Rajya Sabha sends Insurance Bill to Select Committee: All you need to know

Giving in to opposition pressure, the government on Thursday referred the controversial Insurance Bill to the Select Committee of Rajya Sabha.

The House adopted a motion in this regard after Finance Minister Arun Jaitley moved it while informing members that the panel has been asked to look into the Bill and submit its report on the last day of the first week of the next session.

According to reports, BJP MP from Rajya Sabha, Chandan Mitra will head the select committe for the Insurance Bill.

Besides Mitra, the committee will have Mukhtar Abbas Naqvi and Jagat Prakash Nadda (all BJP), Anand Sharma, BK Hariprasad and JD Seelam (all Congress), Satish Chandra Misra (BSP), KC Tyagi (JD-U), Derek O’Brien (TMC), V Maitreyan (AIADMK), Naresh Gujral (SAD),Ram Gopal Yadav(SP), Kalpataru Das (BJD), P Rajiv (CPI-M) and Rajiv Chandrasekhar (Ind) as its members.

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The government had to buckle under Opposition pressure after it failed to convince an adamant Opposition to get its support for the first major economic reform initiative of the new government.

Cutting across party lines, major opposition parties had joined hands on the issue demanding that the Bill be sent to the Select Committee.

The bill, which proposes to hike FDI limit in insurance sector to 49 percent, was caught in logjam with the Congress-led opposition insisting that certain new provisions incorporated in the bill required a fresh look and expert consideration.

What is the Insurance Bill

The Cabinet on 25 July 2014, cleared the Insurance Laws (Amendment) Bill, which aims to raise the existing 26 percent foreign direct investment, or FDI, currently allowed in insurance to 49 percent.The control, however, will remain with an Indian entity. The proposals will be vetted by the Foreign Investment Promotion Board (FIPB) to ensure that control remains in Indian hands.

The move to hike the FDI limit will help insurance firms attract much-needed capital from overseas partners and will pave way for insurance companies to list on the stock exchanges.

Finance Minister Arun Jaitley in his budget speech earlier this month had proposed to raise the cap to 49 percent.

“The insurance sector is investment starved. Several segments of insurance sector need expansion. The composite cap of the insurance sector is proposed to be increased to 49 percent from the current level of 26 percent with full management and control through the FIPB (Foreign Investment Promotion Board) route,” he had said.

Barring the public sector insurance companies, all other insurance companies would benefit from higher FDI cap.

The proposal to raise FDI cap has been pending since 2008 when the previous Congress-led UPA government came up with Insurance Laws (Amendment) Bill to hike foreign holding in insurance joint ventures to 49 percent.

The BJP had earlier opposed raising the FDI cap in the insurance sector, saying it may not have the desired effect and could expose the economy to global vulnerability. There is also a view that the FIPB’s approval and full Indian management and control are a face saving device by the Bharatiya Janata Party. Industry officials are of the view that the BJP might deflect the opposition attacks on its change of stance by saying that the FDI inflow will be monitored effectively.

The insurance sector was opened up to the private sector in 2000 after the enactment of the Insurance Regulatory and Development Authority (IRDA) Act, 1999.

What experts said

Since its opening up in 2000, the number of players in the insurance sector has gone up from seven to 53 as on March 31, 2014, operating in the life, non-life, and re-insurance segments.

The government’s move will also be a boost to the existing insurers, who are desperately looking for funds to expand.

“An enhanced flow of foreign capital and international expertise will result in accelerating overall development of the insurance industry through increased access to international insurance products, distribution channels and world-class business practices. It should have a positive impact in boosting overall growth of the Indian insurance sector and more so for the fast growing health insurance sector,“ wrote Antony Jacob, CEO of Apollo Munich Health Insurance in a column on moneycontrol.com.

According to Sunil Sharma of Kotak Mahindra Old Mutual Life Insurance, the FDI hike in insurance will lead to 25-30 new insurers entering the market. Currently the Life Insurance penetration is low at 3.96 percent and this change in FDI to 49% is likely to supply the much needed capital to grow insurance business in India and help boost the Insurance penetration.

With inputs from Agencies