Insurance Laws (Amendment) Bill passed as ordinance in India

Highlights of the Bill
Increase in foreign equity cap to 49 percent: The Bill increases the maximum permitted limit of foreign equity in Indian insurance companies from 26 percent to 49 percent. The limit shall be a composite cap – either as a direct investment or by a portfolio, or a combination of both. The management and control of the insurance companies shall remain with Indian companies. The term ‘control’ has been defined to mean “the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements”.

Lloyd’s of London to be treated as a foreign company: To facilitate the entry of Lloyd’s of London covered under the Lloyd’s Act, 1871 of the United Kingdom, the Bill amends the definition of ‘foreign company’, which will now include a company or body established under a law of any country outside India, and includes Lloyd’s of London, established under the Lloyd’s Act, 1871, or any of its members.
Registration requirements for doing insurance business in India: Every insurer is required to be registered in order to carry out insurance business in India. Under the Bill, public companies, cooperative societies, foreign companies operating through a branch and statutory bodies established by acts of Parliament have to be registered to carry out insurance. In order to be registered, each category of insurer requires a minimum amount of capital: for life insurance, general insurance and health insurance, the minimum paid up capital required is INR1 billion (around US$16 million), and for reinsurance business, the minimum paid up capital required is INR2 billion (around US$32 million). Such paid-up equity capital would not include the preliminary expenses incurred for formation and registration of the [re]insurance company.

Branches for reinsurance business in India: The Bill permits foreign reinsurers to open branches only for reinsurance business in India. The provisions prohibiting an insurer to invest directly or indirectly outside India the funds of policyholder would apply to such branches.

Power of appeal to the Security Appellate Tribunal: Appeals against decisions by the Insurance Regulatory Development Authority of India (IRDA) would be filed before the Securities Appellate Tribunal (SAT), set up under the SEBI Act, 1992.

Enhancement of penalties: The Bill enhances penalties for offences, such as carrying on the business of insurance without registration or not complying with the obligation towards the rural and social sector and third party insurance of motor vehicles.

New definition of the term ‘intermediary’: The Bill defines the term ‘intermediary’ to include insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third party administrators, surveyors and loss assessors and such other entities IRDA may notify by regulations from time to time.

Licences to insurance agents: The Bill provides that no person can be an agent for more than one life insurer and one general or health insurer. It also provides that IRDA shall ensure, while framing regulations, that no conflict of interest arises for any agent in representing two or more insurers.
The ordinance will now be laid before Parliament in the upcoming budget session for its approval. In case the ordinance is not passed by Parliament within six weeks of reassembling of Parliament or if resolutions disapproving the ordinance are passed by both the Houses, then the ordinance will cease to operate.