Union Budget: 7 Key Amendment in 1938 Insurance Bill - Check Full Details Here!

The government intends to present a measure to alter the Insurance Act of 1938 during the upcoming Budget session, with the goal of achieving "Insurance for All by 2047," according to PTI sources. 

The draft bill will be sent to the Union Cabinet for approval. The Finance Ministry intends to present it during the Budget Session once finalized.

7 Key Amendments Proposed in 1938 Insurance Bill

According to sources who spoke with the agency, the amendment bill is expected to include a number of provisions such as composite license, differential capital, a reduction in solvency norms, the issuance of captive licenses, changes in investment regulations, one-time registration for intermediaries, and allowing insurers to distribute other financial products.

1. Composite License:

The 1938 Insurance Act states that general insurers are permitted to sell non-life goods such as health, auto, fire, and marine insurance, while life insurers are only permitted to offer life insurance products. An insurance firm cannot offer both life and non-life products as a single entity because the IRDAI prohibits composite licensing for insurance companies.

The proposed bill suggests the introduction of composite licenses, which would enable insurers to provide life as well as non-life insurance.

2. Differential Capital:

The current Insurance laws impose the same capital requirements on all insurance companies, no matter how big or small the firm is. 

The proposed measure suggests introducing differential capital norms. Insurance companies would then be able to distribute their capital based on their size and areas of expertise.

3. Reduction in Solvency Norms:

Current laws require insurance companies to keep a specific amount of solvency margin in order to guarantee that they can pay their future commitments.

By lowering these solvency standards, the amendment hopes to promote greater market competition and possibly lessen the financial hurdles for new entrants. 

4. Issuance of Captive Licenses:

The amendments in the bill might include provisions allowing big industries to create their own insurance companies by issuing captive licenses. This change could allow large companies to manage their employees’ life insurance on their own, and manage risks as per their requirements.

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5. Changes in Investment Regulations:

The Amendment Act proposes shifting the responsibility for setting investment criteria and restrictions from the Insurance Act to the IRDAI. These changes will make investment norms more flexible and efficient.

The Act also increases the minimum paid-up equity capital requirement from 1% to 5% in order for the IRDAI to allow share transactions. This change facilitates market participation and simplifies the process for smaller investments.

6. One-Time Registration for Intermediaries:

The amended bill proposes a one-time registration process to simplify market entry for insurance intermediaries and reduce administrative burdens.

Under the Amendment Act, these intermediaries would only need to register once and pay an annual fee set by the IRDAI. The main difference would be the timeline of the validity of the registration. The registration made under the new insurance bill would remain valid indefinitely, unlike the previous system where registrations had to be renewed every three years.

7. Allowing Insurers to Distribute other Financial Products

The proposed bill may make it possible for insurers to distribute other financial goods, thus expanding the range of services they provide and bringing additional financial solutions under one roof.

Advantages of New Insurance Bill

• The proposed bill amendments are intended to enhance policyholder returns and protect customers better.
• These amendments will help make entry for new companies into the insurance market easy.
• The increased efficiency achieved through the changes can contribute to economic growth and job creation in the Indian insurance sector.
• The proposed amendments will simplify business operations, attracting more Indian and foreign companies to the insurance sector.

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