Finance Ministry mulls ‘relevant changes’ in insurance laws; relaxation of entry-level capital requirements

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Finance Ministry considers ‘relevant changes’ to insurance laws

In an effort to facilitate growth and ease of doing business in the insurance sector, the Ministry of Finance is considering making relevant changes to insurance laws, including reducing the minimum capital requirement.
Insurance penetration in India is extremely low compared to developed countries like the United States, Canada and many European countries. Although it increased from 3.76% in 2019-2020 to 4.20% in 2020-21, registering a growth of 11.70%. This growth can be attributed to people’s awareness and concerns after the COVID-19 outbreak.
The Department of Finance is carrying out a comprehensive review of the Insurance Act 1938 and is also considering making relevant changes to help spur growth in the sector, PTI news agency reported, citing sources.

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One of the provisions being considered is lowering the minimum capital requirement by Rs 100 crore for starting an insurance business, the sources said.

The decision to relax the capital requirement would allow the entry of differentiated insurance companies as in the banking sector, which includes categories like universal banking, small corporate banking and payment banking.

With the ease of entry capital standards, there could be the entry of businesses focused on microinsurance, agricultural insurance or insurance companies with a regional approach, the sources said, according to the report.

Thus, for them, the solvency margin requirement would also be different but without compromising the interest of policyholders, the sources said. The entry of more players would not only boost penetration but lead to greater job creation in the country.

Currently, there are 24 life insurance companies and 31 non-life or general insurance companies, including specialized players like Agriculture Insurance Company of India Ltd and ECGC Limited.

Last year, the government amended the Insurance Act to allow foreign ownership of insurers to increase from 49% to 74%.

Furthermore, Parliament passed the General Insurance Business (Nationalisation) Amendment Bill, 2021, allowing the central government to reduce the shareholding to less than 51% of the share capital of a specified insurer, paving the way for privatization.

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