RSTV 3rd Aug 2021: The Big Picture: Changes in general insurance business bill
- GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- GS-3: Indian Economy & Challenges
Changes in general insurance business bill
- The Union Lok Sabha on Monday passed the General Insurance Business (Nationalization) Amendment Bill, 2021 that seeks to amend the General Insurance Business (Nationalization) Act, 1972.
- The Act was enacted to nationalize all private companies undertaking general insurance business in India.
- The Bill seeks to provide for a greater private sector participation in the public sector insurance companies regulated under the Act.
- The 1972 Act requires that shareholding of the central government in the specified insurers must be at least 51%. The 2021 Amendment Bill removes this provision.
- Besides, there are certain other amendments as well related to change in the definition of general insurance business, transfer of control from the govt, and liabilities of directors.
What is the General Insurance Business (Nationalization) Amendment Bill, 2021?
- The amendment mainly seeks to remove the requirement of a minimum of 51 per cent shareholding of the government in the four subsidiary companies of the General Insurance Company, which are the National Insurance Company, the New India Assurance Company, the Oriental Insurance Company Limited and the United India Insurance Company.
- As per the Bill, amendments had become necessary to attract larger private participation in public sector insurance companies, enhance penetration of insurance sector and to provide social protection by securing interests of policyholders.
- Bill has also changed the definition of general insurance business and transferred the power of appointing majority of directors of specified insurer & power over its management or policy decision from the government.
- The objectives and reasons for the Bill are to provide for greater private participation in public sector insurance companies, increase insurance access, better the social protection and interests of policyholders, and contribute to the rapid growth of the economy. For this, it became necessary to amend some of the provisions of the Act.
Significance of the Bill
- This bill was passed in line with government’s ambitious privatization agenda. In the budget speech for 2021-2022, finance minister announced privatization drive including two public sector banks and one general insurance company.
- Accordingly, among four public sector general insurance companies namely, National Insurance Company Limited, Oriental Insurance Company Limited, New India Assurance Company Limited and United India Insurance Company Limited; government will dilute its shareholding in one company name of which is yet to be finalized.
- The bill seeks at enhancing insurance penetration and social protection and better secure the interests of the policyholders. It also aims at contributing to the faster growth of the economy.
Opposition to the Bill
- The opposition showed concern as the bill seeks to remove the requirement that the Government should not hold less than 51% of equity capital, it also calls for greater private participation in public sector insurance companies.
- The bill was termed as anti-people and anti-national legislation by the Congress leader Adhir Ranjan Chowdhary, who spoke briefly on the bill amid the protests in Lok Sabha. Its also being said that privatizing decades old institution will lead to concentrating it into hands of capitalist.
Transfer of control from the government
- The Bill provides that the Act will not apply to the specified insurers from the date on which the central government relinquishes control of the insurer.
- Control means: (i) the power to appoint a majority of directors of a specified insurer, or (ii) to have power over its management or policy decisions.
- The Act empowers the central government to notify the terms and conditions of service of employees of the specified insurers. The Bill provides that schemes formulated by the central government in this regard will be deemed to have been adopted by the insurer.
- The board of directors of the insurer may change these schemes or frame new policies. Further, powers of the central government under such schemes (framed under the Act) will be transferred to the board of directors of the insurer.
Liabilities of directors
- The Bill specifies that a director of a specified insurer, who is not a whole-time director, will be held liable only for certain acts. These include acts which have been committed:
- With his knowledge, attributable through board processes, and
- With his consent or connivance or where he had not acted diligently.
Gaining the trust of people on privatizing
- Its mindset issue: People have more faith in govt owned companies, who see govt as a savior, but after Private companies come with good ideas eventually people will shift to them.
Can you answer this question now?
- Critically discuss the General Insurance Business (Nationalization) Amendment Bill, 2021.