Govt to limit number of new insurance firms

The amendments to the Life Insurance Act of 1938 and the General Insurance Business Nationalisation Act of 1971 will be introduced simultaneously.

These amendments will take away the monopoly status of Government-run companies and pave the way for competition for the domestic private sector.

In the meanwhile, the government will be working on the eligibility criterion for the new entrants in this sector. The eligibility criterion will be listed in the reworked IRA Bill. While some work has been done by the IRA on this front, there are lot of key issues which have to be finalised. These include the definition of Indian company and the number of players in each sector.

The Government hasto decide the extent of equity participation of foreign companies – if at all – in the domestic companies which will be allowed to compete with the public sector monopolies, Life Insurance Corporation and General Insurance Corporation. "It is easier to define a foreign company than a Indian company," officials say.

The Government will be putting a limit on the number of companies which can operate in life and non-life insurance sectors. The requirement of a high minimum capital base will itself rule out the non-serious and weak business groups. While the Malhotra Committee had suggested a figure of Rs 100 crore, the final figure could be higher.

"Every one applying for a licence will not necessarily get it. There should not be absolute confusion in the sector," say sources. There will be no extra incentives given to business houses which were running insurance companies before nationalisation. Some sections of Indian business had been lobbying for opening the insurance sector only for domestic companies.These industrialists felt that Indian companies will be able to run the business as they had experience. Business houses like the JK Group, Tatas and Birlas owned insurance companies before nationalisation. But these companies will be treated at par with others at the time of granting licenses. Once the necessary legislations are passed and the sector is actually opened up, the Tariff Advisory Committee for general insurance will be restructured.

TAC is a statutory body set up under a separate Act which represents the insurance industry and sets the tariff for general insurance.

Before nationalisation the TAC had representatives of private, foreign and Government insurance companies and its head was the the Controller of Insurance. After nationalisation the chairman of GIC was made the chairman of TAC and the CEOs and GMs of its four subsidiaries were members of the TAC.

But after the opening up of the sector, powers of the Controller of Insurance will be given the chairman of the IRA. Thus thechairman of the IRA will also be the head of TAC. Additionally, the TAC will have representatives from the new private players as its members.

Industry observers say that it will be private players will not be operational in India until 2001. It will take a few months for the Government and the IRA to finalise the norms for entry of private players.