The union government moved a step closer to start long-pending reforms in the insurance sector by introducing the Insurance Reforms Bill in the Rajya Sabha on Monday, amid stiff opposition from the opposition parties, especially the Left. The bill is aimed at increasing the foreign direct investment (FDI) in the insurance sector from the existing 26 per cent to 49 per cent. The amendment in the insurance bill would also allow four state-owned general insurance companies to raise funds from the capital market.

Government proposes amendment in the Insurance Act 1938, the Insurance Regulatory and Development Authority Act 1999 and the General Insurance Business (Nationalization) Act 1972 to pave the way to increase the foreign equity limit in the Indian insurance companies.

Now, Oriental Insurance, New India Assurance, United India Insurance and National Insurance can raise funds from the capital market with the prior approval of the government. The bill would also allow the health insurance companies to enjoy lower investment limit of Rs. 50 crore to Rs 100 crore for companies entering in the life or general insurance business sector.  

Thus, the new companies with less capital may be able to start the health insurance services, leading to further expansion of the insurance segment in the country. The bill would allow foreign re-insurance companies to start services in India with a minimum paid-up capital of Rs. 200 crore. The bill also proposes penalty of Rs. 25 crore for inefficient services to the rural, social sector or motor vehicle insurance sector.