New Delhi/Hyderabad: Insurance reforms seem to be back on track. The empowered group of ministers (EGoM) vetting changes in the insurance Bill is considering allowing health insurance companies to be set up with a start-up capital of Rs 50 crore.
The group, led by external affairs minister Pranab Mukherjee, is scheduled to meet in New Delhi soon to give its final recommendations on the changes in the insurance legislation. This would be the first meeting of the GoM after the Left parties withdrew support and government announced its intention to bring all the Bills related to financial sector reforms during the present term of the UPA. The EGoM will forward its recommendations to the Union Cabinet. The most crucial and controversial proposal is the hike in the foreign direct investment (FDI) cap from 26% to 49%.
The finance ministry has accepted most of the recommendations of the K P N committee with modifications as proposed by the Insurance Regulatory and Development Authority (Irda), and the recommendations have been made a part of the Insurance Laws (Amendment) Act, 2006 (Insurance Bill).
According to a senior government official, the Centre has proposed a minimum capital requirement of Rs 50 crore for health insurance ventures against Rs 100 crore for life and non-life ventures. It is reckoned that a lower minimum capital requirement will attract more players in health insurance, foster competition and improve penetration in the country. The premium from health insurance stood at Rs 4,970 crore in 2007-08, marking a 55% growth over 2006-07. However, this is a minuscule proportion of the country’s GDP.
In case the paid-up capital requirement is relaxed soon, it could benefit the proposed health joint venture between Max India and Bupa of France. Max India chairman Analjit Singh told ET the two partners would be inking the agreement and incorporating the health insurance company next month following which they would seek R1 registration with Irda. “We are looking at a combo offering that will include outpatient and hospitalisation,” Mr Singh said.
Currently, health insurers are given licences under the general insurance umbrella. There are only two standalone health insurance companies, Star Health & Allied Insurance and Apollo DKV. The government has proposed health insurance as a separate category for licensing purposes.
Companies with foreign joint venture partners can operate in life and general insurance business. The prescribed FDI limit of 26% applies to each line of business as these are separate companies. The practice will continue even if the FDI cap is raised, a senior official said. Cooperative banks will also be given licences for insurance ventures. The institutions are only allowed to tie up with insurers to distribute insurance products.
Among the proposed changes, the insurance regulator is set to be armed with more powers and given greater operational flexibility. It will be empowered to clear the appointment of CEOs of public sector insurance companies. The regulator will also have wider powers in inspection of insurance companies. Operational flexibility will enable Irda to respond fast to emerging developments in the market.
The insurance council, an advisory body to the regulator which has been largely defunct for some time, is set to be scrapped. A Special Appellate Tribunal (SAT) will be the arbitrator for disputes. Insurance companies, on their part, will have to become more accountable. They will have to submit balance-sheets once in six months. Their profit-and-loss account and balance-sheets will have to be in sync with the requirements under the Companies Act.
The group, led by external affairs minister Pranab Mukherjee, is scheduled to meet in New Delhi soon to give its final recommendations on the changes in the insurance legislation. This would be the first meeting of the GoM after the Left parties withdrew support and government announced its intention to bring all the Bills related to financial sector reforms during the present term of the UPA. The EGoM will forward its recommendations to the Union Cabinet. The most crucial and controversial proposal is the hike in the foreign direct investment (FDI) cap from 26% to 49%.
The finance ministry has accepted most of the recommendations of the K P N committee with modifications as proposed by the Insurance Regulatory and Development Authority (Irda), and the recommendations have been made a part of the Insurance Laws (Amendment) Act, 2006 (Insurance Bill).
According to a senior government official, the Centre has proposed a minimum capital requirement of Rs 50 crore for health insurance ventures against Rs 100 crore for life and non-life ventures. It is reckoned that a lower minimum capital requirement will attract more players in health insurance, foster competition and improve penetration in the country. The premium from health insurance stood at Rs 4,970 crore in 2007-08, marking a 55% growth over 2006-07. However, this is a minuscule proportion of the country’s GDP.
In case the paid-up capital requirement is relaxed soon, it could benefit the proposed health joint venture between Max India and Bupa of France. Max India chairman Analjit Singh told ET the two partners would be inking the agreement and incorporating the health insurance company next month following which they would seek R1 registration with Irda. “We are looking at a combo offering that will include outpatient and hospitalisation,” Mr Singh said.
Currently, health insurers are given licences under the general insurance umbrella. There are only two standalone health insurance companies, Star Health & Allied Insurance and Apollo DKV. The government has proposed health insurance as a separate category for licensing purposes.
Companies with foreign joint venture partners can operate in life and general insurance business. The prescribed FDI limit of 26% applies to each line of business as these are separate companies. The practice will continue even if the FDI cap is raised, a senior official said. Cooperative banks will also be given licences for insurance ventures. The institutions are only allowed to tie up with insurers to distribute insurance products.
Among the proposed changes, the insurance regulator is set to be armed with more powers and given greater operational flexibility. It will be empowered to clear the appointment of CEOs of public sector insurance companies. The regulator will also have wider powers in inspection of insurance companies. Operational flexibility will enable Irda to respond fast to emerging developments in the market.
The insurance council, an advisory body to the regulator which has been largely defunct for some time, is set to be scrapped. A Special Appellate Tribunal (SAT) will be the arbitrator for disputes. Insurance companies, on their part, will have to become more accountable. They will have to submit balance-sheets once in six months. Their profit-and-loss account and balance-sheets will have to be in sync with the requirements under the Companies Act.
Source: The Economic Times
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