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49% FDI in Insurance Sector: Mixed reactions

05 Nov 2014 |By: Team Finalaya

49-FDI-in-Insurance-Sector-mixed-reactions

The government of India approved a bill recently that attracted all kinds of reactions from the entire country, foreign countries, individuals, financial institutions, and insurance sector. This bill has been pending since the year 2008, but governmental changes put the bill on hold for a long time.

What is the change?

This bill has eased the foreign direct investment limit in the domestic insurance sector from 26% to 49%. This shows the intent of the government to draw investment to the economy and its various sectors that have been trying to get support from the sickness they have been suffering from.

Conditions applied

There is however, a rider that the management and control of these companies will continue to be with Indian promoters. If you have been thinking that now all the domestic insurance companies will become absolutely non-Indian, then you can heave a sigh of relief. This rider will keep all the factors in balance and avoid hijacking of the companies by foreign giants.

Financial relevance

This declaration brought such sentiments to fore that the Sensex rose by 125 points and recorded a new closing of 26,271.85. Yes, this is what it has done.

This move has been extremely crucial to the crippled insurance sector as 17 of the 24 insurance companies in India suffered losses in the last fiscal. Companies need additional capital to handle the burden that Indian companies have on their shoulders, and the Indian market is not capable of providing the necessary capital right now. This figure will probably help you understand why FDI was important, as this fact is generally unknown to most.

What else do we get !

This will bring the much needed Rs 7,800 crores to the sector which is required for growth. Along with all this financial stability, it is also going to bring in international standards of efficiency, customer service, satisfaction, competition, and generate a healthy environment to augment greater benefits for the health and finance sector. A greater competition with the international organizations will bring in the Indian insurance sector a par with international standards and get recognition as far as this sector is concerned.

Experts’ comments

Some prominent personalities who have been in this industry for years and decades have expressed their views like this:

Anoop Pabby, managing director & CEO, DHFL Pramerica Life, states that, “From an insurance industry standpoint, the increase in the FDI cap in insurance will bring in the requisite growth capital from foreign promoters and will help deepen penetration of insurance solutions in the Indian rural markets.”

Another giant of the industry KK Mishra, MD and CEO of Tata AIG General Insurance, comments,

 “This is a welcome initiative. Once approved, this would encourage foreign investment and will further augment free flow of knowledge and intellectual cross-fertilisation,  benefiting the insurance sector as a whole; right from product innovation, distribution and in building robust customer service mechanisms.”

If people of such experience and expertise have shown a positive approach towards this mechanism, then it must be definitely capable of doing some good.

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