Second phase of privatization of general insurance companies

[2021] 129 taxmann.com 235 (Article)

The General Insurance Business (Nationalisation) Act, 1972 (the Principal Act) was enacted with a view to nationalize general insurance business with effect from 1 January 1973. It provided for the acquisition of 107 Indian insurance companies by the Central Government (CG). It also provided for the formation of the General Insurance Corporation of India (GIC) and the schemes of organization of general insurance (GI) business. Pursuant to the above, the 107 insurers were amalgamated into four subsidiaries of GIC, viz The New India Assurance Company Limited; United India Insurance Company Limited; The Oriental Insurance Company Limited, and National Insurance Company Limited.

Later vide the General Insurance Business (Nationalisation) Amendment Act, 2002 (the Amendment Act 2002), the four subsidiaries of GIC were restructured as independent companies and the shares were transferred back to the Central Government. Around the same time, India partially privatized the insurance business.

In the Budget 2021-22 speech, the Hon’ble Finance Minister announced the privatization of one GI company in the year 2021-22. Pursuant to the same, legislative amendments have been proposed to be made in the Principal Act. Accordingly, General Insurance Business (Nationalisation) Amendment Bill, 2021 (the Amendment Bill 2021) was introduced on 30 July 2021 and passed in the Lok Sabha on 2 August 2021. The Rajya Sabha passed Amendment Bill 2021 on 11 August 2021. The significant proposed amendments are summarized as under:

Proposed amendments: Definition of GI business under the Principle Act for nationalized general insurance companies to be at par with that applicable to other private general insurance companies such that earlier exclusion of capital redemption and annuity certain insurance is now proposed to be removed. (Clause (g) of section 3)

Implications: Capital redemption policy provides for payment of a sum of money on a specified date in exchange for periodical premiums. This plan is without a life insurance element.

An annuity certain is an investment that provides a series of payments for a set period to a person or the person’s beneficiary or estate. This plan is also without a life insurance element.

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