The Lok Sabha on  passed the insurance sector amendment bill, which seeks to hike the foreign equity cap on domestic companies from 26 percent to 49 percent, despite opposition protests.

Formally called the Insurance Laws (Amendment) Bill, it seeks to replace an ordinance that was promulgated earlier.

The bill now faces a crucial test in the Rajya Sabha, the upper house, where the ruling Bharatiya Janata Party (BJP) does not enjoy a majority.

The legislation seeks to raise foreign investment cap to 49 percent in the sector, while up to 26 percent foreign capital will be under the automatic route.

The bill will allow public sector general insurance companies to raise funds from the capital market. The bill also mandates a minimum capital requirement for Rs.100 crore for a health insurer.

Under the bill, the life insurance council and the general insurance council would have the power to act as self-regulating bodies for the sector.

The bill also gives an option for legal recourse to individual customers who are often taken for a ride, and have neither the time nor the resources to challenge the insurance companies — despite having the option of moving consumer courts.

The legislation even provides for a penalty of up to Rs.25 crore and imprisonment of upto 10 years for selling policies without registration with the regulator Insurance Regulatory and Development Authority (IRDA).

Beneficial features for the consumers in the bill are flexibility in paying premia through instalments, faster claim settlement, simpler policies, capping on agents’ commissions and consumer redressal.

The bill also mandates that no claim can be rejected after three years of policy issuance, under any circumstances.

For insurance companies the bill provides for more distribution points for insurance policies, less dependence on insurance agents, ability to raise capital from the market, adoption of international best practices by joint ventures (JVs) and greater role of technology to increase electronic issuance of policies.

Meanwhile, India Inc welcomed the development.

“Its heartening to note that insurance ordinance moves one step closer to becoming long term reality, by passing Insurance Bill today again, it gives enough time to government to get it cleared from Rajya Sabha,” said Sanjiv Bajaj, managing director, Bajaj Capital.