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This article has been written by Anindita Deb, a student of Symbiosis Law School, Noida. The objective of this article is to discuss the amendments made to insurance legislations in 2021 and the provisions under them.


Two very important Bills related to the insurance sector have been passed by the Lok Sabha which amend the legal framework surrounding insurance regulations. The Bills are the Insurance (Amendment) Bill, 2021 and the General Insurance Business (Nationalisation) Amendment Bill, 2021. The article will further discuss the provisions under both.

The Insurance (Amendment) Bill, 2021

Ms. Nirmala Sitharaman, Minister of Corporate Affairs, introduced the Insurance (Amendment) Bill, 2021, in the Rajya Sabha on March 15, 2021. The Insurance Act of 1938 is amended by this Bill. The Act establishes a framework for the operation of insurance companies and governs the relationship between insurers, policyholders, shareholders, and regulators, i.e., the Insurance Regulatory and Development Authority of India (IRDAI). The main objective of this Bill is to enhance the amount of foreign capital that can be invested in an Indian insurance company.

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Provisions of the Bill

The Bill has amended provisions of the Insurance Act, 1938 with respect to foreign investment and investment of assets in the India insurance companies. 

Foreign investment

Foreign investors can own up to 49 percent of an Indian insurance company, which must be owned and controlled by an Indian corporation under this Act. The Bill raises the foreign investment ceiling in Indian insurance companies from 49 percent to 74 percent and removes ownership and control restrictions. However, additional conditions imposed by the central government may apply to such foreign investment. 

The term “total foreign investment” refers to both direct and indirect foreign investment.

Foreign Direct Investment refers to money invested directly by a foreigner, whereas Indirect Foreign Investment refers to money invested indirectly by an Indian company (owned or managed by foreigners) in another Indian entity.

A majority of the directors, senior management personnel, and at least one of the chairpersons of the Board, Managing Director, and the CEO of a foreign-invested Indian insurance company must be a citizen of India.

Investment of Assets

The Act mandates that insurers maintain a minimum investment in assets adequate to cover their insurance claim obligations. If the insurer is incorporated or domiciled outside of India, the assets must be held in a trust in India and entrusted to trustees who must be Indian citizens. This will also apply to an insurer incorporated in India if at least: 

  1. 33 percent of the capital is owned by investors domiciled outside India, or 
  2. 33 percent of the members of the governing body are domiciled outside India, according to the Act’s explanation. 

The Bill removes this explanation.

Importance of the Bill

The implementation of this Bill will serve the following benefits:

  • With the increase in foreign ownership to 74 per cent, global best practices in terms of insurance products may be included in the future. It would also aid in the reduction of insurance product costs in India.
  • It is beneficial to Indian promoters since it allows them to maintain control over management and the board of directors, and the additional capital inflow will provide them with finances to pursue growth.
  • It will benefit minor insurance players or those whose sponsors do not have the financial resources to invest more cash, thereby strengthening them and creating competition in the business.
  • It is expected to assist local private insurers in rapidly growing and expanding their footprint across India, which has one of the lowest levels of insurance penetration in the world.

Insurance penetration in India

  • India’s insurance penetration is currently at 3.7% of GDP, compared to the global average of 6.31%.
  • The life insurance industry’s growth has slowed to 11-12 per cent from 15-20 per cent till the fiscal year 2020, as the pandemic has prompted customers to save money rather than invest in stocks or life insurance plans.
  • There were just 24 life and 34 non-life direct insurers in India as of March 31, 2021, compared to 243 life insurance businesses in 1956 and 107 non-life insurance companies in 1973 when the country was nationalised.

Model Insurance Villages (MIVs)

To increase insurance penetration in rural regions, the Insurance Regulatory and Development Authority of India (IRDAI) has proposed the notion of a “Model Insurance Village (MIV). The objective is to provide complete insurance coverage for all of the key insurable risks that villages face, with affordable or subsidised premiums.

The General Insurance Business (Nationalisation) Amendment Bill, 2021

On July 30, 2021, the General Insurance Business (Nationalisation) Amendment Bill, 2021 was introduced in the Lok Sabha. The General Insurance Business (Nationalisation) Act, 1972, is being amended by this Bill. The Act was enacted to nationalise all private general insurance companies operating in India. The Bill aims to increase private sector participation in the public sector insurance companies governed by the Act. 

The General Insurance Corporation of India was established under the 1972 Act (GIC). The businesses of nationalised companies were restructured under four GIC subsidiaries: (i) National Insurance, (ii) New India Assurance, (iii) Oriental Insurance, and (iv) United India Insurance. In 2002, the Act was changed to transfer ownership of these four subsidiary firms from GIC to the central government, allowing them to operate independently. Since the year 2000, GIC has focused solely on reinsurance.

Provisions of the Bill

The Bill aims to make the following amendments in the respective areas:

Government Shareholding Threshold

The Act stipulates that the central government’s shareholding in the selected insurers (GIC and its subsidiaries) must be at least 51 percent (Section 10B). This clause is removed from the Bill.

Change in definition of General Insurance Business

The general insurance business is defined by the Act as a fire, marine, or miscellaneous insurance business. Capital redemption and annuity certain businessescent from are not included in the term. Capital redemption insurance entails the insurer paying a lump sum of money to the beneficiary on a predetermined date after the beneficiary has paid premiums on a regular basis. Certain types of insurance, such as annuity insurance, pay the beneficiary over time. The Bill repeals this definition and instead references the Insurance Act of 1938’s meaning. Capital redemption and annuity certain businesses are included in the definition of general insurance business under the Insurance Act.

Transfer of control from the Government

The Act will not apply to the listed insurers after the central government relinquishes control of the insurer, according to the Bill. Control refers to the ability to appoint a majority of the directors of a specific insurer, as well as the ability to direct its management and policy decisions.

The Act gives the federal government the authority to notify workers of selected insurers about their terms and conditions of employment. The insurer shall be assumed to have adopted schemes devised by the central government in this regard, according to the Bill. The insurer’s board of directors has the authority to alter or create new policies. 

Furthermore, the central government’s powers under such schemes (as defined by the Act) will be passed to the insurer’s board of directors.

Liabilities of Directors

The Bill stipulates that a director of a specified insurer who is not a whole-time director will be held accountable solely for certain acts, which include the following:

  • With his knowledge, attributable through board processes.
  • With his knowledge or consent, or when he had failed to act diligently.


Both the amended Bills are major steps towards the enhancement of the insurance sector in India. The increased foreign investment is expected to bring down insurance costs in India and allow more players to enter the market. While the General Insurance Business Amendment Bill does bring down the Government shareholding to below 51%, Nirmala Sitharaman has claimed that this is not to be mistaken for a privatisation Bill. 


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