The Insurance Laws (Amendment) Act, 2021

Introduced as a part of the Finance Budget on 15th March in the Rajya Sabha, the Insurance Amendment Bill 2021 came into effect from April 1st, 2021.

Controversy ensued since the last time the FDI limit was hiked, the change took 7 years to be finally approved by the Parliament in 2015 while this time it was made a part of the finance budget, for the first time, to be approved within a month.

Key Highlights: Foreign investment: It had amended the Insurance Act, 1938 to increase the maximum foreign investment allowed in an Indian insurance company from 49% to 74%, and removes restrictions on ownership and control.

• Investment of Assets: The 2021 amendment has, essentially, aimed at the increasing FDI penetration in Indian companies thereby expecting to increase GDP which currently stands at a low of 3.76% against a global average of 7%.
• Special Safeguard: Firstly, the key management cannot be held by non-residents of India. Non-residents also cannot hold majority seats in the board of directors. Secondly, at least 50% of the directors must be independent.
• Third safeguard is the retention of a specific percentage of profit as general reserve. Lastly, an ‘Indian management control’ system has been put in place under which the Indian promoters in a joint venture in the insurance sector have been given the right to accept or reject any board decision taken on company related matters.
• Better Solvency: Thus, would increase the solvency position for most of insurers and would also provide long-term growth capital for other companies to invest in newer technologies.