LIC may look at composite licence after passage of Insurance Laws (Amendment) Bill

Insurance behemoth Life Insurance Corporation of India (LIC) is mulling entering the health and general insurance segments and has the means to acquire a 'composite licence', according to multiple reports.

"LIC has the scale, capacity, IT infrastructure, and the distribution reach to take advantage of the composite license. LIC is looking at organic as well as inorganic growth opportunities," a person aware of the developments told Business Standard.

What does this mean?

A composite licence allows insurers to undertake general and health insurance via a single entity.

LIC may take a call on composite licence clause after the passage of Insurance Laws (Amendment) Bill in Parliament, sources told PTI. If the proposal for composite insurance registration is passed, there would be change in solvency margin and capital requirement for these companies.

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At present, insurance companies require separate licences for different types of insurance policies. The new change would mean they can operate in different segments under the same licence, provided that they meet the minimum capital requirements. This means that insurers can go to the same entity for different multiple insurance policies.

What is the Bill?

According to the proposed Bill, an applicant may apply for registration of one or more classes/sub-classes of insurance business of any category or type of insurer. However, reinsurers are prohibited from seeking registration of any other class of insurance business. The composite licence allows insurers to undertake both general and health insurance.

The Bill, with proposed amendments to the Insurance Act 1938 and Insurance Regulatory and Development Authority Act, 1999, is expected to be tabled in Parliament in the Budget session starting next month, sources said.

The proposed amendments suggest that the minimum paid up capital be specified by the Insurance Regulatory and Development Authority of India (IRDAI) considering the size and scale of operations, class or sub-class of insurance business and the category or type of insurer. Currently, solvency ratio is pegged at 150 per cent while paid up capital is Rs 100 crore as per the existing law.

The finance ministry has recently circulated for wider consultation the amendment in insurance law, including reduction in minimum capital requirement, with a view to enhancing insurance penetration, improve efficiency, and enable product innovation and diversification.

Insurance density in India rises

Insurance penetration in India during 2021-22 was 4.2 per cent, remaining same as in 2020-21. Insurance density in India increased from $78 in 2020-21 to $91 in 2021-22. The level of insurance density has reported consistent increase from $11.5 in 2001-02 to $64.4 in the year 2010-11.

The proposed amendments primarily focus on enhancing the promoting policyholders' interests, improving returns to the policyholders, facilitating entry of more players in insurance market leading to economic growth and employment generation, enhancing efficiencies of the insurance industry - operational as well as financial and enabling ease of doing business.

Insurance as a sector in India

Presently, there are 24 life insurance companies and 31 non-life or general insurance firms, including specialised players like the Agriculture Insurance Company of India Ltd and ECGC Ltd. Last year, the government brought an amendment in the Insurance Act to allow increasing foreign holding in insurers from 49 per cent to 74 per cent.

Besides, Parliament passed the General Insurance Business (Nationalisation) Amendment Bill, 2021, allowing the central government to pare stake to less than 51 per cent of the equity capital in a specified insurer, paving the way for privatisation.

In 2015, the Insurance Act was amended for raising the foreign investment cap from 26 per cent to 49 per cent. All these amendments since privatisation of the insurance sector have led to exponential growth.

(With PTI inputs)