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Govt mulls in-principle clearance for pvt insurance companies

Neena Haridas in New Delhi

Even as the Insurance Regulatory and Development Authority Bill awaits its fate in the next session of Parliament, the government is considering according in-principle approval to private insurance companies pending issuance of licence.

This will be done once IRDA acquires statutory powers. The move, according to government officials, is being considered in order to expedite the process of setting up business by those promoters whose applications prima facie conform to the guidelines to be notified after the IRDA Bill is passed.

An in-principle clearance will enable eligible promoters to begin in earnest locating property and setting up offices, recruiting employees, preparing their campaigns and literature as also putting in place their distribution networks.

A number of big industrial houses including the Birlas and the JK Group are reportedly interested in floating their ventures in the insurance sector with foreign partners.

The insurance business in India is pegged at $6.6 billion and industry leaders feel privatisation will expand the market to $26 billion.

Hence, the introduction of the IRDA Bill in Parliament last week was welcomed by for many aspirants. The one-day strike by the public sector insurance workforce against "privatisation" has left the top brass unfazed, since there is no move yet to dilute equity in state-owned corporations.

Besides, the government is unlikely to introduce any more major changes in the bill as it has already accepted the recommendations of the standing committee on finance and brought down the foreign equity to 26 per cent from 49 per cent. It has also not earmarked equity for foreign institutional investors, Non Resident Indians, and Overseas Corporate Bodies in the private insurance firms, said insurance industry observers.

"The unions are just pandering to their constituents and carrying out their perceived role. Every stakeholder in the sector is reconciled to the impending liberalisation", says a Life Insurance Corporation official.

Industry observers pointed to the studied silence of the Congress in Parliament when the bill was tabled, since it had initiated financial sector reforms in the first place. Votaries of the PSU employees' rights had also failed to append dissent notes to the parliamentary standing committee report on which the IRDA Bill 1999 is based, they observed. Suitable noises of opposition were being made but these were expected to fizzle out by the Budget session, feel analysts.

Meanwhile, foreign insurers who have set up representative or liaison offices in India, entered into asset management fund businesses or simply signed memoranda of understanding with prospective Indian partners, are fretting at the delays that still await them.

"So near and yet so far," regretted one foreign representative, when told that even if the IRDA Bill goes through in the Budget session, the watchdog will have to table the guidelines in Parliament before it can invite applications.

The process could thus easily spill over to the monsoon session, and the first applications may be vetted only by December 2000 or so, an insurance official said.

The IRDA Bill restricts foreign equity stake in domestic private insurance companies to a maximum of 26 per cent of the total paid-up capital. The bill seeks to provide statutory status to the insurance regulator and privatise the sector by amending the “exclusive privelege” granted to the General Insurance Corporation and Life Insurance Corporation in the GIC Act 1956 and LIC Act 1972 respectively.

The IRDA Bill proposes a minimum paid-up capital for life and non-life insurance companies of Rs 1 billion, while for reinsurance companies it is Rs 2 billion. The Bill states that the Indian promoter will have to mandatorily lower its stake in the private insurance firm from the initial 74 per cent to 26 per cent in a period of ten years.

It is proposed that in the private insurance joint venture, the Indian promoter will come to hold 74 per cent stake in the venture initially, leaving the foreign partner with 26 per cent. The bill also lays down the maximum solvency margin required to be maintained by the private insurance firms, and the regulations for insurance agents and brokers.

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