The General Insurance Business (Nationalisation) Amendment Bill, 2021

Ashish M. Shaji

06 Jun, 2024

Recently the parliament passed the General Insurance Business (Nationalisation) Amendment Bill, 2021. The bill aims to provide increased participation in the public sector insurance companies. The bill will allow the government to privatise state-owned general insurance companies. It will amend the General Insurance Business (Nationalisation) Act 1972.  Lets’ discuss more on this bill.

General Insurance Companies

At the moment, there are 4 general insurance companies in the public sector. They are as follows:

• The Oriental Insurance Company;
• The National Insurance Company;
• United India Insurance Company;
• New India Assurance Company.

It is yet to be recognised as to which of these companies the government will park its stake. 

What is the definition of the General Insurance Business?

The Act refers general insurance business as fire, marine or miscellaneous insurance business. It excludes capital redemption and annuity from the definition. Capital redemption insurance includes the payment of an amount of money on a particular date by the insurer once the beneficiary pays the premium periodically. Under the annuity certain insurance, the insurer pays the beneficiary over time. The General Insurance Business (Nationalization) Amendment Bill, 2021, removes this definition and refers to the definition provided under the Insurance Act 1938. Under this Act, capital redemption and annuity certain come under the ambit of general insurance business.

General Insurance Business (Nationalisation) Amendment: Amendments at Glance

The bill has sought to present 3 main amendments. They are discussed below.

• As per the first amendment, it seeks to omit the proviso to Section 10B of the General Insurance Business (Nationalization) Act 1972, which says that the shareholding of the central government in the specified insurers should be minimum 51%.
• As per the second amendment, it seeks to add a new section 24B providing cessation of the application of the Act to such insurer on and from the date on which central government ceases to have control over it. Control means the power to appoint majority of directors of specified insurer or to have a power on its management and policy decisions.
• As per the third amendment, it seeks to add a new section 31A providing for liability of a director of the specified insurer, not being a whole time director, liable for an act of omission or commission committed with his consent and knowledge.

These amendments are as per the budget announcement when the Finance Minister announced that they sought to take up the privatization of two public sector banks and a General Insurance Company in 2021-22. She further said that it will need legislative amendments and proposed to introduce the amendments in the session itself.

What was the need for an amendment?

As per the government, the need for an amendment was due to the following reasons:

• To ensure higher participation of private players in public sector insurance companies;
• To raise the level of penetration of insurance and thereby ensure social protection;
• To safeguard the interests of the policy holders more efficiently;
• To contribute to speedy growth of the Indian economy.

Indian Insurance Market

As per the data released by insurance regulatory body, Insurance Regulatory and Development Authority of India, 25 general insurance companies observed a 10.8% rise in their collective premium in the month of January 2021 to 16.247 crore rupees as compared with 14,663 crore rupees in the month of January last year.

As per the data published by IBEF, India’s insurance penetration was seen at 3.76% in FY 20. In terms of insurance density, its overall density was seen at US$ 78 in FY 20. It stated that the market share of the private sector companies in the general and health insurance enhanced from 47.97% in FY 19 to 48.03% in FY 20.

What are the pros & cons of the General Insurance Business (Nationalisation) Amendment Bill, 2021?

In order to understand the amendments, we need to weigh the pros and cons of the bill. Here in this section, we take a look at the potential pros and cons of this bill.

Pros–

• The bill aims to bring more private capital in the general insurance business, and it forms a part of the governments’ strategy to open more sectors for private participation and increase efficiency;
• It can aid in bringing essential resources;
• It will enable public sector general insurers to design innovative products and services;
• It can add to the share of India in the global insurance market.

Cons-

• The bill aims for privatization, and complete privatization of the general insurance companies can cause ownership to be with a few capitalists only.
• Another con to be aware of is that people will have trust issues as they trust public companies more.
• After this bill is implemented, the government may experience loss of money in the form of dividends considering that the governments’ share will be reduced in the general insurance business.

Conclusion

The General Insurance Business (Nationalisation) Amendment Bill, 2021, has been passed in the parliament, and it amends the General Insurance Business (Nationalization) Act 1972, which was enacted to nationalize private companies undertaking general insurance business in India. As referred at the beginning of this blog, these amendments are in line with the budget announcement when the Finance Minister announced that they sought to take up the privatization of two public sector banks & a General Insurance Company in 2021-22.

Read our article:A Detailed Review of the IRDA Act 1999