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The General Insurance Business (Nationalisation) Amendment Bill, 2021

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

The General Insurance Business (Nationalisation) Amendment Bill, 2021:


Context:

The Bill which was introduced in Lok Sabha recently would pave the way for the government to divest its stake in general insurance firms.

  • Opposition members have however strongly objected to it and called for its withdrawal.

 

Key Provisions:

  1. It proposes amending the General Insurance Business (Nationalisation) Act, 1972 to remove the requirement for the Centre to hold at least 51 percent of equity in an insurer.
  2. Another provision ensures that the 1972 Act stops applying to insurers on and from the date the Centre ceases to have control over them.
  3. The Bill also makes a director, who is not a whole-time director, liable only for acts of omission or commission committed with his knowledge and connivance by the insurer.

 

Rationale behind these changes:

While India’s insurance sector has been growing dynamically in recent years, its share in the global insurance market remains abysmally low. The Bill aims to provide for greater private participation in the public sector insurance companies.

 

Criticisms/concerns:

  1. This may lead to total privatisation of general insurance companies.
  2. With this, the government will also lose money by way of dividend in the proportion of shares being offered.

 

Challenges in the Insurance sector:

  1. Low penetration and density rates.
  2. Inadequate investment in insurance products.
  3. The dominant position and deteriorating financial health of public-sector players.

 

Important changes witnessed by the insurance sector over the years include:

  1. Nationalisation of life (LIC Act 1956) and non-life sectors (GIC Act 1972).
  2. Constitution of the Insurance Regulatory and Development Authority of India (IRDAI) in 1999.
  3. Opening up of the sector to both private and foreign players in 2000.
  4. Increase in the foreign investment caps.

 

Insta Curious:

Have you heard of Hindusthan Insurance Society? Who founded it? Reference: read this.

 

InstaLinks:

Prelims Link:

  1. About the Bill.
  2. Key Provisions.
  3. Comparison with the old law.

Mains Link:

Discuss the significance of the bill.

Sources: the Hindu.