Cabinet clears Insurance Bill; retains 26% FDI cap

The Cabinet today cleared the Insurance Bill, retaining the 26% cap on foreign direct investment in the sector.

It also states that foreign insurers in special economic zones are exempt from regulations Under this Bill, government owned general insurance companies are allowed to raise funds from the open market. Additionally, the Bill brings into existence standalone health insurance companies which were previously not present in India. The government had introduced the Insurance Laws (Amendment) Bill in the Rajya Sabha in 2008. The Bill also specifies the minimum paid up capital allowed for different type of insurance companies. The cap for paid up capital into different lines of insurance are as follows:

• Life & general insurance - Rs100 crore
• Health insurance - Rs 50 crore
• Min capital requirement for re-insurance - Rs 200 crore
• Min capital for foreign re-insurance business - Rs 5,000 crore

An insurance company which will benefit from this Bill being cleared is Lloyd’s which is looking to enter the Indian market. Despite the positive announcement it is, this Bill does not come as surprise to anyone, as recommendations of the Standing Committee were public knowledge already. Also, it was already known that the FDI cap was not going to be hiked. Therefore, CNBC-TV18’s political editor Siddharth Zarabi says this is a watered-down version of the Bill. “It’s not going to be an uplift for the insurance sector, but it is a small progression,” he said. Speaking exclusively to CNBC-TV18, Finance Minister Pranab Mukherjee said that they will have to consider the Standing Committee’s recommendations because the cap has to be more than 26% to attract foreign investment into the sector. He further adds that the cap should have been hiked. The Cabinet today also cleared the Microfinance Bill, but deferred the Coal Regulatory Authority Bill over concerns on independent regulator issues. The Bill has been sent to the group of Ministers for further discussion. Also read: Bill to alleviate pains faced by insurance sector, says E&Y