The government’s move to introduce composite licenses through an amendment in the Insurance Act is likely to put public sector insurers at a disadvantage vis-a-vis their private sector counterparts as only the latter will be eligible for these licenses under the proposed amendment. Insurance sector experts have cautioned about this uneven level playing field for the PSU insurers which are already in a defensive mode against intense competition unleashed by their private sector counterparts in the domestic insurance markets. On November 26, the Finance Ministry had proposed an Insurance (Amendment) Act, 2024 by amending various provisions of the Insurance Act, 1938, including raising foreign direct investment (FDI) in the insurance sector to 100 per cent, reduction in paid-up capital, and provision for composite license allowing insurers to do life/general/health in single registration However, going by the ongoing plans, after suitable legislative changes, the composite licenses can only be availed by the private sector insurers and not by the PSU insurers, insurance sector officials said. This decision may hinder PSU insurers' ability to compete with private insurers, which will have the flexibility to offer a range of insurance products under a single license. A composite licence allows an insurer to operate multiple lines of businesses like life, health and non-life insurance under one entity. This is not allowed as of now. If the PSU insurers want to avail composite licenses, the government needs to amend the two existing Acts - The Life Insurance Corporation Act of 1956 and the General Insurance Business (Nationalisation) Act, 1972 (GIBNA). However, as per the Office Memorandum (OM) and the list of proposed amendments, no such provisions have been made in these documents. The General Insurance Business (Nationalisation) Act, 1972 (GIBNA) is a legislation that nationalised the general insurance business in India and govern the operations of four PSU general insurance companies transacting general insurance business. The four PSU general insurance companies are: New India Assurance, United India Insurance, Oriental Insurance Company and National Insurance Company. The Life Insurance Corporation Act of 1956 nationalised the life insurance business in India by transferring it to a corporation and establishing regulations for its control. The act was passed by Parliament in 1956 and established the Life Insurance Corporation of India on September 1, 1956. Among the latest list of amendments, the government has suggested some changes in LIC Act, 1956 but there is no mention of any enabling clauses for allowing the corporation to go for composite in its business. The corporation, after it was formed in 1956 by merging several life insurers which were also doing non-life business, was undertaking non-life business and had a full department to run the business till some years ago. The corporation’s health insurance foray has nothing to do with the government’s proposed plans to launch composite licenses in the industry as it doesn’t need a composite license to tie up with a health insurance company. “Composite registration will be allowing insurers to do life/general/health in single registration/insurance company promoting operational efficiency for insurers having common brand across different lines of business,’’ said one of the proposed amendments proposed by the Finance Ministry. In this regard, a comprehensive review of the legislative framework governing the sector has been done in consultation with the IRDAI and the industry, the ministry note said. Such changes will help enhance efficiencies of the insurance industry, enabling ease of doing business and enhancing insurance penetration to achieve the goal of ‘Insurance for All by 2047’, it said. The introduction of composite licenses aims to increase insurance penetration in the country by allowing insurers to operate multiple lines of business under one entity. The government's move is part of a broader effort to reform the insurance industry and make it more competitive. However, excluding PSU insurers from availing composite licenses may raise concerns about their long-term viability and ability to compete with private sector players.
