In 2012-13, life insurance companies issued 441.87 lakh new policies out of which LIC alone issued 367.82 lakh policies, or over 83% of the total policies.
The Indian Parliament passed the insurance bill on Thursday. The major highlight of the bill is that foreign insurance companies can now hold upto 49% stake in insurance companies in India. Industry estimates that this move will bring massive investment in the insurance sector.
MoS Finance Jayant Sinha said that the industry can expect nearly Rs 25,000 crore worth of foreign money and industry experts say Rs 20,000 crore investment might be on the anvil.
IRDA states that the insurance sector in India needs a massive capital infusion of Rs 50,000 crore to expand, maintain healthy capital base and improve solvency standards.
However, the news is good for the sector on another front -- consolidation.
LIC had a monopoly in the Indian insurance market till the late 90s when the sector's doors were thrown open for the private sector. Unfortunately, the private sector hasn't been able to do much and the Indian market, however, still remains severly under-serviced by the insurance companies.
As per 2011 data, 57 crore Indians were insurable whereas insurance penetration was at a mere 5.5% in 2010.
The private sector focussed more on making money and launched schemes that were half-understood by the customers but gave huge commissions to agents who, naturally, focussed on getting more registrations even if it meant miss-selling. Unit-linked insurance plans flooded the market and the dream of piggying-back on the stock market boom was sold as a superflous dream.
As with every sector, the insurance bill is likely to bring in some form of consolidation. With the big bucks sure to come in the sector post this insurance bill, the sector is likely to see consolidation as companies that entered to make some quick buck will look to exit and the ones that came-in with a long term view will look at an opportunity of consolidating their foothold.
Private insurance companies in India have been asking the government to increase the foreign investment limit in the sector from 26% to 49% for a long time now. They are naturally elated at the move.
Bharti and Reliance Capital were one of the first who announced getting more capital.
Bharti Enterprises, led by Sunil Mittal, has already announced that its joint venture partner France's Axa Group will increase its stake in the company from the current 26% to 49%.
Mittal said that the move is highly positive and will bring in much needed investment for growth of the insurance sector in India.
Anil Ambani-promoted Reliance Capital, too, said that it will now look for foreign partners for its insurance businesses. The company already has a partner (Nippon Life) in its life insurance business and is going to give the company an additional stake. The CEO of Reliance Capital, Sam Ghosh, said that the insurance bill will help the industry attract much-needed capital and expand the insurance penetration across the country.
The insurance penetration in India remains in its infancy even today.
The Insurance Regulatory and Development Authority of India (IRDA), in its annual report of 2012-13 said that insurance penetration slipped since 2010-11. It said, "Life insurance penetration had consistently gone up from 2.15% in 2001 to 4.60% in 2009, before slipping to 4.40% in 2010, 3.40% in 2011 and 3.17% in 2012. The insurance penetration of the non-life insurance sector in the country has remained near constant in the range of 0.55-0.71% over the last 11 years, however the penetration rose to 0.78% in 2012."
In 2012-13, life insurance companies issued 441.87 lakh new policies out of which LIC alone issued 367.82 lakh policies, or over 83% of the total policies.
Clearly, even with the opening up of the insurance sector, LIC continues to rule the market with its massive marketshare.
Moroever, the private sector contribution to India's insurance market remains abysmally low and Life Insurance Corporation (LIC), the public sector entity, continues to enjoy the largest marketshare.
As per IRDA, in 2012-13, LIC's market share increased from 70.68% to 72.70%.
With the sector opening up further and global insurance companies looking to make beeline for stakes in Indian insurance companies, consolidation could be the order of the day with much needed market expansion. A market opportunity squandered by LIC and stifled because of lack of capital might just be getting corrected now.
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