The Cabinet's approval to increase the FDI limit in the insurance sector to 49 percent is expected to benefit the companies first and consumers later.
Experts said that the move will bring the much needed long-term capital into the companies, but it will take time for them to introduce newer products and services for the consumer.
The increase in the limit has come with a rider that the management control will remain in the hands of Indian promoters. The amendment to the Insurance Laws (Amendment) Bill will now be taken up in Parliament.
According to KPMG, the higher cap could fetch investments up to Rs 25,000 crore.
"Once there is proper clarity on the interpretation of control by Indian promoter, the additional foreign capital expected across life, health and general insurance companies is between Rs 20,000 to 25,000 crores," Shashwat Sharma, KPMG (India) Partner, said.
Welcoming the government's move Kshitij Jain, MD & CEO, Exide Life Insurance, said the Indian private life insurance companies have in the last 12 years received over Rs 34,000 crores of capital.
The capital requirement to fuel growth over the next 5-10 years will be as much or more, he said.
"With an increase in the limit, the insurance industry expects to get not only the capital but also technical and product expertise of foreign partners. FDI in insurance would also increase the penetration of insurance in India, where the penetration of insurance is abysmally low," Jain said.
The insurance sector was opened up for private sector in 2000 after the enactment of the Insurance Regulatory and Development Authority Act, 1999.
This Act permitted foreign shareholding in insurance companies to the extent of 26 per cent with an aim to provide better insurance coverage and to augment the flow of long-term resources for financing infrastructure.
However, as the companies expanded their capital requirement also increased. Lack of funds has limited the ability of these companies to increase the insurance penetration in the country.
Deepak Yohannan, CEO, MyInsuranceClub.com, says that the companies will now be able to spend on product innovation and providing better services.
"Though there is no direct correlation in FDI capital inflow to end consumer, in the long run, consumers will benefit with better products and service. Companies will have more capital for improving technology, innovation, processes and training of agents -- the things they could not do due to limited capital earlier," he said.
He, however, expects such benefits for consumers to come in only in the long run.
Yashish Dahiya, co-founder and CEO, Policybazaar.com, concurs that the companies should now be able improve their product offerings.
"I am expecting better quality products to come into insurance space, with more capital coming in," he said.
However, a section of the experts also had a word of caution for the companies.
“Many international insurance companies will enter India, after all we not only have more volumes but also growth potential. This means, there will be another bout of increased competition among players, due to which companies will face margin pressures," Rahul Aggarwal, CEO, Optima Insurance Brokers toldFirstbiz.
But that is just a concern in the long term. As of now, there is enough scope for growth for all the companies because, as Jain of Exide Life Insurance says, penetration of insurance in the country is abysmally low. According to him, insurance premium is at about 3 percent of the GDP as against the global average of about 8 percent.
That is the reason the companies are so bullish about this decision. They expect more multinational companies to flock to India to tap this potential.
All in all, it is advantage insurance companies first. Consumers will have to wait a little longer for the benefits.
(Original Source - http://firstbiz.firstpost.com/corporate/increasing-fdi-in-insurance-to-49-what-it-means-for-corporates-and-you-91917.html)