NEW DELHI, May 14: By giving its assent to the Insurance Regulatory Authority Bill (with some changes), Parliament's standing committee on finance has ended almost five months of suspense and speculation on the entry of more players (foreign and domestic) in the insurance business.

While the committee's assent has tremendously improved the chances of the IRA Bill being passed by the House without being mauled or scuttled (or both), it is too early to celebrate the opening up of the sector.

As Finance Secretary Montek Singh Ahluwalia said in his deposition to the committee, ``The bill does not itself provide any direct opening up. That has to be done separately by legislative action...We envisage it as a part of the process of reforms.'' All that the bill seeks to do is to give statutory powers to the Insurance Regulatory Authority, an independent watchdog, so that it may be in a position to police the sector, once more companies enter the sector.

But there are key issues about the insurance sector and the IRA Bill which remain unresolved. Unless they are sorted out, the IRA would have limited powers to control the sector once it is opened. For instance, while the bill has given powers to the IRA to regulate the sector, it does not mention anything about granting licenses to insurance companies. There is no word about whether the finance ministry would grant the licence or the IRA. When the committee enquired about this, Ahluwalia said, ``There is no decision on that. A due diligence is needed. This can be done either by the government, or by the regulatory authority.''

This, say industry observers, is a tricky issue. ``The power to grant licences should ideally be with the IRA,'' says a senior executive in an insurance company. ``But it is unlikely that the government will give up the power to decide who should enter the sector.'' But if the government is keen on implementing its make-everything-transparent policy, it might just force itself to allow IRA to grant licenses. Either way, the final decision could take some weeks, if not months.

Another issue to be tackled is the fixation of premium rates. The government has retained the powers to issue directions to the IRA for deciding the premium rates. This means that while the IRA will determine the premium rates, the government will be in a position to make changes if it so desires. In his deposition, Ahluwalia has played down this move by saying that the government was unlikely to interfere in the determination of premium rates.

``Actually, it is not that the government is going to give directive on every detail. On this point, I feel that we have to make the point gradually. We are moving from a system that was totally government-determined. I feel, the power to give direction is not used casually. For example, in the case of RBI, we have a power to give direction but we have never given one. So I think, this power is unlikely to be used. All these things depend on convention,'' he said.

But this power too, can create problems. The government will be exposed to pressure if it retains the power to issue directives on premium rates. In the recent truckers strike, tremendous pressure was brought on the government to revise the third-party motor insurance premium rates. But since the rates had been fixed by the tariff advisory committee (TAC), a statutory body outside the control of the finance ministry, the government asked the truckers to convince the TAC directly. The government could only ask the TAC to have another look at the rates decided by it. If the government had the powers to ask TAC to change the rates, the TAC would have been bound to reduce them.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.