IRDAI SETS UP PANEL TO REVIEW INSURANCE LAWS
- The Insurance Regulatory and Development Authority of India (IRDAI) has established a 7-member committee to review proposed amendments to the Insurance Act, 1938.
- The committee will be led by Dinesh Khara, the former chairman of State Bank of India.
- The committee’s role is to suggest a framework for implementing the proposed amendments, which include raising the Foreign Direct Investment (FDI) limit in the insurance sector.
Committee Mandate
- The committee is tasked with:
- Suggesting a framework and rules for implementing provisions like 100% FDI, composite licenses, and new entrants in the insurance sector.
- Reviewing how these provisions can be activated through regulations and circulars.
KEY FACTS ABOUT INSURANCE ACT, 1938
- It serves as the primary regulatory framework for the country’s insurance industry and led to the establishment of IRDAI.
- The Act defines the scope of life, general, and health insurance in the country and regulates the role of insurance agents.
- It regulates the relationship between an insurer, its policyholders, shareholders, and the regulator – IRDAI.
KEY FOCUS OF THE AMENDMENTS
- Increase in FDI Limit: The government has proposed raising the FDI limit in the insurance sector from 74% to 100%.
- Conditions: This enhanced limit will be available for companies that invest the entire premium in India.
- Simplification: The current rules and conditions related to foreign investment will be reviewed and simplified.
- Amendments to Key Acts:
- Insurance Act, 1938: The principal law governing the insurance sector in India.
- Life Insurance Corporation Act, 1956: Relevant to Life Insurance Corporation of India.
- Insurance Regulatory and Development Authority Act, 1999: Governs the operations of IRDAI.
IMPACT OF THE AMENDMENTS
- Boost to Sector Growth: Increasing the FDI limit will encourage more investment in the insurance sector, leading to:
- Higher penetration of insurance products.
- Entry of new players, driving competition.
- Job creation across the country.
- Insurance Market Landscape:
- Currently, there are 25 life insurance companies and 34 non-life insurance firms in India, which include Agriculture Insurance Company of India Ltd and ECGC Ltd.
ADDITIONAL REFORMS
- FDI Rules and Profit Repatriation: Along with the FDI amendment, the government will address the rules on how investments will be made and profits repatriated.
- Composite Licenses: The reforms will also include provisions for composite licenses, which allow companies to operate in both life and general insurance.
TIMELINE & NEXT STEPS
- Internal Consultations: The government has almost completed internal consultations on the amendments.
- Next Steps: The proposed amendments and rules will be included in a Bill that will be introduced in Parliament for approval.
- Once approved, the rules related to FDI, composite licenses, and other reforms will be notified to enable the changes.
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