New general insurance law will allow the government to privatise some state-owned insurers

• Lok Sabha passed the General Insurance Business (Nationalisation) Amendment Bill, 2021 on August 2.
• The bill seeks to remove the requirement of the union government holding not less than 51% of the equity capital in a specified insurer.
• Now this bill will bring in higher private sector participation in government held insurance companies.
• This is in relation to the finance minister’s budget speech where she mentioned that the government wants to privatise two public sector banks and one general insurance company.

The General Insurance Business (Nationalisation) Amendment Bill, 2021 was passed by the Rajya Sabha on August 11.

The bill seeks to remove the requirement that the union government should hold 51% stake in a specified general insurer. With this bill, the government will progress its divestment plans and privatise one of the general insurance companies.

The government hopes that this will lead to more people getting insurance in the country. Right now, less than four in every 100 Indians have any kind of insurance.

With the move, foreign investors will be able to hold up to 74% in the divested general insurance company.

A report by Times of India suggests that the government will privatise one of the general insurance companies from United India Insurance, National Insurance and Oriental Insurance. The Finance Minister had said in the budget it would privatise one of the public general insurance companies.

This is in relation to India’s Finance Minister Nirmala Sitharaman’s budget 2021-22 speech where she had announced a big ticket privatisation agenda, which included two public sector banks and one general insurance company.

There are four general insurance companies in the public sector -- National Insurance Company, New India Assurance Company, Oriental Insurance Company and the United India Insurance Company.

So what difference will this bill bring?

Firstly, this bill will aid the government to sell stakes in some general insurance companies to private sector companies.

To put it into perspective, although public sector insurance firms have a bigger market share in the insurance industry, they have a bad financial health which restricts them from offering low cost affordable insurance products. This eventually hinders the growth of insurance penetration in the country.

With the private sector getting some control over such companies, they would be able to infuse capital and get things working. United India Insurance posted a net loss of ₹1,485 crore in 2019-20 while National Insurance Company posted a loss of ₹4,100 crore.

Lack of capital made it difficult for insurers to expand their reach to unpenetrated regions.

India’s insurance penetration stood at 3.76% in FY20, which is much lower against the global average of 7%, as per Insurance Regulatory and Development Authority (IRDAI) data. The low insurance penetration data tells that a large section of the country is still uninsured.

While the pandemic has already boosted awareness and the importance of having health coverage, the move to privatise general insurance space might improve insurance coverage in the country.

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