Government may introduce insurance laws amendment bill in the upcoming Budget session

In the upcoming Budget session, the government may introduce a bill that requests for an amendment to the Insurance Act, 1938. This move aims to achieve 'Insurance for All by 2047'.  

The provisions that could be a part of the amendment bill include composite license, differential capital, reduction in solvency norms, issuing captive license, change in investment regulations, one-time registration for intermediaries and allowing insurers to distribute other financial products, as per sources.

This step will facilitate the entry of differentiated insurance companies like in the banking sector. At present the banking sector is categorized as universal bank, small finance bank, and payments bank.

The provision of composite licenses would allow life insurers to underwrite health insurance or general insurance policies.

According to the Insurance Act, 1938, life insurance covers can only be offered by life insurers whereas general insurers can offer non-insurance products like health, motor, fire, marine, etc.

The Irdai does not allow composite licensing for insurance companies, which means that an insurance company cannot offer both life and non-life products as one entity.

The sources also revealed that the draft bill is ready and it has to go to the Cabinet for its approval. They also added that the finance ministry is hoping that it gets introduced in the upcoming session.

The proposed amendments primarily focus on enhancing the policyholders' interests, improving returns to the policyholders, facilitating the entry of more players leading to economic growth and employment generation, enhancing efficiencies of the insurance industry – operational as well as financial and enabling ease of doing business, sources said.

The Insurance Act, 1938, acts as the principal Act to provide the legislative framework for insurance in India.

It provides the framework for the functioning of insurance businesses and regulates the relationship between an insurer, its policyholders, shareholders and the regulator Insurance Regulatory and Development Authority of India.

According to the sources, the easing of capital norms can allow the entry of companies focused on micro-insurance, agriculture insurance, or insurance firms with a regional approach. The entry of more players in the sector would not only push penetration but result in greater job creation across India.

Currently, there are 25 life insurance companies and 32 non-life or general insurance firms in India. These also include companies like the Agriculture Insurance Company of India Ltd and ECGC Limited.