GS Paper 3
Syllabus: Mobilisation of resources
Source: IE
Direction: The article highlights the insurance regulatory framework in India, the government’s recent decision to review this framework and its significance.
Context: In light of the changing needs of the insurance sector, a comprehensive review of the sector’s legislative framework has been conducted by the government in collaboration with the Insurance Regulatory and Development Authority of India (IRDAI) and the industry.
Background: The Department of Financial Services, Ministry of Finance, is in the process of amending the Insurance Act 1938 and the IRDA Act 1999, to take the reform agenda in the insurance segment to the next level.
Insurance regulatory framework in India:
- IRDAI is a statutory body established under the IRDA Act 1999, for –
- Overall supervision and development of the insurance sector in India,
- Promotion of competition so as to enhance customer satisfaction,
- Ensuring the financial security of the Insurance market.
- The Insurance Act, of 1938 is the principal Act governing the Insurance sector in India. It empowers IRDAI to frame regulations for the supervision of the entities operating in the sector.
The proposed amendments primarily focus on:
- Enhancing the financial security of the policyholders,
- Promoting policyholders’ interest,
- Improving returns to the policyholders,
- Facilitating the entry of more players in the insurance market leading to economic growth and employment generation,
- Enhancing efficiency (operational and finance) of the insurance industry,
- Enabling ease of doing business (EoDB).
Reforms suggested by the IRDAI:
- Issuing composite licences, which is a common license (banned as of now) to operate in both the life and general insurance markets.
- Reducing the minimum capital requirement from Rs 100 crore in order to enable the entry of smaller players (micro insurers), to serve niche markets.
Earlier reforms:
- The government raised the foreign direct investment (FDI) limit in insurance from 49 to 74% in the 2021 budget.
- The IRDAI approved proposals, involving investment, solvency norms, dilution of equity and fundraising, aimed at promoting EoDB and simplifying the process of setting up an insurance company.
Significance of proposed changes:
- It will facilitate the longer-term growth of the industry and bring India closer to global practices.
- It will enable insurers to offer comprehensive service to their customers.
- It will also help companies tap into newer market segments and reach new customers.
- In the current digital environment, where customer expectations are fast evolving, these changes will provide a uniform, yet personalised service to customers.
Insta Links:
More a private sector primer than a health-care pathway
Mains Links:
Q. Health insurance in India suffers from many lacunae. In the light of the basic right to health of citizens that flows from Article 21 of the Constitution, critically analyse problems plaguing India’s health insurance sector and measures needed to fix these problems. (250 Words)
