitley's Bill is a minor amendment to state that a life insurance policy cannot be called in question by the insured on any ground, including mis-statement of facts, after three years.

While in the case of fraud, Chidambaram's Bill had also changed the time period to three years from five years, it had left the time period for mis-statement of facts untouched at five years.

"There are no major differences between the two Bills. Some minor changes were made, but most of those were technical in nature and did not lead to a shift in policy stance," said a finance ministry official, who did not wish to be identified. According to the official, it is mainly a political issue now.

The Opposition's demand is that the Bill be referred to a select committee so that it can go through the changes and that the Bill can be taken up in the winter session of Parliament.

The government thinks it is a ploy to delay the Bill ahead of Prime Minister Narendra Modi's visit to the US. A large part of foreign investment in Indian insurance companies will come from American insurers, who are awaiting to tap the huge potential in the under-insured Indian market.

VOLTE-FACE
What BJP leaders said on foreign direct investment (FDI) in insurance when in the Opposition

Narendra Modi, as BJP’s prime ministerial candidate, called for a review of the FDI policy in all sectors. In a television interview in April, Modi said any decision on FDI needed a rethink, given its potential impact on the domestic manufacturing sector. Ravi Shankar Prasad had on July 18, 2013, termed the UPA government’s decision to increase FDI in insurance a “panic reaction”. “These panic decisions are not going to impact the Indian economy, which has reached a terminal state. When Indians themselves are not investing here, why would foreigners put in their money?" He said his party was opposed to “the hike in FDI limits in insurance and telecom sectors because our core concerns have not been addressed by the government”. Arun Jaitley, the leader of opposition in the Rajya Sabha, and Sushma Swaraj, the leader of Opposition in the Lok Sabha, had opposed increasing FDI in insurance to 49 per cent despite several meetings with then finance minister P Chidambaram. In 2011, a Yashwant Sinha-headed parliamentary standing committee on finance advised the UPA government against increasing the FDI limit in insurance beyond 26 per cent.

On June 29, 2012, Sinha said, the BJP wasn’t “comfortable” with the UPA government’s plan to raise FDI to 49 per cent in insurance and in pension. “Let's not place our overconfidence in FDI as the panacea for all our ills; it has to be domestic demand and domestic savings,” Sinha said.

On October 14, 2012, in Hazaribagh, Sinha said his party would oppose “tooth and nail” then finance Minister P Chidambaram bringing proposals to increase FDI in the retail and insurance to 49 per cent from 26 per cent. He said increasing FDI in pension and insurance sectors “will be against the interest of the country".

"For the purpose of computing foreign investment in an Indian insurance company, the definition of foreign investors as per the Insurance (Amendment) Bill, 2008, which read as 'foreign companies, either by itself or through its subsidiary companies or its nominees' has been widened in the 2014 Bill to read as 'foreign investors including portfolio investors'," said Anish Thacker, partner, EY.

He added that most other amendments in the 2014 Bill, such as capital requirements, ability of unregistered foreign investor to carry out insurance business in a special economic zone, or issuance of policies and maintenance of records in electronic form, reiterated the amendments proposed in the 2013 draft.

Other amendments in Jaitley's Bill against Chidambaram's include change in the number of year with respect to the Companies Act. As the amendments to the Bill were cleared by Parliament last year, the year of the Companies Act has been changed from 1956 to 2013.

Likewise, there are amendments proposing change in the year of the proposed Insurance Act to 2014. None of these changes requires the Bill to be referred to a select committee.

The capital requirement for a health insurance company has been retained at Rs 50 crore, against Rs 100 crore for general insurance companies, to reduce entry barrier to health, which is a priority-sector. The definition of 'health insurance business' has been retained to clearly stipulate that health insurance policies would cover sickness benefits on account of domestic as well as international travel.