The Indian Parliament recently passed the General Insurance Business (Nationalisation) Amendment Bill, 2021, which seeks to revise the General Insurance Business (Nationalisation) Act, 1972. This move is crucial because it indicates major changes in the country’s regulatory landscape around insurance business.
Understanding the Key Provisions of the Amendment Bill
The primary aspects of the Bill include changes to government shareholding threshold, definition of general insurance business, transfer of control from the government, empowerment of the central government, and liabilities of directors.
One of the standout features of the Bill is its proposal to abolish the obligatory demand for the Central government to hold at least 51% of the equity capital in a specified insurer. As for the definition of general insurance business, it now refers to fire, marine or miscellaneous insurance business, excluding capital redemption and annuity certain insurance from the scope.
The Bill also indicates the non-application to specified insurers from the date the central government gives up control of the insurer. Here, ‘control’ signifies the power to nominate a majority of directors of a specified insurer, or having a say in its management or policy decisions.
Central Government Empowerment and Liabilities of Directors
The Amendment Bill empowers the central government with the ability to stipulate the terms and conditions of service for employees of the specified insurers. It also dictates that schemes crafted by the central government will be considered adopted by the insurer. The board of directors may modify these schemes or establish new ones, transferring the central government’s powers under such schemes to the insurer’s board of directors.
As for directors’ liabilities, the Bill asserts that a director of a specified insurer, who isn’t a whole-time director, will be held accountable only for specific acts which have been committed knowingly, with his consent or where he has failed to act diligently.
The Potential Impact of the Amendment Bill
The amendment Bill is anticipated to attract more private capital to the general insurance business and bolster product availability. It aims to enhance insurance penetration, social protection and contribute positively to the economy’s growth rate.
However, there are concerns about how this Bill might affect workers associated with General Insurance Companies and lead to total privatisation of general insurance companies. This could potentially jeopardize the security of 30 crore policyholders. The government stands to lose money by way of dividend in the shares offered proportion. Moreover, pensioners from the four public sector general insurance companies have expressed concerns about the safety of their future pensions.
Exploring the Origin: General Insurance Business (Nationalisation) Act, 1972
The original Act intended to nationalise all privately held companies undertaking general insurance business in India and set up the General Insurance Corporation of India (GIC). Following the restructuring, four subsidiary companies were born – National Insurance, New India Assurance, Oriental Insurance, and United India Insurance. The Act was amended in 2002, handing control of these subsidiaries to the central government and making them independent entities. Since 2000, GIC has exclusively managed reinsurance business.