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What is the General Insurance Business (Nationalization) Amendment Bill, 2021?

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The General Insurance Business (Nationalization) Amendment Bill, 2021 law insider

By Nishita Makkar

Published On : August 18, 2021 12:16 IST

Introduction

The General Insurance Business Amendment bill has been passed in both houses of the Parliament. It was passed on August 3, 2021 in Lok Sabha and on August 7, 2021 in Rajya Sabha. The Bill was opposed by the opposition, being a very crucial matter. The amendment can prove to bring a great change in the Insurance sector. It was therefore, criticized on the basis of disinvestment of the public sector in Insurance companies which can arise a lot of problems for the general public.

The General Insurance Business (Nationalization) Act was enacted on 20thSeptember 1972. This act was introduced to provide for acquisition and transfer of shares of Indian Insurance companies and undertakings of the other existing insurers in order to serve the needs of the economy more efficiently.

It aimed to pursue this by securing the development of general insurance business in the best interests of the community and to ensure that the operation of the economic system does not result in the concentration of wealth to the common detriment, for the regulation and control of such business and for the matters connected therewith or incidental thereto.

This article mainly deals with the amendment brought by the Indian Parliament recently which was a matter of debate and heavily criticized by the opposition.

What is General Insurance? What are the types of General Insurance?

General Insurance can be defined as an insurance that contains non-life insurance policies, including automobile and homeowners’ policies, providing payments depending on the loss from the particular financial event. General Insurance is typically defined as any insurance that is not determined to be Life Insurance. It is called Property and casualty insurance in the United States and Canada and non-life insurance in Continental Europe.

General Insurance has been defined to have multiple types which can be categorized as:

  • Motor Insurance :

Motor Insurance is insurance for the protection of vehicles from any future damage. It is of two types- two and four wheeled Vehicle Insurance.

  • Health Insurance :

Health Insurance is quite popular now-a-days especially since the dawn of the pandemic. It generally includes–Individual health insurance, Family floater health insurance, comprehensive health insurance as well as critical illness insurance.

  • Travel Insurance :

It generally ensures the safety of people while travelling. It has some types within which are- Individual travel policy, family travel policy, student travel insurance and senior citizen health insurance.

  • Home Insurance:

It generally deals with protection of house as well as its contents.

  • Marine Insurance:

Marine Cargo insurance deals with goods, freights, cargo, and the other interests against loss or damage during transit by rail, road, sea and air.

  • Accident Insurance:

As the term suggests, it deals with accidents of possible types at any time or place and in case of any person or object.  In general, persons and vehicles are more prone to accidents causing injuries and damages.

Many more types of insurance can be discussed here like Theft insurance, Fire insurance, Property insurance, Commercial insurance, Crop insurance, Livestock insurance etc. All these are a part of General Insurance explained above.

The General Insurance Business (Nationalization) Act, 1972

The 1972 Act has set up the General Insurance Corporation of India (GIC), under Section 9(1) of the General Insurance Business (Nationalization) Act, 1972.  The businesses of the companies nationalized under the Act were restructured in four subsidiary companies of GIC:

  • National Insurance,
  • New India Assurance,
  • Oriental Insurance, and ;
  • United India Insurance.

The Act was subsequently amended in 2002 to transfer the control of four subsidiaries from GIC to the Central Government, thereby making them independent companies. Since 2000, GIC exclusively undertakes reinsurance business.

What are major Amendments brought down by the Amendment Bill, 2021?

The General Insurance Business (Nationalization) Amendment Bill, 2021 was introduced in Lok Sabha on July 30th, 2021. It was enacted with the motive of nationalization of all private companies undertaking general insurance business in India.The Bill seeks to provide for a greater private sector participation in the public sector companies regulated under the act giving them a push towards development.

  • Government share disinvestment:

Initially, the act was providing the equity capital of the government companies not to be less than 51% which includes five companies. The Bill removes the following provision that was provided under the Section 10 B of the act. The Act empowers the central government to notify terms and conditions of service of the employees of the specified insurers. The government will make a formulated scheme which has to be adopted by the insurers.

  • Central Government giving up Control of the Public Insurer

It is to specify in the following bill that Section 24B as a new provision has been included in the act. It specifies the date from which the Centre can relinquish the power on the Public Insurer which is there to give an opportunity to the private sector to increase their hold.

Control here includes : the power to appoint a majority of directors of a specified insurer, or to have power over its management or policy decisions.

  • Change in the definition of General Insurance Business

The Act defines general insurance business as fire, marine or even miscellaneous insurance business. It did not include capital redemption and annuity certain business particularly in the definition.

Capital redemption insurance involves payment of a sum of money on a specific date by the insurer after the beneficiary pays the premium periodically. Under annuity certain insurance, the insurer pays the beneficiary over a period of time. It has broadened the definition.

  • Liabilities of the Directors

Section 31A says that director who is not a full-time director. Now, he will be held responsible for the acts of omission and commission by the insurer. The acts which have been committed, includes: (a) with his knowledge, attributable through board processes, and (b) with his consent or connivance or where he had not acted diligently.

Hence, these were the major amendments brought by the new Bill, 2021 which initiates privatization and puts emphasis on disinvestment of the public sector.

What is the objective behind Introduction of the new Bill?

The General Insurance Business (Nationalization) Amendment Bill, 2021 was passed despite major Opposition protests.  The bill aims to push greater private participation in the public sector insurers. This is done here to invest in privatization and give them an opportunity to compete in the main stream. Also, share of the government sector has been reduced and the provision of fixing at least 51% shares has been repealed.

According to the Government of India, there are certain objectives which are there to be fulfilled. These are:

  • Push for higher private participation in the public sector insurance companies,
  • Secure the interests of policyholders in a better manner.
  • To raise the level of insurance penetration and thereby social protection.
  • Contribute faster economic growth of the country.

Hence, through this amendment the government wants to pick up economic growth along with social welfare, encouraging a more indulgent private sector.

What was the point of view of the Opposition?

The government has been accused of not following parliamentary norms and “bulldozing” the legislation, which means that the government has destroyed the legislation while dealing with this amendment bill. The Opposition had demanded to refer the bill to a select committee of the house.

Finance Minister Nirmala Sitharaman unveiled a big-ticket privatization agenda, announcing that “one general insurance company and two public sector banks” would be privatized which would prove to be beneficial for the economy of the nation that has been disrupted because of the Covid-19 pandemic.

What are some major concerns for the New Bill?

As we know that everything that happens has its bad effects too. There are major concerns[i] regarding the new bill which are:

  • Government Loss:

Because of privatization, the government will lose their part of dividend which is a part of its earnings. As due to this the government has to reduce its share in the insurance sector.

  • Effect on the Workers:

It can affect the insurance sector of the whole country with the workers employed in it. This can proved to be detrimental to the workers in some sectors.

  • Lead towards privatization:

The following decision can lead to massive privatization of general insurance companies. Policyholders will be affected by the insecurity and distrust in private sector, which can amount to a huge loss and can result in their back out.

  • Pensions safety:

The pensioners included in the four public sector general insurance companies were worried about the safety of their future pensions because of the privatization within. Pensions are dependent on the contributions of the employees so that pension trust can pay the pensioners.

There are many criticisms of the following bill as privatization has its own way of working also the objectives of working.

Conclusion

As per conclusion, it can be said that the new bill can proved to be both a bane as well as a boon. The government shares are disintegrating, and an age of privatization is as its verge. If not controlled properly, it can implicate worse effects on the social as well as economic sector of the country.

The era of capitalization will lead to greater differences between haves and have nots which will only worsen the situation. Even though lot of clashes merged, this bill has been approved by both the houses. No matter, it will contribute a great in economic welfare but it can cost public and state welfare.

References


[i] General Insurance Business (Nationalisation) Amendment Bill, 2021, available at: (last visited on August 14, 2021)