The insurance industry has welcomed the finance minister’s announcement of 100% foreign direct investment (FDI) for insurance intermediaries. Market participants believe that this proposal would enable innovation in insurance distribution and bring in more technical innovation and global best practices in the insurance industry.
Indranath Bishnu, partner, Cyril Amarchand Mangaldas says, “It is a positive step as stakeholders have been lobbying for this change for quite some time now. Unlike insurance companies, insurance brokers are not entrusted with the management of public wealth. In light of this, the liberalisation of foreign investment in insurance brokers, though overdue, is well justified. Once the legislative changes come into effect, alongside fresh capital, the sector can look forward to the creation of new jobs, greater sharing of knowhow, technical innovation and global best practices. Better brokers means better access to insurance products, which has been the need of the hour for the Indian public and the Indian economy.”
Currently 49% of FDI is allowed for insurance intermediaries which includes insurance brokers, reinsurance brokers, insurance consultants, corporate agents, third party administrator, surveyors and loss assessors. Amit Jain, president, Personal Lines, Bancassurance & Affinity and Marketing, Liberty General Insurance says, “This move will attract the global insurance distribution companies to set their shops without worrying about finding the suitable Indian partner and ownership and control issues.”
He also added that, large insurance distribution companies will help in increasing the insurance penetration, as despite opening of insurance sector to private sector about 20 years ago, insurance awareness and penetration has not reached optimum level.
Insurance penetration is as low as about 3% in life insurance sector and about 1% in general insurance sector. Data by Insurance Regulatory and Development Authority of India (Irdai) shows that there are over 430 brokers which includes, direct, composite and reinsurance as on June, 2018. However, some players believes that this announcement will not help increasing insurance penetration in India.
Supriya Rathi, promoter director, Anand Rathi Insurance Brokers says, “100% FDI in insurance intermediaries is not going to increase the insurance penetration in India as they will not be focusing on micro insurance or broking into smaller cities but focus more on servicing large insured on their large policies or focus on reinsurance. Previously when the FDI was increased from 26% to 49%, only two foreign players increased their stakes in their insurance broking entities. This move will likely benefit just the top 2-3 global insurance brokers already present in the country and will increase foreign dominance in the insurance intermediary space.”
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