Insurance FDI hike to bring in more players and capital

The private insurance sector was jubilant Thursday after Finance Minister Arun Jaitley proposed raising the foreign direct investment (FDI) cap to 49 percent.

"The Insurance sector is investment-starved. Several segments of the Insurance sector need an expansion. The composite cap in the Insurance sector is proposed to be increased up to 49 percent from the current level of 26 percent, with full Indian management and control, through the FIPB route," Jaitley said presenting his maiden budget in parliament.

"We are happy at the finance minister's announcement. Increasing the FDI limit to 49 percent will have a positive cascading effect on increasing household savings levels, fresh investment, new employment, insurance penetration and others," V. Manickam, secretary general, Life Insurance Council of India, told IANS.

Hike in the FDI limit has been the long standing demand of the private insurance companies in India.

India opened up the insurance sector for private players in 2000, setting the cap on FDI at 26 percent.

According to Manickam, the government's move would attract more foreign players to enter the Indian market where the population of uninsured is around 50 crore.

"With this move, we expect the sector to receive fresh capital infusion of around Rs.50,000 crore by 2020. The number of life insurance branch offices will go up from 10,000 to 30,000. The number of employees will go up to around 500,000 from the current 200,000," Manickam said.

He said the life insurance sector is expected to log a compounded annual growth rate (CAGR) of around 15 percent which in turn would attract new investment.

According to him, the number of agents selling life insurance policies will go up to four million from the present levels of around two million.

Along with the growth of the life insurance sector, the household savings would also grow 40 percent from the current 30 percent, he added.

According to Manickam, some life insurers may also come out with initial public offering in five/six years time.

Queried about the possibility of mergers and acquisitions happening in the sector with the entry of new players following the FDI limit hike, he said: "Such things can also happen. It cannot be ruled out."

An industry expert told IANS preferring anonymity that the hike in FDI limit would basically help the life insurance sector rather than the non-life sector which has now stabilised.

For the life insurance sector only one issue has been addressed now. The other major issue that has to be addressed is converting banks selling insurance policies as agents into insurance brokers so that they can sell policies of several insurers.


Read more about: insurance, fdi
Story first published: Thursday, July 10, 2014, 17:30 [IST]
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