Removal of Rs 100 cr entry cap for new players in insurance biz opposed

 

 

Commenting on the proposed Insurance Laws Amendment Bill 2023, Pradeep Dharamthok, President, General Insurance Employees Union (West Zone) said that the amendment of lowering the capital base to set up an insurance business below the minimum limit of Rs 100 crore will not be feasible. At present minimum limit of Rs 100 crore capital is required to start an insurance company. If this new proposal is introduced and if Insurance Regulatory and Development Authority of India (IRDAI) gets the power to decide this limit then it will create many problems in the market and the situation may became like the pre-nationalisation era. Many companies may come in market with limited capital base who will not be able to give guarantee to settle the insurance claim or if any big claim arises. “They will not be able to build the proper infrastructure and thus this amendment is not feasible,” Dharamthok said.

 

He recalled the historic movement when in 1956 LIC’s 254 companies were nationalised and again in 1971, 107 general insurance companies were nationalised. Both, till date are maintaining their identity and doing well as public sector companies. Similarly, the proposal for issuance of ‘Composite Licence’ will only help the private companies and also confuse the public, he pointed out. “The Governments intention is to pave a way to snatch the premium from the customers of public sector insurance companies, so that the public sector companies can be privatised. The only reason for this is to increase the penetratation of the insurance. However, the fact remains that until and unless the purchaseing power of the people is not increased, they can not purchase the insurance. As we know, insurance in a need based product and not a necesscity like food,” Dharamthok said.

 

However, the proposed ‘Risk Based Pricing’ is required, because at present general insurance companies are not making underwriting profit. Giving an example: In ‘Medi-Claim’ the claim ratio is more than 119%. It means companies are earning Rs 100 and paying Rs 119 and it is the same case with motor insurance. But to implement this type of mechanism there must be regulatory to control and regulate the price. Otherwise, there will be rat race among the companies, Dharamthok added. Another well-known expert in the field of insurance, Milind Khasnis, Director of Khasnis Prime Wealth said that the proposed lowering of the capital base to set up an insurance company below Rs 100 crore will not be able to provide adequate security to the policyholders and also they will create unnecessary competition in the market. Apart from this, the small players will have to maintain provisions for the solvency margin. An insurance company has to be financially very strong or they will not be able to survive in market.