Globalisation, liberalisation and privatisation of insurance
GLOBALISATION, LIBERALISATION AND
PRIVATISATION OF INSURANCE
Habib Zafar Khan
LL.B (Rank 1); LL.M (International Trade and Business
Law- Rank 3)
Research Associate, Centre for Air and Space Law
NALSAR University of Law, Hyderabad
MEANING OF INSURANCE
Insurance is a policy from a financial institution that
offers a person, company, or other entity reimbursement
or financial protection against possible future losses or
Precautionary measure against future contingent losses.
MAIN BRANCHES OF INSURANCE
Holiday and Travel Insurance,
Livestock and Bloodstock Insurance,
Private health insurance,
CLASSIFICATION OF INSURANCE SERVICES
GATS and Insurance:
Financial services include all insurance and insurance-
related services, and all banking and other financial
services (excluding insurance) . Financial services include
the following activities:
Insurance and insurance-related services
(i) Direct insurance (including co-insurance) :
(ii) Reinsurance and retrocession;
(iii) Insurance intermediation, such as brokerage and
(iv) Services auxiliary to insurance, such as consultancy,
actuarial, risk assessment and claim settlement
Penguin Dictionary of Economics:
“Globalization Stresses the geographical dispersion of
industrial and service activities (for example research
and development, sourcing of inputs, production,
distribution) and the cross border networking of
companies (for example through joint ventures and the
sharing of assets.”
Globally economic integration and Interdependence i.e.
Single Market Economy. It includes Investment,
Unrestricted trade,Cross border economic activities,
Movement of capital, manpower, management, technology,
labour, consumption, services etc.
HISTORY OF GLOBALISATION
1960 till now – Rapid Development
1991 Adopted by India, Finance Minister-Dr. Manmohan
Besides free Trade, Capital flows, Investments,
Industrialization and commercialization, has taken place in
era of Globalisation.
Impact of Globalization
Greater Innovation- Adaptability and utilisation of
Resource mobility-reduced the cost of production and
boosted competition across the border
Deregulation is the easing of regulation i.e. reduction of
existing limits on regulation such as for import, foreign
investment, trade, commerce etc.
Deregulation facilitates an increase in the levels of
Entry of reputed international insurers.
Expansion of the Insurance market.
Adoption of more innovative approaches to distribution and
product development. 7
Liberalization results from the deregulation process.
The more profound deregulation on the market the wider
spread might be liberalization within certain economic
Instruments of Liberalization:
Foreign investment including capital
Dismantling Entry barriers: tariff and non-tariff barriers
Simplifications of customs measures,
Reduction in physical restrictions on imports
Reforming financial system and opening up financial
market to private (domestic and foreign) players
Removing controls on foreign capital flow to the country 8
oMobilization of domestic savings
oImprovement in financial
oFacilitation of production and
oImprovement in the efficiency of
Local insurance market
Improvement in service to
Improvement in the efficiency of
the insurance market
Transfer of knowledge in the areas
of technology and management
Increase in the
How does Liberalisation help?
‘Privatization’ is the transfer of care, custody, and
control of government assets to the private sector to
perform the same or very similar functions the
GLOBALISATION OF INSURANCE MARKET
The globalization of the insurance markets due to
liberalization and deregulation.
Strong increase in the demand for insurance in the emerging
In early 90s, Radical reforms in Latin America and Central
and Eastern Europe
In Asian countries the liberalization process gained
momentum following the Asian crisis (1997).
Process favoured and speeded up by multilateral
agreements, such as the WTO, EU and NAFTA.
1997 - an agreement of Liberalisation of financial services
following which 102 countries committed to remove entry
barriers and liberalise their markets.
The GATS agreement offers legal security and protection to
global insurance players.
DRIVING FORCES OF INSURANCE MARKET GLOBALIZATION
Why foreign Insurance Company in Domestic Market?
“Push factors” Insurance Companies move out to emerging
markets due to Increasing Global Trade , Growing Direct
Investment , Potential Future Growth in Emerging Markets ,
Saturation in industrialized countries and Strong growth in
emerging countries and expected Efficiency Gains through
Diversification , Economics of scale etc.
“Pull factors” are the motives behind allowing the foreign
companies to operate in local market. Emerging Markets have
Strong Economic growth and Trade, and there are substantial
requirements of capital in Emerging Markets to cover major risks.
BENEFIT FOR HOST COUNTRY
Economy related benefits to the local country
Improves the financial Stability, Trade and Production.
Paces the mobilization of savings, capital and resources.
Insurance market related benefits
Capital structure, Management efficiency of entire insurance industry improves
because foreign companies bring fresh capital with them.
Market efficiency improves due to information dissemination, global operating
knowledge and increased competition.
Range of available products increases because foreign companies bring with
them a wide range of products and product development expertise.
Customers’ service improves.
Increased competition, technology led service, and cost competition finally
benefits the consumers.
Globalisation also improves Regulatory and Governance system.
It also improves market conduct and Ethical Business Standard. 13
PROBLEMS FOR INSURANCE PLAYERS
Small number of global players(20 to 30) -UNEP (2002).
National operation rather than a global.
Another 70 companies operate significantly in more than
one continent through branches.
Only 1.2% of global insurance premium comes from
across border business.
Complying with increasing regulations
Stricter corporate governance standards
Leading Global Companies are:
INSURANCE IN EU AND US
EU - Three Directives
First Generation of Insurance Directives: the freedom of establishment
limited by the Host Country Control
Non-life directive (1973)
Life directive (1979)
Second generation : the freedom of movement of services.
Non-life directive (1988)
Third Generations: the Single European License and the Home
Non-life directive (1992)
Life directive (1992)
Note: The introduction of Euro in 1999 also profoundly changed the
economic landscape for financial services firms in the European
ALLIANCES IN INDUSTRY
Maximum mergers and acquisitions in the insurance sector
have taken place in the USA followed by UK.
From 1990 to 2003 – 606 M&A’s took place in US alone
followed by UK at 217.
In EU – After the 3rd Directive i.e. during 1990 to 2002 -
2,595 M&As involving European insurance companies all
over the world.
HISTORY OF INSURANCE INDUSTRY IN INDIA
1912 The Indian Life Insurance Company Act
1938 The Insurance Act: Comprehensive Act to regulate insurance
business in India
1956 Nationalization of life insurance business in India
1972 Nationalization of general insurance business in India
1993 Setting up of Malhotra Committee
1994 Recommendations of Malhotra Committee
1995 Setting up of Mukherjee Committee
1996 Setting up of (interim) Insurance Regulatory Authority
(IRA)Recommendations of the 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 channeling funds to the infrastructure
1998 The cabinet decides to allow 40% foreign equity in private insurance
companies-26% to foreign companies and 14% to NRI’s, OCB’s and
1999 The Standing Committee headed by Murali Deora decides that foreign
equity in private insurance should be limited to 26%. The IRA bill is
renamed the Insurance Regulatory and Development Authority (IRDA)
1999 Cabinet clears IRDA Bill
2000 President gives Assent to the IRDA Bill
INDIA AND INSURANCE SECTOR
IRDA Act of 1999 ended the monopoly power previously held by
the state-owned insurers.
IRDA has so far issued 29 licenses (both life and non-life) to new
private Indian insurance companies, most of which have global
insurance companies as partners.
FDI cap is 49% under the automatic route subject to obtaining
license from IRDA.
In the case of auxiliary services like consultancy, actuarial and
risk assessment, foreign equity up to 51 per cent has been
Number of insurers - 44 (End-March 2009)
22 insurers (1 in public sector and 21 in private sector) in
life insurance business
21 insurers (6 in public and 15 in private sector) in non-
life insurance business
1 re-insurance company viz., General Insurance
Corporation of India in the public sector.
19 out of 21 life insurance companies set up in the private
sector since 2000, are in joint venture with foreign partners.
14 out of 15 new private insurers in the non-life segment,
have been opened in collaboration with the foreign
Total– 33 having FCs
Indian Insurance company opening branch in foreign
FOREIGN PLAYERS IN
INSURERS FOREIGN PARTNERS
HDFC Standard Life Insurance Co. Ltd. Standard Life Assurance, UK
Max New York Life Insurance Co. Ltd. New York Life, USA
ICICI-Prudential Life Insurance Co. Ltd. Prudential , UK
Om Kotak Life Insurance Co. Ltd. Old Mutual, South Africa
Birla Sun Life Insurance Co. Ltd. Sun Life, Canada
Tata-AIG Life Insurance Co. Ltd. American International Assurance Co.,
SBI Life Insurance Co. Ltd. BNP Paribas Assurance SA, France
ING Vysya Life Insurance Co. Ltd. ING Insurance International B.V.,
Allianz Bajaj Life Insurance Co. Ltd. Allianz, Germany
Metlife India Insurance Co. Ltd. Metlife International Holdings Ltd., USA
INSURERS FOREIGN PARTNERS
Reliance Life Insurance Co. Ltd. (Earlier
AMP Sanmar Life Insurance Company
from 3.1.02 to 29.9.05)
AVIVA Aviva International Holdings Ltd., UK
Sahara Life Insurance Co. Ltd. ---
Shriram Life Insurance Co. Ltd. Sanlam, South Africa
Bharti AXA Life Insurance Co. Ltd. AXA Holdings, France
Future Generali India Life Insurance
Pantaloon Retail Ltd.; Sain Marketing
Network Pvt. Ltd. (SMNPL),
IDBI Fortis Life Insurance Company Ltd. Fortis, Netherlands
Canara HSBC OBC Life Insurance
Aegon Religare Life Insurance Company
DLF Pramerica Life Insurance Co. Ltd. Prudential of America, USA
FOREIGN PLAYERS IN NON-LIFE SECTOR
Royal Sun Alliance, UK
Millea Asia Pte. Ltd., Japan
American International Assurance
Mitsui Sumitomo, Japan
Fairfax through its affiliates,
Individual Promoters, UAE
Apollo Hospital Enterprises Ltd.;
Apollo Energy Company Ltd.; PCR
Investments Ltd. & DKV, Germany
(August 3, 2007)
Pantaloon Retail Ltd.; Shendra
Infrastructure Development Ltd.
(SIDL); Participatie Maatschapij
Graafsschap Holland NV,
Santam, South Africa
AXA Holdings, France
INDIAN NON-LIFE INSURANCE COS.
New India Assurance Co. Ltd.
National Insurance Co. Ltd.
The Oriental Insurance Co. Ltd.
United India Insurance Co. Ltd.
Export Credit Guarantee Corporation Ltd.
Agriculture Insurance Co. of India Ltd. 25
Insurance Laws (Amendment) Bill, 2008 and Life
Insurance Corporation (Amendment) Bill, 2008 introduced
ET news report- 18 Sep 2009
IRDA, is in the process of finalising guidelines for
mergers and acquisitions in the insurance sector.
Also that the FDI cap may be increased from 49% to 76%
or even upto 100%
Can Foreign Insurance Companies / Banks set up Liaison
Office in India?
Ans. Foreign Insurance companies can establish Liaison Offices
in India only after obtaining approval from the Insurance
Regulatory and Development Authority (IRDA). 26
“If a child, a spouse, a life partner, or a parent depends
on you and your income, you need life insurance.”