FDI in Indian economy

Insurance (Amendment) Bill, 2021

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : FDI in Insurance

The Rajya Sabha has passed the Insurance Amendment Bill 2021 that increases the maximum foreign investment allowed in an insurance company from 49% to 74%.

It is very intriguing to see several amendments in news these days. Isn’t it?

Insurance Amendment Bill

  • The Bill seeks to amend the Insurance Act, 1938.
  • The Act provided the framework for functioning of insurance businesses and regulates the relationship between an insurer, its policyholders and its shareholders.
  • It also had provisions regarding the regulator (the Insurance Regulatory and Development Authority of India).

Key highlights of the bill

The Bill seeks to increase the maximum foreign investment allowed in an Indian insurance company.

() Foreign investment

  • The Act allows foreign investors to hold up to 49% of the capital in an Indian insurance company, which must be owned and controlled by an Indian entity.
  • The Bill increases the limit on foreign investment in an Indian insurance company from 49% to 74%, and removes restrictions on ownership and control.
  • However, such foreign investment may be subject to additional conditions as prescribed by the central government.

() Investment of assets 

  • The Act requires insurers to hold a minimum investment in assets which would be sufficient to clear their insurance claim liabilities.
  • If the insurer is incorporated or domiciled outside India, such assets must be held in India in a trust and vested with trustees who must be residents of India.
  • The Act specifies in an explanation that this will also apply to an insurer incorporated in India, in which at least: (i) 33% capital is owned by investors domiciled outside India, or (ii) 33% of the members of the governing body are domiciled outside India.
  • The Bill removes this explanation.

Expected outcomes

  • More capital at dispense: The FDI limit increase is also expected to provide access to fresh capital to some of the insurance companies, which are struggling to raise capital from their existing promoters.
  • Better solvency: This would not only increase the solvency position for some insurers but would provide long-term growth capital for other companies to invest in newer technologies.
  • Insurance penetration: These technologies would not only help in managing losses but also in customer acquisition and thus insurance penetration.
  • Technological impetus: The additional funds could be used to invest in technology to adapt to the evolving customer needs like responsive service through digital platforms.
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