From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Privatization of insurance sector
The General Insurance Business (Nationalization) Amendment Bill, 2021, was recently passed by both houses of parliament.
What is the amendment?
- The Bill seeks to amend the General Insurance Business (nationalization) Act, 1972.
What is the GIB Act?
- The 1972 Act set up the General Insurance Corporation of India (GIC).
- The businesses of the companies nationalized under the Act were restructured in four subsidiary companies of GIC: (i) National Insurance, (ii) New India Assurance, (iii) Oriental Insurance, and (iv) United India Insurance.
- The Act was subsequently amended in 2002 to transfer the control of these four subsidiary companies from GIC to the central government, thereby making them independent companies.
- Since 2000, GIC exclusively undertakes the reinsurance business.
Answer this PYQ:
Microfinance is the provision of financial services to people of low-income groups. This includes both the consumers and the self-employed. The service/ services rendered under micro-finance is/are: (CSP 2011)
- Credit facilities
- Savings facilities
- Insurance facilities
- Fund Transfer facilities
Select the correct answer using the codes given below the lists:
(a) 1 only
(b) 1 and 4 only
(c) 2 and 3 only
(d) 1, 2, 3 and 4
Post your answers here:
Key highlights of the Amendment Bill
- Government shareholding threshold: The Act requires that shareholding of the central government in the specified insurers (the above five companies) must be at least 51%. The Bill removes this provision.
- Change in definition of general insurance business: The Act defines general insurance business as fire, marine or miscellaneous insurance business.
- Transfer of control from the government: The Bill provides that the Act will not apply to the specified insurers from the date on which the central government relinquishes control of the insurer.
- Notifying terms and conditions: The Bill provides that schemes formulated by the central government in this regard will be deemed to have been adopted by the insurer.
- Liabilities of directors: The Bill specifies that a director of a specified insurer, who is not a whole-time director, will be held liable only for certain acts.
Significance of the bill
- De-regulation: The move is part of the government’s strategy to open up more sectors to private participation and improve efficiency.
- Capital infusion: Privatization will bring in more private capital in the general insurance business and improve its reach to make more products available to customers.
- Insurance coverage: This will enhance insurance penetration and social protection to better secure the interests of policyholders and contribute to faster growth of the economy
Concerns of the opposition
- The Opposition is of the view that privatization will be detrimental to the interests of the public.
- They wanted a proper discussion on the pros and cons of the Bill rather than passing it in a hurry.
- They wanted an expert committee of the Cabinet to study the impact before passing the legislation.
- They are worried about large-scale employee layoffs and short-term investors entering and exiting these entities once the Act comes into force.