1. INSURANCE AND BANKING
FDI and Indian Government policy
related to Insurance
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2. OBJECTIVE OF THE PAPER
India is the third most attractive foreign direct
investment destination in the world. The Indian
insurance companies offer a comprehensive range of
insurance plans. Due to the growing demand for
insurance, more and more insurance companies are
now emerging in the Indian insurance sector. The
present paper aims to study the pattern of FDI in
Insurance Sector and the Government regulation in
the said sector. The paper studies current trend in
Insurance sector, the challenges and the prospects
ahead
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3. INSURANCE REGULATION IN INDIA
• Insurance in India started without any regulations
in the nineteenth century
• After the independence, the Life Insurance
Company was nationalized in 1956, and then the
general insurance business was nationalized in
1972
• Only in 1999 private insurance companies were
allowed back into the business of insurance with a
maximum of 26 per cent of foreign holding
(World Bank Economic Review 2000).
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4. CONTD.
• Insurance in India used to be tightly regulated and
monopolized by state-run insurers.
• The Insurance Regulatory and
Development Authority (IRDA)
Act of 1999 was passed
• The insurance business was
opened on two fronts
• Firstly, domestic private-sector
companies were permitted to
enter both life and non-life insurance business
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5. REGULATION CONTD……
• Secondly, foreign Companies were allowed to
participate, albeit with a cap on shareholding
at 26%
• Since its inception IRDA has been taking steps
to promote insurance sector and also protect
interest of people
• A number of reforms have been introduced by
IRDA regarding regulation of agents,deciding
about premium, marketing strategies etc
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6. MILESTONES Of INSURANCE
REGULATIONS IN ThE 20Th
CENTURy
• 1912 First piece of insurance regulation promulgated –
Indian Life Insurance Company Act, 1912
• 1928 Promulgation of the Indian Insurance Companies
Act
• 1938 Insurance Act introduced, the first comprehensive
legislation to regulate insurance business in India
• 1956 Nationalisation of life insurance business in India
• 1972 Nationalisation of general insurance business in
India
• 1993 Setting-up of the Malhotra Committee
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7. • 1994 Recommendations of Malhotra Committee released
• 1995 Setting-up of Mukherjee Committee
• 1996 Setting-up of an (interim) Insurance Regulatory
Authority (IRA)
• 1997 Mukherjee Committee Report submitted but not made
public
• 1997 The Government gives greater autonomy to LIC, GIC
and its subsidiaries with regard to the restructuring of boards
and flexibility in investment norms aimed at channellizing
funds to the infrastructure sector
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8. • 1998 The cabinet decides to allow 40% foreign equity in
private insurance companies – 26% to foreign companies and
14% to non-resident &investors (FIIs)
• 1999 The Standing Committee headed by Murali Deora
decides that foreign equity in private insurance should be
limited to 26%
• The IRA Act was renamed as the Insurance Regulatory and
Development Authority (IRDA) Act
• 1999 Cabinet clears IRDA Act
• 2000 President gives assent to the IRDA Act
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9. INSURANCE IN INDIA
• Insurance in India remains at an early stage of development
• It can be postulated that by 2014 the penetration of life
insurance in India will increase to 4.4% and that of non-life
insurance to 0.9%
• Indian insurance market is the 19th largest globally and ranks
5th in Asia
• The public sector Insurance companies have continued to
dominate the insurance market
• Enjoying over 90 per cent of the market share. In fact, the
LIC, which is the only public sector life insurer, enjoys over
98 per cent of the market share in Life insurance
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10. Type of NOS OF PUBLIC NOS OF PRIVATE TOTAL
Business SECTOR SECTOR
COMPANIES COMPANIES
Life insurance 01 12 13
General 06 08 14
insurance
Reinsurance 01 - 01
Total 08 20 28
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11. Market Share of Life and non-Life Insurance Sectors
INSURANCE SECTOR 2001-2002 2002-2003
PRIVATE
LIFE INSURANCE SECTOR 0.54 1.99
PUBLIC
99.46 98.01
SECTOR
PRIVATE 3.68 8.64
SECTOR
GENERAL
INSURANCE 91.36
PUBLIC
SECTOR 96.32
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12. CONTD..
• The Indian insurance market it accounts for only
2.5% of premiums in Asia, it has the potential to
become one of the biggest insurance markets in the
region
• India is among the most promising emerging
insurance markets in the world
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13. fDI IN
• India is the third most attractive foreign
INSURANCE
direct investment destination in the
world
• The present figure of FDI in insurance
sector is 26%
• The proposal to hike that figure to 49%
• India received approximately US$25
billion worth of FDI in 2007-2008; that
number increased to US$27 billion in
2008-2009
• While no target has been fixed for the
financial year 2009-10, so far FDI
inflows for April and May 2009 have
surpassed US$4.4 billion
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14. ThE SWOT ANALySIS Of INDIAN
ECONOMy fOR INSURANCE SECTOR
• The present increase in FDI would benefit Indian
economy
• There are vast opportunities in Indian market both for
domestic and foreign players
• The insurance sector in India is slated to grow to beyond
Seventy Billion Dollars by the fiscal year 2011
• Despite the formidable success achieved by LIC, the
government has noted that only by bringing in more FDI
can they create an environment for Investment in
insurance by the average middle class Indian and
otherwise
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15. SWOT ANALySIS
STRENGHTS WEAKNESS
• A range of new products had been • India is among the lowest-spending
launched to cater to different nations in Asia in respect of purchasing
segments of the market, while insurance (China, which spent USD 36.3
traditional agents were per capita on insurance products &
supplemented by other channels Indian spent USD 16.4)
including the Internet and bank • Even after the liberalization of the
branches insurance sector, the public sector
Insurance companies have continued to
• These developments were dominate the insurance market
instrumental in propelling • In the long run, other forms of non-price
business growth, in real terms, of competition like aggressive
19% in life premiums and 11.1% advertisement wars are likelyTo lead to
in non-life premiums between increasing costs, eventually harming the
1999 and 2003. interests of the consumers.
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16. SWOT CONTD…
STRENGHTS WEAKNESS
• India has a large population • A key challenge for India’s
non-life insurance sector will
with an increase in its per be to reform the existing tariff
capita income structure. From a pricing
perspective, the Indian non-life
• India’s middle income is segment is still heavily
rapidly increasing emerging regulated
as a profitable market • Reinsurance is only provided
by GIC
• While the insurance business is
highly concentrated in India,
the share of foreign companies
is low
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17. OPPORTUNITIES ThREATS
• India’s improving economic • Between 1985 and 2003,
fundamentals will support economic losses in India due
faster growth in per capita to natural catastrophes
income in the coming years, averaged around USD 1.2
which will translate into billion or 0.4% of GDP every
stronger demand for insurance year
products • Floods were the main peril,
• Strong growth can be sustained accounting for 40%
for 30–40 years before the ofcumulative losses over the
market reaches saturation period, followed by storms
(35%) and earthquakes (20%)
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18. OPPORTUNITIES ThREATS
• there is plenty of room for CUMALATIVE CATASTROPHIC
LOSES 1985-2003
growth in personal accident,
health and other liability
classes
• Rising household income and
risk awareness will be the key
catalysts to spurring more
demand for these lines of
business in the future
• Health insurance could
potentially have an important
role in driving insurance
market development forward
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19. • the largely underserved • strong growth prospects
rural sector holds great pose pressure on the
promise for both life and industry, and the economy
non-life insurers at large, to better manage
the exposure to natural
perils
• Questionable Reputation of
the Foreign Partners
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20. SUGGESTIONS
To begin with, India needs to further liberalize investment
regulations on insurers to strike a proper balance between insurance
solvency and investment flexibility
Furthermore, both the life and non-life insurance sectors would
benefit from less invasive regulations
In addition, price structures need to reflect product risk. Obsolete
regulations on insurance prices will have to be replaced by risk-
differentiated pricing structures
There is huge untapped potential, for example, in the largely
undeveloped private pension market. At the moment, less than 11%
of the working population in India is eligible for participation in any
formal old-age retirement scheme. Private insurers will have a key
role to play in serving the large number of informal sector workers.
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21. CONTD……..
Price liberalization will be needed to improve underwriting
efficiency and risk management
International reinsurance
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22. CONCLUSION
On the regulatory side, there are outstanding issues concerning
solvency regulations, further liberalizing of investment rules,
caps on foreign equity shareholdings5 as well as the
enforcement of price tariffs in the non-life insurance sector
The proliferation of bancassurance is rapidly changing the
way insurance products are distributed in India. This will also
have strong implications on the process of financial
convergence and capital market development in India
Health insurance is still underdeveloped in India but offers
huge potential, as there will be increasing needs to purchase
private health cover to supplement public programmes
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23. CONCLUSION….
Likewise, the deficiencies in current pension schemes should
offer significant opportunities to private providers
With the majority of the population still residing in rural areas,
the development of rural insurance will be critical in driving
overall insurance market development over the longer term
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