General Insurance Business (Nationalisation) Amendment Bill, 2021

In News 

Recently, Rajya Sabha has passed The General Insurance Business (Nationalisation) Amendment Bill, 2021.

About 

• The Bill, intended to amend the General Insurance Business (Nationalisation) Act, 1972.
  • The 1972 Act  was enacted to nationalise all private companies undertaking general insurance business in India.  
  • The 1972 Act set up the General Insurance Corporation of India (GIC).  The businesses of the companies nationalised under the Act were restructured in four subsidiary companies of GIC:
    • National Insurance
    • New India Assurance
    • Oriental Insurance
    • United India Insurance.  
    • The Act was subsequently amended in 2002 to transfer the control of these four subsidiary companies from GIC to the central government, thereby making them independent companies. 
    •  Since 2000, GIC has exclusively undertaken the reinsurance business.

Objectives & Need of the Bill

• While India’s insurance sector has been growing dynamically in recent years, its share in the global insurance market remains abysmally low. 
• It seeks to bring in more private capital in the general insurance business and improve its reach to make more products available to customers.

Major Highlights of the bill 

• Government shareholding threshold:  The Act requires that shareholding of the central government in the specified insurers (the above five companies) must be at least 51%. 
  • The Bill removes this provision.
• Change in definition of general insurance business:  The Act defines general insurance business as fire, marine or miscellaneous insurance business. 
  •  It excludes Capital redemption and annuity of certain businesses from the definition.  
    • Capital redemption insurance involves the payment of a sum of money on a specific date by the insurer after the beneficiary pays premiums periodically.  
    • Under annuity certain insurance, the insurer pays the beneficiary over a period of time. 
  •  The Bill removes this definition and instead, refers to the definition provided by the Insurance Act, 1938.  
    • Under the Insurance Act, capital redemption and annuity certain are included within the general insurance business.

• Transfer of control from the government:  The Bill provides that the Act will not apply to the specified insurers from the date on which the central government relinquishes control of the insurer. 
  •  Control means: 
    •  the power to appoint a majority of directors of a specified insurer
    •  Or to have power over its management or policy decisions.

•  Notify the terms and conditions: The Act empowers the central government to notify the terms and conditions of service of employees of the specified insurers.  
  • The Bill provides that schemes formulated by the central government in this regard will be deemed to have been adopted by the insurer.  
    • The board of directors of the insurer may change these schemes or frame new policies.  Further, powers of the central government under such schemes (framed under the Act) will be transferred to the board of directors of the insurer.

• Liabilities of directors:  The Bill specifies that a director of a specified insurer, who is not a whole-time director, will be held liable only for certain acts.  These include acts that have been committed: 
  • With his knowledge, attributable through board processes.
  • With his consent or connivance or where he had not acted diligently.

Concerns

• This may lead to total privatisation of general insurance companies.
• The trust of people will decrease as they have maximum trust in public companies.
• With this, the government will also lose money by way of dividend in the proportion of shares being offered.

Insurance sector in India

• The Indian Insurance Sector is basically divided into two categories:
  • Life Insurance, and 
  • Non-life Insurance or general insurance. 
• Insurance Regulatory and Development Authority of India (IRDAI) is the regulatory body in India that governs both Life insurance and General insurance companies. 
• Challenges:
  • Low penetration and density rates.
  • Inadequate investment in insurance products.
  • The dominant position and deteriorating financial health of public-sector players.

Way Ahead

• There is a greater need for insurance penetration in India and this amendment is the right step in this regard. 
• More awareness and trust among the people has to be built.

Source: News on Air