Only 6 % of Indians Have Insurance cover: Pass the Insurance Bill Now

BY MR. SUNIL MEHTA

A higher foreign direct investment  (FDI) cap at 49 % will help cover the underinsured masses and expand shrinking business

When the monsoon session of Parliament closed in September, (2013) the finance minister said that the long-awaited insurance Bill, pending in the Rajya Sabha since 2008, would be taken up in the winter session.

FDI limit in insurance from 26 % to 49 %

The Insurance Amendment Bill will increase the FDI limit in insurance from 26 % to 49 %. It will enable other regulatory changes desperately required for robust growth of our insurance industry.

SUNIL MEHTA 

We hope that the two major political parties will take a constructive view and cooperate to ensure the insurance Bills passage in the forthcoming session.

The Bill should be passed in its current form and not sidetracked by efforts to limit voting rights or restrict new investment to foreign institutional investment (FII) only.

Regulator Irda has expressed strong concerns against the entry of FIIs in insurance given FIIs shorter time horizon for investment. The CENTRAL government has always been in favour of FDI rather than FII funding.

Indian insurance industry needs  $1,200 crore

The recent run-up of the stock market and possible FII outflow risks on tapering of US quantitative easing are all strong indicators of FII flows as speculative short-term capital.The idea of increasing capital inflows into the insurance industry through FII flows rather than FDI is at odds with economic and commercial logic.Any move to dilute the proposed amendment of increase in FDI to 49% with commensurate voting rights will be myopic and detrimental to the interests of the industry.

Indian insurance industry needs about $1,200 crore in capital up to 2020.

An increase in FDI limits would bring in an estimated $100 crore to $ 3.5 billion immediately.

Our parliamentarians,through the Standing Committee on Finance, deliberated the issue on FDI in insurance 4 years ago.The world has changed since then.India is in a very different economic situation.There is acute scarcity of stable,long-term foreign and domestic capital.

Developed markets are rebounding and emerging markets are under pressure.

Stable Capital..

Indias current account deficit looms large.The rupee has been under immense pressure recently. Stable FDI inflows will squeeze speculators &  significantly reduce currency volatility. This is not a time for grandstanding. It is imperative for us to attract long-term capital before it moves to other efficient markets that offer predictability and higher risk returns.

Today, investor sentiment is edgy. Under the circumstances, should we delay giving global investors a positive signal  The countrys life insurance industry has shrunk &  the market has consolidated over the last few years, despite being one of the top ten insurance markets in the world.

 

If we do not seize the opportunity to encourage more capital, our long-term growth will be derailed. Global investors will be disappointed.

Global insurance companies that invest in markets like India are patient.

However, the leadership of these global insurers is accountable to their stakeholders & can not hold on to capital for incremental investments for an endless period.

The finance minister announced the governments intent to raise the FDI cap to 49 % in Parliament over nine years ago. Foreign insurers have patiently awaited the outcome of our democratic process of building political consensus.

Time is now running out. There is a growing apprehension among them of a political impasse continuing in 2014 & beyond, if not resolved in the forthcoming parliamentary session.

Stepchild..

There are no limitations imposed on 100 % foreign commercial or /  investment banks, asset management companies or NBFCs. Recent RBI announcements on foreign banks ability to incorporate wholly-owned subsidiaries &  acquire stake in local banks defies the logic of limiting foreign ownership to 26 % in the insurance sector.

Moreover, the FDI cap of 26 % in India is the lowest in the world.

For China,it is 50 %;Japan,South Korea,Vietnam, Hong Kong & Taiwan allow 100 %;Indonesia has a limit of 80 % and Malaysia 51 %.It is time for increasing the FDI cap to 49 %.

Spread the Umbrella..

Only 6 % of Indians have insurance cover. Of this, 4.4 % have life insurance and 5 % have a reasonable health cover.

Most small businesses, that are family-owned, have no insurance. Lakhs of people lose their savings when disaster strikes.

After 66 years of Independence, should we not aspire to provide adequate protection to our citizens Why not have good crop insurance for farmers, weather insurance, life cover, health insurance & protection for all our assets

India needs insurance markets to grow. For a country with an economy of $ 2 trillion, India is woefully underinsured. We need long-term foreign & domestic capital to invest in our insurance industry.

It is critical to protect human life, our productive assets and be a key resource for the countrys infrastructure.

About the author..

The writer SUNIL MEHTA is former country head and CEO of AIG in India

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