## Report on the Insurance Amendment Act, 2021
**1. Executive Summary:**
This report analyzes the Insurance Amendment Act, 2021, as introduced in the Rajya Sabha on March 15, 2021. This amendment to the Insurance Act, 1938 primarily aims to increase the permissible limit of foreign investment in Indian insurance companies from 49% to 74%. The core purpose is to attract more foreign capital, technology, and skills into the Indian insurance sector, ultimately enhancing insurance penetration and social protection. Key findings highlight the specific clauses amended, the intended beneficiaries of the increased foreign investment, and the delegated authority to the Central Government for prescribing investment conditions.
**2. Introduction:**
This report provides an overview and analysis of the Insurance Amendment Act, 2021, based solely on the provided legislative text. The purpose is to inform stakeholders, particularly those in the insurance industry, about the key provisions and potential implications of this amendment.
**3. Policy Overview:**
* **Amendment to:** The Insurance Act, 1938.
* **Core Objective(s):** Based on the provided "Statement of Objects and Reasons," the core objectives are to:
* Increase foreign investment in Indian insurance companies.
* Supplement domestic long-term capital, technology, and skills.
* Enhance insurance penetration and social protection.
* Align with the Government's Foreign Direct Investment Policy.
**4. Background and Rationale:**
This amendment seeks to address the need for increased foreign investment to bolster the Indian insurance sector. The text explicitly states that the existing 49% limit is being raised to 74% to attract more capital, technology, and skills. The rationale is rooted in the government's broader Foreign Direct Investment Policy, which aims to leverage foreign resources for economic growth and enhanced social protection through increased insurance coverage.
**5. Key Provisions / Changes:**
This amendment introduces the following specific changes to the Insurance Act, 1938:
* **Amendment to Section 2 (Definition of "Indian Insurance Company"):**
* **Original Provision:** (Inferred) Foreign investment in Indian insurance companies was previously capped at 49%. The company needed to be Indian owned and controlled based on certain rules.
* **New Provision:** Subclause (b) of Clause 7A of Section 2 is substituted to allow foreign investors, including portfolio investors, to hold up to 74% of the paid-up equity capital of an Indian insurance company. The foreign investment is subject to conditions and manners as prescribed by the Central Government.
* **Effect of Change:** This significantly increases the allowable foreign ownership in Indian insurance companies, potentially leading to greater foreign influence and investment.
* **Amendment to Section 27:**
* The "Explanation" to subsection 7 of section 27 is omitted. The text doesn't give enough information to determine what this explanation said or what the effects of this ommission is.
* **Amendment to Section 114:**
* **Original Provision:** Section 114 outlines the Central Government's power to make rules.
* **New Provision:** Clause (aaa) is substituted to specify that the Central Government can make rules regarding "the conditions and manner of foreign investment under subclause b of clause 7A of section 2."
* **Effect of Change:** This change explicitly empowers the Central Government to set the specific conditions and manner in which the increased foreign investment (up to 74%) will be implemented, ensuring regulatory oversight.
**6. Target Audience and Stakeholders:**
Based on the text, the primary target audience and stakeholders include:
* **Indian Insurance Companies:** Directly affected by the increased foreign investment limit.
* **Foreign Investors (including Portfolio Investors):** Potential investors seeking to capitalize on the expanded ownership opportunities.
* **Policyholders:** Indirectly affected through potentially improved services and increased insurance penetration.
**7. Implementation Aspects (Inferred):**
* **Responsible Agency/Bodies:** The Central Government is responsible for setting the conditions and manner of foreign investment, as per the amended Section 114. The "Official Gazette" is specified as the means of notification for the Act's commencement.
* **Timelines/Procedures:** The Act will come into force on a date appointed by the Central Government, to be notified in the Official Gazette.
* **Amendment-Specific Implementation:** The Central Government will formulate rules regarding the conditions and manner of the increased foreign investment (up to 74%), requiring new regulatory procedures.
**8. Expected Outcomes / Impact of Changes:**
The intended outcome of these changes is to:
* Attract greater foreign capital into the Indian insurance sector.
* Facilitate the transfer of advanced technology and skills.
* Improve insurance penetration, leading to greater social protection.
* Boost the overall growth of the Indian economy. The impact of omitting the "Explanation" to subsection 7 of section 27 is unknown.
**9. Conclusion:**
The Insurance Amendment Act, 2021, represents a significant shift in the regulatory landscape of the Indian insurance sector. By raising the foreign investment limit to 74%, the amendment aims to unlock new avenues for growth, innovation, and enhanced insurance coverage. The Central Government's role in setting the conditions for this investment will be critical in ensuring a stable and beneficial outcome for all stakeholders.
Key Entities Referenced
Rajya Sabha: The council of states, upper house of the Parliament of India, where the Bill was introduced.
Insurance Act, 1938: The principal Act being amended by this bill, related to the business of insurance in India.
Insurance Amendment Act, 2021: The short title of the Act resulting from the Bill to amend the Insurance Act, 1938.
Central Government: The government body responsible for appointing the date of enforcement of the Insurance Amendment Act, 2021 and for making rules regarding foreign investment.
Indian insurance company: Refers to an insurance company operating within India that is subject to the specified foreign investment regulations.
Foreign Direct Investment Policy: The Government's policy aimed at supplementing domestic long-term capital, technology, and skills for economic growth and insurance sector development.
Insurance Amendment Bill, 2021: The Bill proposing amendments to the Insurance Act, 1938, including raising the limit of foreign investment in Indian insurance companies.
Nirmala Sitharaman: The individual associated with the Bill (likely the Minister responsible for introducing it).
Desh Deepak Verma: Secretary-General.
Minto Road, New Delhi: Location of the Government of India Press.
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Separate paging is given to this Part in order that it may be filed as a separate compilation.
RAJYA SABHA
————
The following Bill has been introduced in the Rajya Sabha on the
15th March, 2021:—
BILL NO. XX OF 2021
A Bill further to amend the Insurance Act, 1938.
BE it enacted by Parliament in the Seventy-second Year of the Republic of India as
follows:—
1. (1) This Act may be called the Insurance (Amendment) Act, 2021. Short title and
commencement.
(2) It shall come into force on such date as the Central Government may, by notification
in the Official Gazette, appoint.
4 of 1938. 2. In the Insurance Act, 1938 (hereinafter referred to as the principal Act), in section 2, Amendment
in clause (7A), for sub-clause (b), the following sub-clause shall be substituted, namely:— of Section 2.
"(b) in which the aggregate holdings of equity shares by foreign investors
including portfolio investors, do not exceed seventy-four per cent. of the paid-up
equity capital of such Indian insurance company, and the foreign investment in which
shall be subject to such conditions and manner, as may be prescribed;".2 THE GAZETTE OF INDIA EXTRAORDINARY [ PART II—
Amendment 3. In section 27 of the principal Act, in sub-section (7), the Explanation shall be omitted.
of section 27.
Amendment 4. In section 114 of the principal Act, in sub-section (2), for clause (aaa), the following
of section 114. clause shall be substituted, namely:—
"(aaa) the conditions and manner of foreign investment under sub-clause (b) of
clause (7A) of section 2;".SEC. 2] THE GAZETTE OF INDIA EXTRAORDINARY 3
STATEMENT OF OBJECTS AND REASONS
The Insurance Act, 1938 was enacted to consolidate and amend the law relating to
business of insurance in the country. The foreign investment in insurance sector was permitted
in the year 2000 by allowing the same up to 26 per cent. in an Indian insurance company.
Subsequently, vide the Insurance Laws (Amendment) Act, 2015, this limit of foreign investment
was raised to 49 per cent. of the paid-up equity capital of such company, which is Indian
owned and controlled as per the rules made in this behalf.
2. In order to achieve the objective of Government's Foreign Direct Investment Policy
of supplementing domestic long-term capital, technology and skills for the growth of the
economy and the insurance sector, and thereby enhance insurance penetration and social
protection, it has been decided to raise the limit of foreign investment in Indian insurance
companies from the existing 49 per cent. to 74 per cent.
3. Accordingly, the Insurance (Amendment) Bill, 2021, amending the Insurance
Act, 1938, seeks, inter alia, to provide for—
(i)substitution of sub-clause (b) in the definition of "Indian insurance company" in
clause (7A) of section 2 of the Insurance Act, 1938, so as to raise the limit of foreign investment
in an Indian insurance company from the existing 49 per cent. to 74 per cent. and to allow
foreign ownership and control with safeguards;
(ii) omission of the Explanation to sub-section (7) of section 27.
4. The Bill seeks to achieve the above objectives.
NIRMALA SITHARAMAN.4 THE GAZETTE OF INDIA EXTRAORDINARY [PART II—SEC. 2]
MEMORANDUM REGARDING DELEGATED LEGISLATION
Clause 4 of the Bill seeks to amend section 114 of the Insurance Act, 1938, which
provides that the Central Government make rules for the conditions and manner of foreign
investment under sub-clause (b) of clause (7A) of section 2.
2. The matter in respect of which the aforementioned rules may be made are matters of
procedure and administrative details, and as such, it is not practicable to provide for them in
the proposed Bill itself. The delegation of legislative power is, therefore, of a normal character.
————
DESH DEEPAK VERMA,
Secretary-General.
.
UPLOADED BY THE MANAGER, GOVERNMENT OF INDIA PRESS, MINTO ROAD, NEW DELHI–110002
AND PUBLISHED BY THE CONTROLLER OF PUBLICATIONS, DELHI–110054.
MGIPMRND—1626GI(S3)—16-03-2021.