THE much-deliberated proposal to raise foreign direct investment (FDI)
cap in insurance to 49% from the existing 26% has obtained green signal
from the group of ministers (GoM) on insurance headed by external
affairs minister Pranab Mukherjee. The panel has asked the finance
ministry to revise the Insurance Laws (Amendment) Bill — which
contained the FDI hike proposal — since some new provisions have been
included in the amendment. It is understood finance ministry will
revise the changes in consultation with the law ministry.
The GoM has agreed to include 10 new provisions in the draft Insurance Laws (Amendment) Bill. It has also agreed to make the securities appellate tribunal (SAT) the appellate authority for cases arising out of Insurance Regulatory & Development Authority’s (Irda) directives.
“The GoM has raised questions on the proposed amendments, and this has been referred to the finance ministry for modification in the draft Bill. Also, there are proposals to add new clauses that need approval of the finance ministry,” a finance ministry official said.
The new proposals also relate to capital requirement for insurance companies, and changing the definition of insurance agents. The GoM has, however, asked the finance ministry to make changes in the proposal to make SAT the appellate authority.
“SAT would not be allowed to intervene in a matter pending with Irda. It would be allowed to take up the matter only after the final directive from the regulator has been issued,” a government source said. The proposed changes will allow companies to appeal only against the final orders of Irda.
The new proposals, which the GoM approved, include the issue of hybrid capital for insurance companies. According to the earlier proposal, only life insurers were supposed to be given permission to raise capital through different means. Now the facility would be extended to all general, health and reinsurers as well.
The government would bring changes in Section 6(A) and 6(B) of the Insurance Act, 1938, to effect the changes.
Meanwhile, finance minister P Chidambaram said he would soon take the Bill to the Cabinet for its consideration.
Despite pressure from private insurers, the government had not pushed ahead with insurance sector reforms, citing opposition from the Left parties. Insurance companies have been lobbying hard to raise the FDI cap in insurance and allow them to raise capital through several sources.
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