Bill to alleviate pains faced by insurance sector: E&Y

Ashvin Parekh, partner at Ernst & Young believes the Insurance Bill cleared by the Cabinet today will help alleviate pains faced by the insurance sector the country.

Speaking exclusively to CNBC-TV18, Parekh says “Several provisions under the new act will really help the industry in taking things forward now.” He mainly focuses on the introduction of standalone health insurance companies in the country. “We had life insurance companies and we have general insurance companies, and now with the passage of this Insurance Bill we will have standalone health insurance companies which is a remarkable change,” he explained. Reacting to the deferment of the Insurance Bill, Parekh says that it would actually be better for the government to separate the two, that is the FDI cap and the rest of the provisions. The Cabinet today cleared the Insurance Bill, retaining the 26% cap on foreign direct investment in the sector. Below is an edited transcript of his interview with Shereen Bhan. Also watch the accompanying video. Q: The Insurance Bill cleared is pretty much on expected lines? A: It’s really welcome news. As a part of the Insurance Amendment Act, there were some 249 different provisions and FTO is just one of them. So even if lets say the Cabinet committee has decided to set that aside, and if others have been cleared, it’s a very welcome change, I must admit. Several provisions under the new act will really help the industry in taking things forward now. Q: Do you want to specify on what those could be because this has been a business that has been seeing fairly tumultuous time. How will this really alleviate the pain that the sector faces? A: One of the larger issues is the passage of health insurance. We had life insurance companies and we have general insurance companies, and now with the passage of this Insurance Bill we will have standalone health insurance companies which is a remarkable change. This is based on IRDA’s recommendation and is based on industry suggestions to the authority as well to the government. The other major changes which are part of this is that there are lot of additional provisions which clarify things. There are provisions regarding IPOs, there are provisions regarding mergers and acquisitions. More importantly, there are provisions regarding the reinsurance and setting up of re-insurance branches in the country. So there a lot of progressive changes which are a part of this amendment I should say. There are about 100 plus procedural provisions. These procedural provisions enable the authority in making various decisions including the rewarding of the distribution channels, the intermediation part and all that. So, all said and done one should say a very hearty welcome kind of a change that has happened today. Q: Some of the changes that you were talking about attempt to make the IRDA the regulator, a stronger and more effective body. Would you say that will indeed be the result of the passage of this bill? A: Yes, it would be. I were to take the provisions for example of the merger and acquisition for instance, the regulator had come out with earlier the regulations with the life insurance companies – that is merger of life insurance companies, however the present Act did not empower the authorities to really do any regulations on the merger of general insurance companies. Now with the passage of these amendments, these changes will really empower the authority to take so many more decisions I should say. Q: So you are saying that FDI moving from 26-49% was just one of the issues that industry was hoping to get clarity from? You don’t really see it as being a big disappointment or a big dampener as far as the sector is concerned? A: Not really. The Standing Committee recommendations clearly indicated that without the FDI Bill they were prepared to pass the rest of the amendment act. I thought for taking the industry forward, there was no point in getting stuck up on that one issue and then leaving the other reforms at large. So it’s a very welcome to that extent I should say. It’s not really a surprise because the Standing Committee had already come out with the recommendations saying that they are not going to clear the FDI this time. Q: In terms of reducing the promoter holdings from 26% to 10% within a time period of 10 years, how do you see that going? A: A lot of the cursory provisions are a part of that 26% to 49%. Without any clarity on whether the foreign investor can go down to 10% or is required to go 10%. Even for the Indian partner in a joint venture, when he does an IPO, it is not clear as to what is the extent to which he goes down, so all those questions still remain. But I suppose they are not so significant from the point of view of the working of the industry I should say. Q: So, net-net a big positive as far as the working of the industry is concerned, that would be the sum and substance of the passage of this Bill? A: Yes, that’s the way I would look at it.