The government is preparing the ground to break the General Insurance Corporations monopoly over the lucrative reinsurance business as well. It is in the process of creating the necessary legal provision to allow foreign insurance companies to conduct both insurance and reinsurance business in the near future.
The government yesterday moved an amendment in the Insurance Regulatory Authority (IRA) Bill to bring in the reinsurance business under the regulatory powers of the IRA.
The original bill, which was moved in Lok Sabha on December 20, sought to vest the IRA with powers to regulate only the insurance business. Discussions on the bill remained inconclusive and will be taken up for passing today.
The idea is to reassure foreign investors that project risks will be fully covered at reasonable costs by allowing competition in the reinsurance business. The government obviously feels that the GIC is not capable of handling all the reinsurance necessary once the insurance sector is opened up for private sector participation.
Till recently, the GIC retained over 80 per cent of the risks it underwrote and passed on only a small portion of it to international reinsurers like Swiss Re and Munich Re. Reinsurers undertake the obligation of settling claims to the extent an insurance portfolio is reinsured with them.
But the GIC has been passing on a much larger part of the risks that it has been undertaking in major projects like Enron and GVK to insurers over the past one year. This is because the risks involved are larger and the GIC does not want to absorb all of it. GIC is also prepared to share its premium income with the reinsurer for the purpose.
The reinsurance route allows a foreign company to repatriate its incomes to its head quarters in another country without paying the domestic taxes. This is why several foreign insurers have been actively lobbying with the government to throw open the reinsurance sector as well.
The bill along with the amendment was moved by finance minister P Chidambaram for the second time in the Lok Sabha yesterday after it had been vetted by the standing committee on finance.
In their speeches, Lok Sabha members belonging to both the Congress and Bharatiya Janata Party (BJP) gave clear indication that they will be voting in favour of the bill.
Thus, the bill is slated to go through even if the Communist Party of India (Marxist) sticks to its opposition to the bill.
The finance minister assured the Lok Sabha that the Life Insurance Corporation (LIC) and the General Insurance Corporation would be further strengthened and built into international corporations.
The government, he said, had accepted the suggestion that in quasi-judicial decisions, collective decision of the board would be mandatory while administrative powers were vested with the chairman.
Sriballabh Panigrahi, Congress, said there were apprehensions in the insurance sector that opening it to private and foreign players would adversely affect it.
Tarachand Gehlot, BJP, urged the government to take effective steps to check largescale irregularities and corruption in LIC and GIC.
Vishambhar Prasad Nishad (Bahujan Samaj Party) demanded that interest rates of LIC should be increased and made at par with that of the banks.
Girdhari Lal Bhargava (BJP) said that monopoly of the state in the insurance sector should be done away with while his party colleague, Rasa Singh Rawat demanded that the network of insurance companies should be expanded for the benefit of people in rural areas.
