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Higher FDI in insurance to prop up foreign inflows

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The government in its budget announcement has proposed to raise foreign direct investment (FDI) in the insurance sector to 49% from the present 26% to encourage foreign investments and improve the insurance penetration in the country. According to estimates by Life Insurance Council, the move has a potential to bring in about $10-15 billion helping companies expand and improve product offerings.

The proposal to raise FDI cap has been pending since 2008 when the previous UPA government came up with insurance laws (amendment) bill to hike foreign holding in insurance joint ventures to 49% from the existing 26%.

TR Ramachandran, managing director & CEO, Aviva Life Insurance, said, this single announcement has the potential to be a game changer as it can bring foreign exchange inflow of $10-15 billion as per Life Insurance Council estimates. "The industry can now set its eyes on stepping up product offerings, distribution networks and technology to ensure superior customer experience. Higher amount of capital will provide scope to the insurance companies to tap under-insured markets through better infrastructure and deeper distribution strategies."

Only four out of the 23 private life insurance companies have reported a growth in renewal premium during 2013-14. For many others, the surrender benefits paid by them during 2013-14 far exceeded the new business premium collected by them. The private life insurance companies that witnessed a growth in renewal premium were HDFC Life, Max Life Insurance, SBI Life Insurance and Exide Life Insurance previously called ING Vysya Life Insurance.

"Benefits of insurance in India have not reached a large section of the people and insurance penetration and density are very low. The government would work towards addressing this situation in multi-pronged manner with the support of all stake holders concerned. This would include suitable incentives, using banking correspondents, strengthening micro-offices opened by public sector insurance. It has also proposed to take up the pending insurance laws (amendment) bill for consideration of the parliament," Jaitley said announcing the increased FDI limit for the sector.

KK Mishra, managing director and CEO, Tata AIG General Insurance, says, "Once the increased FDI in the insurance sector is approved it would encourage foreign investment and will further augment free flow of knowledge and intellectual cross fertilisation, benefiting the insurance sector as a whole; right from product innovation, distribution & in building robust customer service mechanisms."

The insurance sector is investment-starved. Several segments of the sector need an expansion. The proposal to increase the composite cap in the insurance sector with full Indian management and control through the FIPB route will alleviate funding constraints in the sector.

Anuj Agarwal, managing director & CEO, Bajaj Allianz Life Insurance, said the government's proposal to work towards increasing insurance penetration and give tax benefits for micro-insurance schemes is also a positive step. "This will go a long way in ensuring social security. It will certainly promote financial inclusion across rural India," he said.

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