India's Insurance Act set to undergo the Final Phase of Five Major Revisions

The Indian insurance sector is on the verge of a major transformation as the proposed amendments by the government move closer to their final implementation. The Department of Financial Services has announced that these amendments will be discussed during the upcoming monsoon session of the Parliament.

Outlined below are the five crucial amendments proposed by the government:

  • Composite Insurance Licenses: Life, general, and standalone health insurance companies will be allowed to venture into different sub-segments of the insurance business, such as motor, health, accident, protection, annuity, or endowment. This cross-entry will promote competition, flexibility, and integration within the Indian insurance sector.

  • Distribution of Other Financial Products: Insurance companies may be granted permission to distribute various financial products, including mutual funds, loans, credit cards, and bank deposits. This diversification will enable insurers to expand their offerings to existing customers and create new revenue streams.

  • Reduction of Initial Capital: The insurance regulator intends to reduce the initial capital required to establish an insurance business. The proposed amendment aims to lower the minimum capital on a case-by-case basis, encouraging smaller niche companies and insurance tech firms to enter the Indian insurance space.

  • Captive Insurance License: Conglomerates will be permitted to establish captive insurance entities, allowing them to set up subsidiaries that exclusively provide coverage to the parent company and its affiliates. This provision offers businesses more options for managing their risks and insurance needs.

  • Investment Regulations: The government proposes granting the Insurance Regulatory and Development Authority of India (IRDAI) the power to adjust investment limits for insurers. Currently, insurers must invest a minimum of 50% in government securities and 15% in equities. The amendment would enable the regulator to modify these limits based on industry dynamics and market conditions.

While the amendments regarding composite insurance licenses and distribution of financial products are expected to proceed as planned, there might be some modifications to the investment regulations and captive insurance provisions.

Changes in investment limits will be determined by the regulator in consultation with the government and will apply to the entire industry. The issuance of captive licenses will fall under the purview of IRDAI, while minimum solvency requirements for captive insurers will be decided in consultation with the government.

These proposed amendments have the potential to reshape the insurance sector in India, fostering innovation, expanding product offerings, and creating a more dynamic and competitive industry.