15 February 2011

Insurance wish list for budget 2011

Insurance wish list for budget 2011 ; The Government of India brought the finance reform bill in 2008 for the first time. However, this was thrown in the cold storage because of stiff opposition by the political parties and employees of major insurance companies.

Despite these oppositions, the insurance amendment bill will be pushed hard by the Government. There are other changes in the insurance amendment bill that will also be looked upon by regulators and insurance industries.

The Government & standing committee in finance have started discussion with insurers, bankers, and regulators on insurance reforms. This has given hope that the impending changes will be tabled in parliament in this budget session and implemented with clear direction.

Insurance business is a capital intensive business. The industry needs capital inflow on regular basis for its operational needs. Foreign direct investment and capital market are two major sources of capital in any industry. The insurance industry is looking forward to the budget 2012 with the hope that these sources of capital will be unleashed.

The biggest expectation of insurance industry is tabling of finance reform bill, more specifically insurance amendment bill, in the parliament in this budget session. Some of the specific expectations are as follows:

Increased limit on the foreign direct investment
Currently the cap on foreign direct investment in insurance sector is 26%. The insurance industry expects the Government to raise the cap on FDI to 49% to attract capital in this capital intensive sector as proposed in the insurance amendment bill.

Many insurance companies would like to invite foreign partners to raise their stake. At the same time, raising the cap to 49% will provide enough incentive to foreign companies to invest in Indian insurance sector. This will create required capital in the industry.

Allow Government owned insurance companies to enter capital market
The Government owned insurance companies are in need of fresh capital to expand further and the best way to do it is to tap the capital market. The Government is not in position to infuse fresh capital to the insurance companies. The expectation from the insurance amendment bill is that it will allow Government owned companies to raise money from capital market.

Clarity on pension reform bill
The other expectation is related to pension reform bill, also known as pension fund regulatory and development authority bill. This will facilitate new pension system, based on defined contribution, which is open to all Indian citizens.

LIC amendment bill
There is a bill named LIC amendment bill related to paid up capital required for state run insurer. As per the existing norm, the paid up capital requirement for state run insures is 5 crore. The industry expects this to be increased to 100 crore. This is the norm for private insurance players. The insurance industry expects uniformity in treatment of private and state run insurers in this regard.

IPO norms for insurance companies
The insurance sector also wishes to see the regulation for insurance companies for initial public offerings. All the big insurance companies have shown interest in tapping the capital market for expansion. The existing law requires an insurance company to be in the business for at least 10 years before it can go public to raise capital. This prevents many good companies from listing on stock market even though they can satisfy SEBI requirement for listing. The other requirement is that the insurance company has been earning profits for at least 3 years in order to float public issue.

The insurance sector will like these regulations to be deleted or reformed to fewer numbers of years. The insurance sector will further want the Government to list out clear norms for listing. As per IRDA, the listing norms will be finalized by the budget.

The insurance sector wishes to see some headway in initial public offerings for non-life insurers too.

Reduction in minimum capital requirement
Currently the minimum capital required to enter insurance business (life or general) is 100 crore. The insurance industry expects the required paid up capital for health insurer will be reduced to 50 crore so that more players can enter this sector. This will allow many smaller companies that can enter insurance sector, to start operation and tap the vast insurance market.

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