FDI Tornado: Insurance Next?

After the turmoil over the announcement of hike in FDI limits in retail and aviation sector, it seems that UPA government is all set to go another mile by reintroducing the long overdue Insurance (Amendment) Bill that proposes to raise the FDI limit to 49 per cent. The bill which was passed by Rajya Sabha, may be presented in the Lok Sabha during the coming winter session. If the bill is passed in its present form, it is expected to bring a lot of significant changes in the Indian insurance sector, impacting both consumers and companies. But, let us analyse it rationally to see if it has the potential to bring any revolution.

The parliamentary standing committee which reviewed the bill has already claimed that the proposal to increase FDI cap to 49 per cent in the insurance sector is decided without any ‘sound and objective analysis’. Currently, more than 20 foreign insurance players are operating in India and a hike in the investment limit is not expected to bring more companies to the country. The government’s logic behind opening up the insurance sector is said to be the fact overseas joint venture partners of private sector insurance companies are sitting over cash and eager to invest in the country.

However, Nageswara Rao, CEO, IDBI Federal Life Insurance has different views. He says, “Today, domestic players are no short of capital. So, it is not that they needed this decision. Hence, all I see is a few foreign players raising their stakes in the existing joint ventures, that too, if permitted by their domestic partners.”Rao is not even convinced that the quality of service will improve with the present proposal as he asserts, “All the foreign players are already here for quite some time. Whatever had to happen in terms of quality has already happened.”

However, a consumer can still expect a few things from the proposed regulations. First of all, as the foreign players get a chance to raise their stake in insurance companies, we may see old ventures making way for the new ones. This will create many more options for the consumer to choose from. Hence, the cut-throat competition in the industry may force the players to raise the level and quality of their services. Moreover, liquidity condition in the insurance market will also improve as the foreign capital starts flowing in. Meanwhile, we will have to wait till the winter session of the parliament to see whether or not, the bill gets passed.