Insurance to bring in $40 bn

The United States and Switzerland had this insurance coverage intensity as high as nine and 10.5 per cent of GDP respectively, he added. He said as of now pension fund including insurance formed only 12 per cent of GDP in the country unlike in many other countries where it was as high as 40 per cent of GDP making available huge quantity of long-term funds.

Such long-term funds could be provided only by insurance and pension funds and the country needed a massive investment of $130 billion in the next ten years forinfrastructure development, he said.

Chaturvedi said only one comprehensive bill would be brought before the Parliament in the winter session and this would provide for setting up the Insurance Regulatory Authority, amendments to 1956 LIC, 1972 GIC and 1938 Insurance Act to enable opening up of the sector besides making penalty more stringent for violation of IRA rules.

Refusing to give details of the bill saying it was still at the drafting stage, he said Insurance Regulatory Authority would be definitely provided “more teeth.” “The proposed IRA would like Securities and Exchanges Board of India (SEBI) having power of both adjudication and penalties,” he said.

He did not agree with the view that surveillance would become difficult with the opening up of the insurance sector as has happened in the case of capital market. The number of players were very large in the capital market unlike in the insurance sector where it was limited, he said adding surveillance and monitoring would not be difficult inthe insurance sector.

Asked when he expected foreign insurance companies to set up their joint ventures in the country, he said six to eight months after the comprehensive Bill is passed in Parliament. To a question on which were the foreign insurance companies evincing interest in coming to India, Chaturvedi said he would not like to go into their names but all major players including from the United States, United Kingdom, Switzerland were interested in setting up joint ventures in India.

Noting that the comprehensive Bill will provide stringent penalties, Chaturvedi said Insurance Act came into being in 1938 when income levels were low and hence prescribed penalties as low as Rs 50 for violation of rules.

Such outdated penalties would be meaningless in the present day, particularly when the sector was being opened up. Penalty for loss to customers should be much higher, he said.

Also under the Section Six of the 1938 Act, insurance company requires a minimum share capital of Rs 50,000 to startbusiness. This has to be substantially stepped up to at least Rs 100 crore, he said.

Chaturvedi said he was not in favour of selective opening up of the insurance sector as contemplated earlier by the United Front government. The original plan was to open up the health insurance first.

When the sector is opened up, it should be for all the sectors particularly life insurance without which no purpose would be served, he said.

Asked if government equity in LIC be divested to have a strategic foreign partner, he said it was for the LIC to decide on the matter but it appears most unlikely.