Insurance Bill
The Insurance sector Bill was pending for quite some time and has now been passed by both the houses. This bill have some positive aspects and is considered as a major economic reform in the country due to following reasons:
- Capital Pull: The sector will see an FDI increase from 26% to 49%, the industry was suffering from capital crunch for quite some time. The reform will not only infuse much needed capital but also help the domestic players sell stakes to foreign partners.
- Infrastructure funding: The capital in the insurance sector have in general a long gestation period, this capital can be used to fund the infrastructure need of the country.
- Insurance coverage: The present insurance coverage is just 3%, the bill would help in extending it further and as predict by the select committee, it is expected to be around 3% in the next 5 years.
- IRDA power: IRDA will get further power to impose penalty on the wrong doers.
- JV and New entrants: New Joint ventures will come up and New entrants are also expected to join the sector.
However, it has certain problems which can create challenge for the economy and the public as well
- Settlement Ratio and Lapse Ratio: The settlement ratio of private players is very low compared to that of LIC which makes the private player products vulnerable for the people. Similarly, their lapse ratio is higher compared to that of LIC.
- Institutional Investors: This is also allowed under the bill; it’s a hot money and can put investors as well as economy at risk.
- LIC employees: The employees of LIC have already protested against the bill and are highly unsecure about their future.
Thus, Insurance bill is in line with the need of the time, i.e., liberalization and would help infuse capital in the sector and economy but Government should ensure the existing players and public at large should not become victim of private players‘ ambitions.
Performance since Passage of Bill:
Bill passed in March 2015: Even after 6 months not a single foreign reinsurer has entered India and not a single foreign insurance giant has hiked stake in an Indian entity from 26% to 49%.
The changes in law require corresponding operative changes in regulations. Though Six months have passed since the law was amended, regulatory changes to implement the changes in law has not been notified.
No formal proposal yet received by any foreign player to increase investment from 26 to 49%.
Critically examine why the insurance Bill, 2015, which was passed by the Parliament in 2015, is considered as part of major economic reforms in the country. (200 Words)