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The country’s largest insurer, Life Insurance Corporation of India Ltd., may take a call on the composite licence clause after the passage of the Insurance Laws (Amendment) Bill in Parliament, sources said.
As per the proposed bill, an applicant may apply for registration of one or more classes or sub-classes of insurance business of any category or type of insurer.
However, reinsurers are prohibited from seeking registration for any other class of insurance business. A composite licence will allow insurers to offer general and health insurance through a single entity.
Sources said the insurance company would take a call on the composite licence and other issues emanating from the passage of the said bill in a comprehensive manner, taking into consideration the 1956 Life Insurance Corporation Act, 1956.
The bill, with proposed amendments to the Insurance Act of 1938 and the Insurance Regulatory and Development Authority Act, 1999, is expected to be tabled in the parliament in the upcoming budget session starting next month, according to the sources.
If the proposal for composite insurance registration is passed, there would be a change in solvency margin and capital requirements for these companies.
The proposed amendments suggest that the minimum paid-up capital be specified by the Insurance Regulatory and Development Authority of India (IRDAI) considering the size and scale of operations, the class or sub-class of insurance businesses, and the category or type of insurer.
Currently, the solvency ratio is pegged at 150%, while the paid-up capital is Rs 100 crore as per the existing law.
The finance ministry has recently circulated for wider consultation the amendment to insurance law, including a reduction in the minimum capital requirement, with a view to enhancing insurance penetration, improving efficiency, and enabling product innovation and diversification.
Insurance penetration in India during 2021–22 was 4.2%, remaining the same as in 2020–21. Insurance density in India increased from $78 in 2020-21 to $91 in 2021-22. The level of insurance density has reported a consistent increase from $11.5 in 2001-02 to $64.4 in 2010-11.
The proposed amendments primarily focus on enhancing the promotion of policyholders’ interests, improving returns to the policyholders, facilitating the entry of more players in the insurance market, leading to economic growth and employment generation, enhancing the efficiencies of the insurance industry—both operationally and financially—and enabling ease of doing business.
Presently, there are 24 life insurance companies and 31 non-life or general insurance firms, including specialised players like the Agriculture Insurance Company of India Ltd. and ECGC Ltd.
Last year, the government introduced an amendment to the Insurance Act to allow increasing foreign holdings in insurers from 49% to 74%.
Besides, Parliament passed the General Insurance Business—Nationalisation—Amendment Bill, 2021, allowing the central government to pare its stake to less than 51% of the equity capital in a specified insurer, paving the way for privatisation.
In 2015, the Insurance Act was amended to raise the foreign investment cap from 26% to 49%. All these amendments since the privatisation of the insurance sector have led to exponential growth.
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