Insurance FDI To Hit 49%

Within an hour of the Government Trust Vote held in the month of July this year, business reporters stormed the Finance Minister and bombarded him with umpteen questions. Before rushing off to his waiting car the Finance Minister highlighted the need to approve three important finance laws. One of them which has been on the backburner since the first year of the present government is the Insurance Laws Bill. Insurance sector wise, the immediate priority for the Finance department is to table the amendments to this bill which will raise FDI (Foreign Direct Investment) in the Indian Insurance sector to 49%.

The present figure is 26%.The proposal to hike that figure to 49% has been pressed upon the government many times by private companies.However, considering the staunch opposition to this move by the Communist Left parties of India who were supporting the government till the month of July, there was no possible way for the present bill to be amended.

But since the Left are no longer with the government, the Finance Ministry has accelerated the pace for increasing the FDI in India. The insurance industry in India is obviously delighted to hear this. The government has almost completed the required informal arrangements and hopes to make the amendments which will raise the FDI cap by the end of October during which the new session of the Indian parliament would have begun.

The insurance sector in India is slated to grow to beyond Seventy Billion Dollars by the fiscal year 2011.The reason that is so is because despite the already thriving success of insurance companies in India, they’ve only just touched the tip of the iceberg. Their reach has been limited to a little over just Fifteen Percent of the Country’s population.

Foreign players who will enter the country once the Cap is exceeded will be interested in finding important domestic players and partner with them. The resulting exchange is expected to bring in the application of foreign processes combined with the local knowledge of the Indian economy. Companies like ICICI Prudential and ING Vysya which have been the results of successful Indian–foreign insurance collaborations will however continue to be the pioneers.

This is also a sign that the Government has realized that their public sector companies alone cannot fulfill the Insurance requirements of the vast population. Despite the formidable success achieved by LIC, the government has noted that only by bringing in more FDI can they create an environment for Investment in insurance by the average middle class Indian and otherwise.

Foreign companies have also noted that the insurance landscape in India is very different from what is seen in the west. The huge disparities in income cause each person to invest differently. This is also one reason why some private companies that have benefitted from existing FDI’s have been unable to turnover profits because they’ve been unable to enforce this fact.

The increased cap of 49% will also see more Indian it companies opening up and offering BPO services towards insurance based activities.Companies like Accenture, Wipro and Infosys have already been doing this for quite some time.