During the upcoming monsoon session in Parliament, the government intends to introduce significant reforms in the insurance sector through two new pieces of legislation, the Insurance Laws (Amendment) Bill, 2023, and the Insurance Bill, 2023. The reforms aim to streamline regulations, facilitate easier market entry for companies, and simplify investment rules. These proposed changes, set to be implemented later this year or early in FY25 pending parliamentary approval, are expected to enhance insurance penetration, improve efficiency, and foster product innovations.
The Insurance Laws (Amendment) Bill, 2023, which has already been submitted to the Union cabinet for approval, seeks to introduce various reforms. Notably, it suggests easier minimum capitalization requirements for insurers. Currently, a minimum capital of ₹100 crore is mandated for life, general, and health insurance businesses, and ₹200 crore for reinsurance businesses. The proposed amendments would grant the Insurance Regulatory and Development Authority of India (Irdai) the flexibility to set varying minimum capital requirements based on the classes/sub-classes of insurance businesses, thus enabling micro-insurers to offer affordable coverage in rural areas and to low-income individuals.
Another significant provision in the draft bill is the potential introduction of composite licenses for insurers. This would allow a single entity to offer both life and non-life products (excluding reinsurance operations). Similar composite insurers already exist in jurisdictions such as Singapore, Malaysia, and the UK. Furthermore, the bill proposes granting insurers the ability to provide ancillary services related to insurance and distribute other specified financial products. It also introduces the concept of a “captive insurer,” which would enable conglomerates and corporate groups to establish an insurer exclusively for covering business-related risks within their respective groups.
The proposed reforms also include simplified investment conditions, a reduced net-owned fund requirement for foreign reinsurers, differential solvency margins, and alignment of share-transfer approval processes for insurance companies with those of banks. Additionally, the draft bill suggests the removal of limits on commission payments.
Importantly, the Insurance Bill, 2023, aims to simplify and update the legal framework governing the insurance sector. It seeks to repeal and re-enact the Insurance Act, 1938, eliminating obsolete provisions from the British-era legislation.
To maintain the autonomy of general and life insurance councils, the bill does not propose any changes in their composition to include government representatives. Industry executives have stressed the significance of broader representation in the councils and have advocated against compromising their independence.
The government’s focus on insurance sector reforms underscores its commitment to progressive legislation and the prioritization of strengthening the insurance landscape in the country.