Finance Minister Nirmala Sitharaman’s Budget announcement of increasing the FDI limit in insurance from 49 per cent to 74 per cent could lead to an unprecedented expansion of the insurance sector, its penetration, its level of competition, and value for customers in terms of better products at lower cost.
Foreign inflows in insurance companies will also enable them to become more effective vehicles for household savings, creating long-term assets in the economy.
“I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49% to 74% in Insurance Companies and allow foreign ownership and control with safeguards,” said Sitharaman.
While this may bring in an initial thrust of foreign capital within the industry, participants in financial services sector say the decision may change the face of the Indian insurance industry in terms of technology, product offerings and resources. Infusion of capital may also lead to faster growth, deeper penetration of the private sector across the country and employment generation in the sector.
Stating that the foreign joint venture insurance companies were reluctant bringing in their global practices into Indian joint ventures until they had the majority stake, Jaspal Bindra, chairman, Centrum Group said, “With 74 per cent ownership, now foreign partners will have every motivation to bring in the full game in terms of range of marketing products, range of resources and full technology platform.”
He added that while the insurance sector, currently has issues like high premiums which affects value customers, “I think this will bring in the right amount of competition and the full range of products.”
There are many who feel that while FDI limit enhancement will lead inflow of capital in the companies, it will also develop the insurance industry as a big channel for generating long-term money for development of the economy and creating long-term assets.
“Equity capital in India is at a shortage so besides leading to deeper penetration and bringing in cost efficiency, the insurance sector will play a big role in the economy as it can channelise household savings into long-term investments. Banks have funds but they are not investment companies. Besides banks, we need insurance and pension for creating long-term assets and now insurance will play that role in a bigger way,” said Rashesh Shah, chairman and CEO, Edelweiss Group.
While insurance penetration as a per cent of GDP currently stands at just 3.71 per cent, India has a big unserved market and experts feel a lowering of cost and simpler and more affordable products may push this up. More so, given the numbers across demographic groups.
Incidentally, raising FDI in insurance has faced political…
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