The composite license allows the insurer to run multiple lines of business, such as life, health and nonlife insurance, under one entity. As of right now, this is not permitted.
In the event that the government amends the Insurance Act to allow composite licenses, it will likely put public insurers at a competitive disadvantage with their private counterparts. Only the latter are eligible to receive these licenses.
Insurance experts have warned about the uneven playing field that exists for PSU insurers, who are already on the defensive against the intense competition unleashed in the domestic markets by their counterparts from the private sector.
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/insurance.
The introduction of composite licences is intended to increase the penetration of insurance in the country. This will be achieved by allowing insurers operate multiple lines of businesses under one entity. (Representative/ File)
In the event that the government amends the Insurance Act to allow composite licenses, it will likely put public insurers at a competitive disadvantage with their private counterparts. Only the latter are eligible to receive these licenses.
Insurance experts have warned about the uneven playing field that exists for PSU insurers, who are already on the defensive against the intense competition unleashed in the domestic markets by their counterparts from the private sector.
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/insurance.
Insurance sector officials stated that, based on the current plans, composite licenses will only be available to private insurers after appropriate legislative changes. PSU insurers cannot apply for these licenses. The decision could hinder the ability of PSU insurers to compete with private insurance companies, who will be able to offer multiple products under one license.
The composite license allows the insurer to run multiple lines of business, such as life, health and nonlife insurance under a single entity. As of right now, this is not permitted.
The government must amend two Acts to allow PSU insurers to obtain composite licenses. These are the General Insurance Business (Nationalisation) Act, 1973 (GIBNA) and the Life Insurance Corporation Act, 1956 (LICA). According to the Office Memorandum and the list proposed amendments however, these documents do not contain such provisions.
The General Insurance Business (Nationalisation) Act, 2002 (GIBNA) was enacted to nationalise the general insurance industry in India. It also governs the operations of the four PSU General Insurance Companies that transact general insurance.
New India Assurance (also known as United India Insurance), Oriental Insurance Company, National Insurance Company, and New India Assurance are the four PSU general insurers.
The Life Insurance Corporation Act of 56 nationalised India's life insurance industry by transferring the business to a corporation, and setting up regulations for its management. The Life Insurance Corporation of India was established on September 1, 1956, after the act passed in Parliament.
The government has proposed some amendments to the LIC Act of 1956, but no enabling clauses are mentioned that would allow the corporation the option of going composite. After it was created in 1956, by merging life insurers that also did non-life insurance, the corporation was doing non-life and had a department to manage its business until a few years ago.
The government's plans to introduce composite licenses to the insurance industry have nothing to do the corporation's foray into health insurance. It doesn't require a composite licence to partner with a health insurer.
"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.
The note from the ministry stated that a review of the entire legislative framework for the sector was conducted in consultation with IRDAI, and the industry.
It said that such changes would help improve the efficiency of the insurance sector, facilitate ease of business, and increase insurance penetration in order to reach the goal of "Insurance for All By 2047".
By allowing insurers the ability to run multiple lines of insurance under one entity, composite licenses aim to increase penetration of insurance in the country. The move by the government is part of an effort to reform and make more competitive the insurance industry. The government's decision to exclude PSU insurers, who are not eligible for composite licenses, may have implications on their viability in the long term and ability compete with private players.
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