Analysis
50 Years Ago After Indira Gandhi Govt Overnight 'Nationalised' 107 General Insurance Companies, Modi Govt Makes Amends To Undo It
Swarajya Staff
Aug 12, 2021, 05:49 PM | Updated 05:56 PM IST
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The General Insurance Business (Nationalisation) Amendment Bill, 2021, that will facilitate privatisation of state-run general insurance companies, received parliamentary assent on Wednesday (Aug 11) after the Rajya Sabha passed it with a voice vote amid unruly protests by opposition parties.
The Lok Sabha had already passed the bill on Aug 2.
In Budget 2021, Finance Minister Nirmala Sitharaman had announced that one general insurance company would be privatised in 2021-22. The change in legislation will now allow the privatisation of state-owned general insurance companies.
The latest bill amends the requirement in the General Insurance Business (Nationalisation) Act, 1972 that the central government should hold not less than 51 per cent of the equity capital in a general insurer.
As distinct from from life insurance companies, General insurers offer products for protection of property against fire, theft, burglary etc. It also includes health insurance. The insurance policies offered by general insurance companies include motor insurance, health insurance, travel insurance and home insurance.
General Insurance Business (Nationalisation), 1972
In his excellent book "70 Policies that Shaped India: 1947 to 2017", noted commentator Gautam Chikermane provides details on the overnight nationalisation of general insurance business in India.
On 20 September 1972, Indira Gandhi-led Congress passed the General Insurance Business (Nationalisation) act paving way for “acquisition and transfer of shares of Indian insurance companies and undertakings of other existing insurers”.
Amongst its objectives the government claimed as reasons to nationalise general insurance business included a)serving better the need of the economy b) to develop the general insurance business in the best interests of the community c) to prevent concentration of wealth d)to regulate and control the industry
In one stroke, Parliament nationalised the general insurance business of 55 Indian companies and the undertakings of 52 foreign insurers. The government claimed that the main objective of nationalisation was “pooling in of people’s money and mobilising 225 them to invest in key sectors”.
In October 1972, these 107 companies were amalgamated into four separate companies—National Insurance Company Ltd, Oriental Insurance Company Ltd, New India Assurance Company Ltd and United India Insurance Company Ltd—with geographical equity embedded into the structure by placing their head offices at Kolkata (then, Calcutta), New Delhi, Mumbai (then, Bombay) and Chennai (then, Madras) respectively.
On 22 November 1972, General Insurance Corporation (GIC) was set up to control and run the business of general insurance. The government transferred all its shares of the four companies to it, turning GIC into a holding company.
From 1972 to 2002, GIC held complete monopoly.
It was only after the formation of the Insurance Regulatory and Development Authority on 19 April 2000 through an Act by the then NDA led government of Atal Behari Vajpaye, an amendment ended the monopoly of GIC over the general insurance business.
In 2002 , Vajpayee government moved to transfer the control of these four subsidiary companies from GIC to the central government, thereby making them independent companies. Since 2000, GIC exclusively undertakes reinsurance business.
The General Insurance Business (Nationalisation) Amendment Bill, 2021
Besides removing provisions of section 10B of the 1972 act that requires that shareholding of the central government in the five state-owned companies includes GIC must be at least 51%, the bill ushers in the following changes
-Section 24B, a new one, has been brought in, which says the Centre can relinquish control of a public insurer from a given date;
-Section 31A, saying that a director who is not a whole-time director will be held responsible for acts of omission and commission by the insurer.
The Case For Privatising State-Owned Insurance Firms
Writing in The Print, economists Ila Patnaik and Radhika Pandey noted that "Lesser competition, low levels of capital and weak financial health of public sector insurance firms make it difficult for them to offer low-cost affordable insurance products. They are unable to cater to the emerging risks — a fact that is truer in the aftermath of Covid-19."
The duo point out that growing insurance business requires a steady flow of capital but public sector general insurers lack sufficient capital.
Despite government has been repeatedly infusing capital in public sector general insurance companies, their financial position continues to remain weak.
Why The Amendment Faces Opposition
Claiming that amendment will result in large-scale layoffs and retrenchment, employees of public sector general insurer observed a one-day strike on August 4 against the privatisation legislation.
The opposition parties including Congress accused the government of not following parliamentary norms and "bulldozing" the legislation. Opposition parties demand that the bill be referred to a select committee of the House.
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