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Insurers wait yet another year for FDI increase

Last updated on: December 28, 2009 16:52 IST

InsuranceThe year 2009 saw insurance firms waiting for easing of foreign direct investment norms, just as they have done every year for the last five years, but there is promise of the law being amended to this effect next year.

The government had first mentioned raising foreign direct investment ceiling in insurance sector to 49 per cent from the current 26 per cent in the 2004 Union Budget and introduced a Bill to do so over a year ago.

The Insurance Laws (Amendment) Bill, 2008, has since been referred to a Parliamentary Standing Committee.

The parliamentary panel's report is expected before the Budget session in February next year and passage of the Bill is likely during the same year.

Although the global financial meltdown of last year hit top insurers like AIG, life insurers in India have seen new business premium collections rise 10-fold over as many years. The new premium collection has increased to Rs 86,983 crore (Rs 869.83 billion) in 2009 compared to Rs 8,299 crore (Rs 82.99 billion) 10 years ago when the sector was opened to private players.

There are 23 life insurance companies and 21 general insurers operating in the country, but their growth potential has not been tapped for want for capital -- which could be addressed through raising FDI ceiling.

"The FDI ceiling, if increased, could bring in the much-needed capital for the growth of the sector, as well as for the nation, as insurance players provide long term capital for development of infrastructure," DLF Pramerica managing director Kapil Mehta said.

Entry of foreign partners enabled the sector to attract Rs 6,000 crore (Rs 60 billion)foreign direct investment, even as the bill to increase the FDI cap to 49 per cent is still pending in Parliament.

The comprehensive amendment of insurance laws among other things also seeks to permit nationalised general insurance companies to go public to raise funds from capital market.

The four state-owned general insurance companies -- Oriental Insurance Company, New India Assurance, United India Insurance and National Insurance Company -- will be able to hit capital markets once the Bill becomes Act.

As far as expansion of the sector is concerned, a number of new players ventured into different segments this year. For instance, Bank of India and Union Bank of India promoted life insurance venture 'Star Union Dai-ichi' started operations during the year.

Besides, the general insurance venture of SBI -- the country's largest lender -- with Insurance Australia Group got clearance from regulator IRDA.

Bank of Baroda-promoted India First Life Insurance Company also got IRDA's approval to enter into the life space.

At the same time, the regulator took various steps to bring down costs and improve transparency for policy holders. The life insurance industry was asked to put a ceiling on management expenses of unit linked insurance plans.

The IRDA also reduced solvency margin for the pure protection plans.

Besides, the regulator issued corporate governance guidelines to improve transparency during the year.

Kumar Dipankar in New Delhi
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