Finance Minister Nirmala Sitharaman introduced The General Insurance Business (Nationalisation) Amendment Bill, 2021 in the Lok Sabha on 30th July, 2021. The bill has been recently passed by the Rajya Sabha and was already passed in the Lok Sabha on 3rd August. The opposition parties were certainly not pleased with the amendment in the bill and demanded that it should be referred to the committee of the House.
What does the amendment say?
The amendment in the bill provides a greater scope of private participation in the public sector general insurance companies. This amendment will change the General Insurance Business (Nationalisation) Act, 1972 - which was introduced to nationalise all the private companies undertaking general insurance business in the country.
The bill will be introduced to 3 new major changes. The amendment will exclude the proviso to Section 10B of the Act. Hence it will omit the clause that says that the union government must hold at least 51% of the shareholding. This is the key point to encourage more private investment in the sector. The amendment will also introduce a new section 24B. It will provide for "cessation of application of the Act to such specified insurer on and from the date on which the Central Government ceases to have control over it." The last change is going to have another new section 31A. This will provide for "liability of a director of the specified insurer, who is not a whole-time director, liable for any acts of omission or commission committed with his knowledge and consent."
The union government was already on the track for more private investment in the sector
Finance Minister (FM) in the union budget, 2021 already increased the FDI limit in the insurance sector from 49% to 74%. That was one of the most significant steps towards the privatisation of the insurance sector in the country. The FM also said in the budget speech, "We propose to take up privatisation of two Public Sector Banks and one General Insurance company in the year 2021-22. This would require legislative amendments."
FM at that time announced that the Initial Public Offering (IPO) of LIC will be implemented in FY22. It is going to be a part of the consolidation in the banking and the insurance sector. No formal market valuation has been undertaken till now, but the company is expected to have the potential to raise Rs. 1 lakh crore, according to industry insiders. An IPO is a stock launch by the government in which "shares of a company are sold to institutional investors and usually also retail investors".
Now, in India total of 4 general insurance companies are performing in the public sector, namely the National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited, and the United India Insurance Company Limited. The decision about which one will be privatised after the amendment is yet to be taken.
India has a considerably large insurance market
Data published by the Insurance Regulatory and Development Authority of India (IRDAI) states, "25 general insurance companies recorded a 10.8% increase in their collective premium in January 2021 to Rs. 16,247.24 crore (US$ 2.24 billion) compared with Rs. 14,663.40 crore (US$ 2.02 billion) in January 2020."
According to IBEF data, "India's insurance penetration was pegged at 3.76% in FY20. In terms of insurance density, India's overall density stood at US$ 78 in FY20." Commenting on the private participation it added, "The market share of private sector companies in the general and health insurance market increased from 47.97% in FY19 to 48.03% in FY20."
This indicated a continuous private sector growth in the overall insurance sector in India. With the newly introduced amendments, private participation in the general insurance sector will increase further, and they will slip in the presently public-owned companies steadily.