Everything you need to know about the Insurance Bill

What is the Insurance Bill?
The Insurance Laws (Amendment) Bill, 2008, which has already been passed by the Cabinet will be up for discussion in the Parliament today. The Bill will allow 49% direct foreign investment in the sector as opposed to 26% now.

Why is the Bill necessary?
As Finance Minister Arun Jaitley admitted during the presentation of the Budget, the insurance sector needs money. There are 24 life insurance companies and 27 general insurance companies. Most of them, especially the life insurance companies are not making much profit in India. Several of them are running at loss. If they get more investment, it might facilitate their expansion leading to making them profitable. The domestic sector is not being able to generate enough investment, so the Bill welcomes foreign investment to fill up that space. Estimates suggest that Rs 20,000 crore could pour into the market in near term and in the long run could go up to Rs 60,000 crore.

So will the foreign companies be in control now?
The Bill says the control of the companies will have to be in the hands of the Indian partner. For the 26% investment, there is no requirement of official approvals. However the 49% investment has to be approved by the Foreign Investment Promotion Board.

Who should be credited for the Bill?
The Insurance Bill is touted as the first big reform brought in by the Modi government. However, the Bill has been pending in the Parliament since 2008, when the UPA government could not get it approved due to opposition from several parties including the BJP. The Congress has decided to support the Bill now as it does not want to come across as an opposition party just for the sake of it.

Which are the companies that benefit?
Foreign firms already operating in India include Prudential, Standard Life, Metlife and Allianze who could expand their Indian units and try to turn their investments profitable. Some of the big names in India to gain from the Bill would be Reliance Capital, Max India, HDFC Standard Life Insurance and Religare, who could now be expecting more funds to expand their businesses as well.

Who loses out with the Bill?
Life Insurance Corp (LIC) controls more than 65% of India's life insurance companies. If the foreign players infuse money and get aggressive in the Indian market, LIC along with other state run insurance companies could face the hit.

Will more players now get listed on the Street?
This might not happen in a hurry. The joint ventures which are already in place will work out the intricacies of the Bill first. Take the example of the rider that the management control remains with the Indian partner. No one is sure what exactly it could mean. If the foreign partner is not allowed to take decisions in the firm, or not remain on the Board, or nominate a top level executive, why would the foreign partner increase its stake? And if expansions do not happen and companies do not start making profits, getting listed on the Street will not be a feasible option. The Securities and Exchange Board of India (SEBI) says that a company must have turned profits for at least three years before getting listed.

How does it impact you?
There could be two major impacts. One is with expansion of the sector, like any other expansion, there would be more creation of jobs. Two, the expansion would mean getting more people insured in the country. India has more than 90% of the workforce working in the unorganised sector which means they have no access to any form of social security. Though this is a fault in the economy that the government should be addressing, expansion of private insurance too would be beneficial. And one can hope, that with more players coming in and competition growing, the premium you have to pay every month comes down.

Then what is the problem with the Bill?
For some critiques, international pressures to open up markets is a primary reason why the government is keen of FDI. The foreign insurance players are not doing great in their own economies, They already bring the expertise with them even when their holding is capped at 26%. If they will be in any hurry to pump in more money in a sector that is not generating profits is doubtful.