'Achche Din' For Insurance Companies, Cabinet Clears 49% FDI

Indicating the Narendra Modi government’s aim to pull out the economy from the claws of a crippling slowdown, the Union Cabinet has approved a proposal to increase the FDI limit in the insurance sector to 49%. Experts believe that the step taken by the Centre will benefit the companies first and consumers later.

According to the market analysts, the move will benefit the insurance companies as they will get the much required long-term capital. On the other hand, these companies will take time to bring out newer products and services for the consumer.

Analysing the step taken by the Cabinet, it is believed that the management control will remain in the hands of Indian promoters. The amendment to the Insurance Laws (Amendment) Bill will now be taken up in the Parliament.

According to KPMG, one of the largest professional services companies in the world, the higher cap could fetch investments up to Rs 25,000 crore.
Shashwat Sharma, KPMG (India) partner, said, "Once there is proper clarity on the interpretation of control by Indian promoter, the additional foreign capital expected across life, health and general insurance companies is between Rs 20,000 to 25,000 crores.”

Kshitij Jain, MD and CEO, Exide Life Insurance, welcomed the step taken by the Modi government. The Indian private life insurance companies have in the last 12 years received over Rs 34,000 crores of capital, said Jain. The capital requirement to fuel growth over the next 5-10 years will be as much or more, he added.

If we peep into the past, the insurance sector was opened up for private sector in 2000 after the enactment of the Insurance Regulatory and Development Authority Act, 1999. This Act permitted foreign shareholding in insurance companies to the extent of 26%. The aim behind this was to provide better insurance coverage and to augment the flow of long-term resources for financing infrastructure.

On the contrary, a section of the market experts also had a word of caution for the companies.

Rahul Aggarwal, CEO, Optima Insurance Brokers, said, “Many international insurance companies will enter India, after all we not only have more volumes but also growth potential. This means, there will be another bout of increased competition among players, due to which companies will face margin pressures."

According to Kshitij Jain of Exide Life Insurance, this is a concern in the long term. Currently, there is enough scope for growth for all the companies falling under this category, he said. As per Jain, the reason behind this is that the penetration of insurance in the country is abysmally low.

This is the reason that these companies are so confident about the decision taken by the Centre. The domestic insurance firms also want more foreign companies to set up their business in India so that they can reap the benefit out of it. (Image: Thinkstock)