Draft Insurance Bill seeks to up FDI cap

Disinvestment clause for Indian promoters may go.

Underlining its resolve to push ahead with critical reforms in the insurance sector, the finance ministry today sketched a comprehensive sectoral roadmap at a presentation that saw Left leaders meeting senior government ministers.

The reforms are overarching, with the key tenets in the proposed draft Insurance Laws (Amendment) Bill, 2006, including a move to do away with the obligation that requires Indian promoters to bring down their holding to 26 per cent after 10 years, allowing foreign re-insurers with minimum net owned funds of Rs 5,000 crore to operate through branches, and raising the foreign holding in insurance joint ventures to 49 per cent from the existing 26 per cent. The Bill also proposes to fix the minimum paid-up capital requirement at Rs 50 crore for standalone health insurance companies.

The attempt to win over the Left came even as the Group of Ministers on Insurance, headed by External Affairs Minister Pranab Mukherjee, had its second meeting today. No final view was taken at the meeting.

The development is crucial as Finance Minister P Chidambaram has said he intends to present the Bill for parliamentary approval in the Budget session.

The attempt to woo the Left seems to have failed, with its leaders reiterating their opposition and rejecting the key tenets of the finance ministry plan.

CPI(M) MP Tapan Sen said the Left MPs remain opposed to the proposal to increase foreign holding from 26 to 49 per cent and allow foreign players into general insurance. "We will, however, study the proposals and discuss them further," he said.

The finance ministry also proposes to allow public sector general insurance companies to raise capital from the market and help them expand business and meet solvency margins. It has also proposed to make underwriting of third party motor insurance obligatory.

Among other provisions is one that aims to make a clear distinction between a beneficiary nominee and a collector nominee in the interest of policyholders.

It is also proposed to have stringent penalties for violation of insurance law provisions. The ministry has also proposed that insurance companies be allowed to appoint insurance agents, surveyors and loss assessors, instead of the IRDA.

EASING OF RESTRICTIONS

Proposes 49% foreign holding cap in Indian insurance companies

To allow health insurance, besides life, general and re-insurance

Definition of insurance company to be changed to allow any company or body from outside India

Lloyd's of UK to be treated as foreign company

Rule for Indian promoters to bring down shareholding to 26 % after 10 years to be deleted

Foreign re-insurers to be allowed to operate through branch offices

To make underwriting of third party motor insurance obligatory

Public sector general insurers may be allowed to raise capital from market

LIC's capital to be raised from Rs 5 crore to Rs 100 crore

Insurers to appoint surveyors/loss assessors from Indian Institute of Surveyors & Loss Assessors