Amid opposition from the Left parties, the government introduced the Insurance Laws (Amendments) Bill as part of the insurance sector reforms announced by then finance minister P Chidambaram in his budget speech in July 2004.
However, vehement opposition to the reforms from the government's former Left allies who parted company with the government in July 2008 in an acrimonious dispute over the signing of the Indo-US nuclear cooperation deal, had stalled the introduction of the bill.
The bill seeks to increase the the cap on foreign investment in private companies in the sector from 26 per cent to 49 per cent; permits state-owned general insurance companies to go public and raise funds from capital markets and; raise the minimum capital of government-owned Life Insurance Corporation of India from Rs5 crore to Rs100 crore.
The bill also empowers the government to further raise the capital of the LIC as required. The bill will enable four state-owned general insurance companies Oriental Insurance Company, New India Assurance, United India Insurance and National Insurance Company to raise funds from the capital market with the cnsent of the government.
The bill also seeks to fix the minimum investment limit for health insurance companies at Rs50 crore to encourage companies with a smaller capital to launch health insurance business. It has however, retained the foreign direct investment celiling at 26 per cent for insurance cooperative societies.
The bill, which was introduced by minister of state for finance P K Bansal, seeks to raise the capital of LIC to meet the required norms and to place the state-owned company at par with the private sector insurance companies which are required to have a minimum capital of Rs100 crore.
Under the Insurance Regulatory and Development Authority (IRDA) norms, all insurance companies, whether in life or non-life sector, are required to have a minimum capital of Rs100 crore.
The bill also empowers the government to transfer more than 90 per cent of the surplus funds of the LIC to a separate account to be maintained by the LIC.