Best practices, cash flow ensured

The Cabinet’s clearance for a hike in foreign direct investment in insurance to 49 per cent from 26 per cent has been welcomed and it is expected that the Insurance Bill will sail through Parliament as Union finance minister Arun Jaitley said he had spoken with the Congress and they promised to support the bill. The bill to raise the cap in insurance joint ventures from 26 per cent to 49 per cent was first introduced by the Manmohan Singh government in 2008, but for one reason or the other it could not be enacted. It is hoped that Parliament will pass it without much delay and bring to an end the long wait for the hike.

An estimated Rs 25,000 crore is expected to flow into this cash-starved sector through FDI and it should act as a huge boost to increasing the penetration of insurance which is quite negligible when compared to the size of the population. General insurance covers only 0.78 per cent of the country's population, a marginal rise from 0.67 per cent 10 years ago. Life insurance covers 3.2 per cent of Indians, against 4.1 per cent of Asians. This is miniscule given the need for insurance cover.

Insurance is a necessity, more so for the unemployed, unorganised labour, including farmers and agricultural labourers. Whether hiking FDI in this sector will fill this necessity significantly is to be seen. The need to create awareness of the advantages of insurance is the first step to tapping a larger population, but not much is being done on this score. It is hoped that equal attention will be paid to this factor.

One of the problems that the Indian people faced was misselling of insurance by agents who were more interested in making commissions. Thousands of people lost crore of rupees because of this, until the Insurance Regulatory and Development Authority stepped in to rectify the situation. Now that foreign partners will have a larger stake in joint venture insurance companies, they will hopefully bring in a variety of products to attract investors.

There is also the possibility of several companies going in for listing as with the cap raised listing has been made easy. Listing will lead to healthy corporate governance, which the chairman of the IRDA said would help investors get the best returns on their investment. There is expectation that foreign companies will bring in more than just funds — best practices, risk management techniques, innovatively designed products and services and technology. The industry is in for exciting times.