Implications of Fdi in Insurance Sector in India

Topics: Investment, Insurance, Economics Pages: 4 (1574 words) Published: January 8, 2013
Implications of FDI in Insurance
To study the impact of FDI in insurance we first look at the how the Indian insurance sector has evolved over the years. Indian insurance sector has experienced different phases from being an open competitive market to being nationalized and back to deregulation. The Indian insurance story began in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Kolkata. In the year 1912 the Indian Life Insurance Companies Act came into existence and laid out policies and procedures to control insurance business in country. It was later amended in 1938 to protect the public. The major change came in 1956 when the central government 245 private insurers and formed the Life Insurance Corporation (LIC) of India. In 1972 the general insurance business was also nationalized. Problems facing the Indian Insurance Sector:

The government’s intention was to create a monopoly and protect it from foreign and private competition. So, what were the implications of such a conservative approach? Insurance sector faced problems such as capital scarcity, poor product quality and technological obsolescence. In the year 2000, life insurance penetration in India stood at an abysmal 2.4%. (Table 1, Figure 1). There is a huge lack of proper awareness regarding the need of insurance. Insurance premiums are looked at as a means of tax evasion and savings. The true importance of insurance often gets overlooked. In addition to this, India is a country with a huge lower middle class section. In their daily struggle to try and get both the ends meet, insurance premiums come as a luxury. The inflexible and expensive plans offered in the market make it more difficult for the common people to invest. The situation in rural India is even worse. A small fraction of the people have bank accounts, and the concept of insurance is very much alien. People have little disposable income, and the only form of life insurance is joint family...
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